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Pensions and Other Benefits (Tables)
 12 Months Ended
Dec. 31, 2019
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)
2019

2018

2017

 
2019

2018

2017

Current service cost (benefits earned by employees)
$
107

$
120

$
103

 
$
11

$
12

$
12

Other components of net periodic benefit cost (recovery):
 
 
 
 
 
 
 
Interest cost on benefit obligation
450

438

451

 
20

19

20

Expected return on fund assets
(947
)
(955
)
(893
)
 
—

—

—

Recognized net actuarial loss
84

114

153

 
12

2

(1
)
Amortization of prior service costs
(1
)
(2
)
(5
)
 
1

—

1

Total other components of net periodic benefit (recovery) cost
(414
)
(405
)
(294
)
 
33

21

20

Net periodic benefit (recovery) cost
$
(307
)
$
(285
)
$
(191
)
 
$
44

$
33

$
32
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)
2019

2018

 
2019

2018

Change in projected benefit obligation:
 
 
 
 
 
Benefit obligation at January 1
$
11,372

$
11,679

 
$
501

$
518

Current service cost
107

120

 
11

12

Interest cost
450

438

 
20

19

Employee contributions
41

47

 
—

1

Benefits paid
(646
)
(640
)
 
(34
)
(33
)
Foreign currency changes
(10
)
20

 
—

2

Actuarial loss (gain)
1,296

(292
)
 
43

(18
)
Projected benefit obligation at December 31
$
12,610

$
11,372

 
$
541

$
501


 
Pensions
 
Other benefits
(in millions of Canadian dollars)
2019

2018

 
2019

2018

Change in fund assets:
 
 
 
 
 
Fair value of fund assets at January 1
$
12,349

$
12,808

 
$
4

$
4

Actual return on fund assets
1,528

82

 
1

—

Employer contributions
53

36

 
34

32

Employee contributions
41

47

 
—

1

Benefits paid
(646
)
(640
)
 
(34
)
(33
)
Foreign currency changes
(6
)
16

 
—

—

Fair value of fund assets at December 31
$
13,319

$
12,349

 
$
5

$
4

Funded status – plan surplus (deficit)
$
709

$
977

 
$
(536
)
$
(497
)
Funded Status of Pension Plans
The table below shows the aggregate pension projected benefit obligation and aggregate fair value of plan assets for pension plans with fair value of plan assets in excess of projected benefit obligations (i.e. surplus), and for pension plans with projected benefit obligations in excess of fair value of plan assets (i.e. deficit):
 
2019
 
2018
(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
$
(12,076
)
$
(534
)
 
$
(10,884
)
$
(488
)
Fair value of fund assets at December 31
13,079

240

 
12,127

222

Funded Status
$
1,003

$
(294
)
 
$
1,243

$
(266
)
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)
2019

2018

 
2019

2018

Pension asset
$
1,003

$
1,243

 
$
—

$
—

Accounts payable and accrued liabilities
(11
)
(11
)
 
(34
)
(34
)
Pension and other benefit liabilities
(283
)
(255
)
 
(502
)
(463
)
Total amount recognized
$
709

$
977

 
$
(536
)
$
(497
)
Amounts Recognized in Accumulated Other Comprehensive Loss
Amounts recognized in accumulated other comprehensive loss are as follows:
 
Pensions
 
Other benefits
(in millions of Canadian dollars)
2019

2018

 
2019

2018

Net actuarial loss:
 
 
 
 
 
Other than deferred investment gains
$
3,434

$
2,233

 
$
91

$
61

Deferred investment gains
41

611

 
—

—

Prior service cost
1

—

 
1

2

Deferred income tax
(964
)
(797
)
 
(24
)
(16
)
Total (Note 8)
$
2,512

$
2,047

 
$
68

$
47
Weighted-average Actuarial Assumptions Used
Weighted-average actuarial assumptions used were approximately:
(percentages)
2019
 
2018
 
2017
 
Benefit obligation at December 31:
 
 
 
 
 
 
Discount rate
3.25
 
4.01
 
3.80
 
Projected future salary increases
2.75
 
2.75
 
2.75
 
Health care cost trend rate
5.50
(1) 
6.00
(1) 
7.00
(2) 
Benefit cost for year ended December 31:
 
 
 
 
 
 
Discount rate
4.01
 
3.80
 
4.02
 
Expected rate of return on fund assets (3)
7.50
 
7.75
 
7.75
 
Projected future salary increases
2.75
 
2.75
 
2.75
 
Health care cost trend rate
6.00
(1) 
7.00
(2) 
7.00
(2) 
(1) The health care cost trend rate was assumed to be 6.00% in 2019, is assumed to be 5.50% in 2020 and 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 expected rate of return on fund assets that will be used to compute the 2020 net periodic benefit credit is 7.25%.
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:
 
 
 
Percentage of plan assets
at December 31
Asset allocation (percentage)
Asset allocation target
Policy range
2019
2018
Cash and cash equivalents
1.2
0 – 10
0.9
1.1
Fixed income
24.1
20 – 40
24.6
25.6
Public equity
45.1
35 – 55
54.5
50.2
Real estate and infrastructure
9.8
4 – 13
6.8
7.7
Private debt
9.8
4 – 13
2.4
1.3
Absolute return
10.0
4 – 13
10.8
14.1
Total
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, 2019 and 2018. As of December 31, 2019 and 2018, 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, 2019
 
 
 
 
Cash and cash equivalents
$
112

$
—

$
—

$
112

Fixed income
 
 
 
 
Government bonds(2)
233

1,857

—

2,090

Corporate bonds(2)
273

819

—

1,092

Mortgages(3)
159

5

—

164

Public equities
 
 
 
 
Canada
1,351

—

—

1,351

U.S. and international
5,883

22

—

5,905

Real estate(4)
—

—

724

724

Infrastructure(5)
—

—

187

187

Private debt(6)
—

—

313

313

Derivative instruments(7)
—

(59
)
—

(59
)
Absolute return(8)
 
 
 
 
Funds of hedge funds
—

—

1,418

1,418

Multi-strategy funds
—

—

22

22

 
$
8,011

$
2,644

$
2,664

$
13,319

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

(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, $606 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2018 – $583 million). The remaining $118 million is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying real estate investments (2018 – $114 million). As at December 31, 2019, there are $35 million of unfunded commitments for real estate investments (December 31, 2018 – $38 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, $119 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2018 – $130 million). The remaining $68 million is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying infrastructure investments (2018 – $129 million).
(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. Of the total, $154 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2018 – $162 million). The remaining $159 million is not subject to redemption and is normally returned through distributions as a result of the repayment of the underlying loans (2018 – $nil). As at December 31, 2019, there are $392 million of unfunded commitments for private debt investments (December 31, 2018 – $608 million).
(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, 2019, there are currency forwards with a notional value of $334 million (December 31, 2018 – $1,226 million) and a fair value of $13 million (December 31, 2018 – $(7) million). The fixed income investment manager utilizes a portfolio of bond forwards for the purpose of reducing asset/liability interest rate exposure. As at December 31, 2019, there are bond forwards with a notional value of $3,269 million and a negative fair value of $72 million (December 31, 2018 – $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 with redemption notice periods varying from 60 to 95 days and frequencies ranging from monthly to triennially.
Estimated Future DB Pension and Other Post-retirement Benefit Payments
The estimated future DB 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

2020
$
620

$
34

2021
623

32

2022
627

31

2023
630

30

2024
633

30

2025 – 2029
3,203

144