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Pensions and Other Benefits (Tables)
 12 Months Ended
Dec. 31, 2018
Retirement Benefits [Abstract]  
Net Periodic Benefit Cost for DB Pension Plans and Other Benefits The elements of net periodic benefit cost for DB pension plans and other benefits recognized in the year include the following components:
 
Pensions
 
Other benefits
(in millions of Canadian dollars)
2018

2017

2016

 
2018

2017

2016

Current service cost (benefits earned by employees)
$
120

$
103

$
106

 
$
12

$
12

$
11

Other components of net periodic benefit cost (recovery):
 
 
 
 
 
 
 
Interest cost on benefit obligation
438

451

467

 
19

20

21

Expected return on fund assets
(955
)
(893
)
(846
)
 
—

—

—

Recognized net actuarial loss
114

153

190

 
2

(1
)
7

Amortization of prior service costs
(2
)
(5
)
(7
)
 
—

1

1

Total other components of net periodic benefit (recovery) cost
(405
)
(294
)
(196
)
 
21

20

29

Net periodic benefit (recovery) cost
$
(285
)
$
(191
)
$
(90
)
 
$
33

$
32

$
40
Information About DB Pension Plans and Other Benefits Information about the Company’s DB pension plans and other benefits, in aggregate, is as follows:
 
Pensions
 
Other benefits
(in millions of Canadian dollars)
2018

2017

 
2018

2017

Change in projected benefit obligation:
 
 
 
 
 
Benefit obligation at January 1
$
11,679

$
11,399

 
$
518

$
510

Current service cost
120

103

 
12

12

Interest cost
438

451

 
19

20

Employee contributions
47

44

 
1

1

Benefits paid
(640
)
(648
)
 
(33
)
(35
)
Foreign currency changes
20

(15
)
 
2

(3
)
Plan amendments and other
—

1

 
—

—

Actuarial (gain) loss
(292
)
344

 
(18
)
13

Projected benefit obligation at December 31
$
11,372

$
11,679

 
$
501

$
518


 
Pensions
 
Other benefits
(in millions of Canadian dollars)
2018

2017

 
2018

2017

Change in fund assets:
 
 
 
 
 
Fair value of fund assets at January 1
$
12,808

$
12,196

 
$
4

$
5

Actual return on fund assets
82

1,183

 
—

(1
)
Employer contributions
36

46

 
32

34

Employee contributions
47

44

 
1

1

Benefits paid
(640
)
(648
)
 
(33
)
(35
)
Foreign currency changes
16

(13
)
 
—

—

Fair value of fund assets at December 31
$
12,349

$
12,808

 
$
4

$
4

Funded status - plan surplus (deficit)
$
977

$
1,129

 
$
(497
)
$
(514
)
Funded Status of Pension Plans
 
2018
 
2017
(in millions of Canadian dollars)
Pension
plans in
surplus

Pension
plans in
deficit

 
Pension
plans in
surplus

Pension
plans in
deficit

Projected benefit obligation at December 31
$
(10,884
)
$
(488
)
 
$
(11,174
)
$
(505
)
Fair value of fund assets at December 31
12,127

222

 
12,581

227

Funded Status
$
1,243

$
(266
)
 
$
1,407

$
(278
)
Amounts Recognized in the Company's Consolidated Balance Sheets Amounts recognized in the Company’s Consolidated Balance Sheets are as follows:
 
Pensions
 
Other benefits
(in millions of Canadian dollars)
2018

2017

 
2018

2017

Pension asset
$
1,243

$
1,407

 
$
—

$
—

Accounts payable and accrued liabilities
(11
)
(10
)
 
(34
)
(33
)
Pension and other benefit liabilities
(255
)
(268
)
 
(463
)
(481
)
Total amount recognized
$
977

$
1,129

 
$
(497
)
$
(514
)
Amounts Recognized in Accumulated Other Comprehensive Losses Amounts recognized in accumulated other comprehensive loss are as follows:
 
Pensions
 
Other benefits
(in millions of Canadian dollars)
2018

2017

 
2018

2017

Net actuarial loss:
 
 
 
 
 
Other than deferred investment gains
$
2,233

$
2,555

 
$
61

$
81

Deferred investment gains
611

(178
)
 
—

—

Prior service cost
—

(2
)
 
2

2

Deferred income tax
(797
)
(676
)
 
(16
)
(21
)
Total (Note 8)
$
2,047

$
1,699

 
$
47

$
62
Weighted-average Actuarial Assumptions Used Weighted-average actuarial assumptions used were approximately:
(percentages)
2018
 
2017
 
2016
 
Benefit obligation at December 31:
 
 
 
 
 
 
Discount rate
4.01
 
3.80
 
4.02
 
Projected future salary increases
2.75
 
2.75
 
2.75
 
Health care cost trend rate
6.00
(1) 
7.00
(2) 
7.00
(2) 
Benefit cost for year ended December 31:
 
 
 
 
 
 
Discount rate
3.80
 
4.02
 
4.22
 
Expected rate of return on fund assets (4)
7.75
 
7.75
 
7.75
 
Projected future salary increases
2.75
 
2.75
 
3.00
 
Health care cost trend rate
7.00
(2) 
7.00
(2) 
7.00
(3) 
(1) The health care cost trend rate is assumed to be 6.00% in 2019, and then decreasing by 0.50% per year to an ultimate rate of 5.00% per year in 2021 and thereafter.
(2) The health care cost trend rate was previously assumed to be 7.00% in 2017 and 2018, and then decreasing by 0.50% per year to an ultimate rate of 5.00% per year in 2022 and thereafter.
(3) The health care cost trend rate was previously assumed to be 6.50% in 2017 (7.00% in 2016 and 2015), and then decreasing by 0.50% per year to an ultimate rate of 5.00% per year in 2020 and thereafter.
(4) The expected rate of return on fund assets that will be used to compute the 2019 net periodic benefit credit is 7.50%.
Pension Plan Asset Allocation and Current Weighted Average Policy Range The Company’s pension plan asset allocation, the weighted average asset allocation targets and the weighted average policy range for each major asset class at year end, were as follows:
 
Asset allocation
target
Policy
range
Percentage of plan assets
at December 31
Asset allocation (percentage)
2018
2017
2018
2017
2018
2017
Cash and cash equivalents
1.2
0.5
0 – 10
0 – 5
1.1
1.4
Fixed income
24.1
29.5
20 – 40
20 – 40
25.6
26.1
Public equity
45.1
46.0
35 – 55
35 – 55
50.2
53.3
Real estate and infrastructure
9.8
12.0
4 – 13
4 – 20
7.7
6.2
Private debt
9.8
—
4 – 13
—
1.3
—
Absolute return
10.0
12.0
4 – 13
0 – 18
14.1
13.0
Total
100.0
100.0

 
100.0
100.0
Summary of Defined Benefit Pension Plan Assets at Fair Value The following is a summary of the assets of the Company’s DB pension plans at December 31, 2018 and 2017. As of December 31, 2018 and 2017, there were no plan assets classified as Level 3 valued investments.
 
Assets Measured at Fair Value
Investments
measured at NAV(1)

Total Plan
Assets

(in millions of Canadian dollars)
Quoted prices in
active markets
for identical assets (Level 1)

Significant other
observable inputs (Level 2)

December 31, 2018
 
 
 
 
Cash and cash equivalents
$
127

$
12

$
—

$
139

Fixed income
 
 
 
 
• Government bonds(2)
101

1,281

—

1,382

• Corporate bonds(2)
128

1,606

—

1,734

• Mortgages(3)
41

—

—

41

Public equities
 
 
 

• Canada
1,287

—

—

1,287

• U.S. and international
4,892

24

—

4,916

Real estate(4)
—

—

697

697

Infrastructure(5)
—

—

259

259

Private Debt(6)
—

—

162

162

Derivative instruments(7)
—

(7
)
—

(7
)
Absolute return(8)
 
 
 

• Funds of hedge funds
—

—

1,189

1,189

• Multi-strategy funds
—

—

286

286

• Credit funds
—

—

32

32

• Equity funds
—

—

232

232

 
$
6,576

$
2,916

$
2,857

$
12,349

December 31, 2017
 
 
 
 
Cash and cash equivalents
$
165

$
11

$
—

$
176

Fixed income
 
 
 
 
• Government bonds(2)
—

2,087

—

2,087

• Corporate bonds(2)
—

1,215

—

1,215

• Mortgages(3)
—

45

—

45

Public equities
 
 
 

• Canada
1,467

62

—

1,529

• U.S. and international
5,254

42

—

5,296

Real estate(4)
—

—

622

622

Infrastructure(5)
—

—

176

176

Absolute return(8)
 
 
 
 
• Funds of hedge funds
—

—

681

681

• Multi-strategy funds
—

—

515

515

• Credit funds
—

—

252

252

• Equity funds
—

—

214

214

 
$
6,886

$
3,462

$
2,460

$
12,808

(1) Investments measured at net asset value ("NAV"):
Amounts are comprised of certain investments measured using NAV (or its equivalent) as a practical expedient. These investments have not been classified in the fair value hierarchy.
(2) Government & Corporate Bonds:
Fair values for bonds are based on market prices supplied by independent sources as of the last trading day.
(3) Mortgages:
The fair values of mortgages are based on current market yields of financial instruments of similar maturity, coupon and risk factors.
(4) Real estate:
Real estate fund values are based on the NAV of the funds that invest directly in real estate investments. The values of the investments have been estimated using the capital accounts representing the plan’s ownership interest in the funds. Of the total, $583 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2017 – $542 million). The remaining $114 million is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying real estate investments (2017 – $80 million). As at December 31, 2018, there are $38 million of unfunded commitments for real estate investments (December 31, 2017 – $53 million).
(5) Infrastructure:
Infrastructure fund values are based on the NAV of the funds that invest directly in infrastructure investments. The values of the investments have been estimated using the capital accounts representing the plans' ownership interest in the funds. Of the total, $130 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2017 - $nil). The remaining $129 million is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying infrastructure investments (2017 - $176 million). It was estimated that the investments in these funds will be liquidated over the weighted-average period of approximately one year.
(6) Private debt:
Private debt fund values are based on the NAV of the funds that invest directly in private debt investments. The values of the investments have been estimated using the capital accounts representing the plans' ownership interest in the funds. The funds are subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days. As at December 31, 2018, there are $608 million of unfunded commitments for private debt investments (December 31, 2017 – $nil).
(7) Derivatives:
The investment managers may utilize the following derivative instruments: equity futures to replicate equity index returns (Level 2); currency forwards to partially hedge foreign currency exposures (Level 2); bond forwards to reduce asset/liability interest rate risk exposures (Level 2); interest rate swaps to manage duration and interest rate risk (Level 2); credit default swaps to manage credit risk (Level 2); and options to manage interest rate risk and volatility (Level 2). The Company may utilize derivatives directly, but only for the purpose of hedging foreign currency exposures. As at December 31, 2018, there are currency forwards with a notional value of $1,226 million and a negative fair value of $7 million (December 31, 2017 – $nil).
(8) Absolute return:
The value of absolute return fund investments is based on the NAV reported by the fund administrators. The funds have different redemption policies and periods. The funds have different redemption policies with redemption notice periods varying from 60 to 95 days and frequencies ranging from monthly to triennially.
Summary of Defined Benefit Pension Plan Assets Measured at FV Using Unobservable Inputs During 2017 the portion of the assets of the Company’s DB pension plans measured at fair value using unobservable inputs (Level 3) changed as follows:
(in millions of Canadian dollars)
Real Estate

As at January 1, 2017
$
437

Disbursements
(43
)
Net realized gains
7

Decrease in net unrealized gains
(7
)
Net transfers (out of) Level 3
(394
)
As at December 31, 2017
$
—
Estimated Future DB Pension and Other Post-retirement Benefit Payments The estimated future defined benefit pension and other benefit payments to be paid by the plans for each of the next five years and the subsequent five-year period are as follows:
(in millions of Canadian dollars)
Pensions

Other benefits

2019
$
624

$
34

2020
628

32

2021
632

31

2022
636

30

2023
640

30

2024 – 2028
3,246

144