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Pensions and other benefits
 12 Months Ended
Dec. 31, 2021
Retirement Benefits [Abstract]  
Pensions and other benefits Pensions and other benefits
The Company has both defined benefit (“DB”) and defined contribution (“DC”) pension plans. At December 31, 2021, the Canadian pension plans represent nearly all of total combined pension plan assets and nearly all of total combined pension plan obligations.

The DB plans provide for pensions based principally on years of service and compensation rates near retirement. Pensions for Canadian pensioners are partially indexed to inflation. Annual employer contributions to the DB plans, which are actuarially determined, are made on the basis of being not less than the minimum amounts required by federal pension supervisory authorities.

The Company has other benefit plans including post-retirement health and life insurance for pensioners, and post-employment long-term disability and workers’ compensation benefits, which are based on Company-specific claims. At December 31, 2021, the Canadian other benefits plans represent nearly all of total combined other plan obligations.

The Audit and Finance Committee of the Board of Directors has approved an investment policy that establishes long-term asset mix targets which take into account the Company’s expected risk tolerances. Pension plan assets are managed by a suite of independent investment managers, with the allocation by manager reflecting these asset mix targets. Most of the assets are actively managed with the objective of outperforming applicable benchmarks. In accordance with the investment policy, derivative instruments may be used by investment managers to hedge or adjust existing or anticipated exposures.

To develop the expected long-term rate of return assumption used in the calculation of net periodic benefit cost applicable to the market-related value of plan assets, the Company considers the expected composition of the plans’ assets, past experience, and future estimates of long-term investment returns. Future estimates of investment returns reflect the long-term return expectation for fixed income, public equity, real estate, infrastructure, private debt, and absolute return investments, and the expected added value (relative to applicable benchmark indices) from active management of pension fund assets.
The Company has elected to use a market-related value of assets for the purpose of calculating net periodic benefit cost, developed from a five year average of market values for the plans’ public equity and absolute return investments (with each prior year’s market value adjusted to the current date for assumed investment income during the intervening period) plus the market value of the plans’ fixed income, real estate, infrastructure, and private debt securities.

The benefit obligation is discounted using a discount rate that is a blended yield to maturity for a hypothetical portfolio of high-quality debt instruments with cash flows matching projected benefit payments. The discount rate is determined by management.

Net periodic benefit cost
The elements of net periodic benefit cost for DB pension plans and other benefits recognized in the year include the following components:
 PensionsOther benefits
(in millions of Canadian dollars)202120202019202120202019
Current service cost (benefits earned by employees)$171 $140 $107 $13 $12 $11 
Other components of net periodic benefit (recovery) cost:
Interest cost on benefit obligation351 406 450 16 17 20 
Expected return on fund assets(959)(945)(947)— — — 
Recognized net actuarial loss206 177 84 (1)4 12 
Amortization of prior service (recoveries) costs— (1)(1)— — 1 
Total other components of net periodic benefit (recovery) cost(402)(363)(414)15 21 33 
Net periodic benefit (recovery) cost$(231)$(223)$(307)$28 $33 $44 

Projected benefit obligation, fund assets, and funded status
Information about the Company’s DB pension plans and other benefits, in aggregate, is as follows:
 PensionsOther benefits
(in millions of Canadian dollars)2021202020212020
Change in projected benefit obligation:
Benefit obligation at January 1$13,799 $12,610 $553 $541 
Current service cost171 140 13 12 
Interest cost351 406 16 17 
Employee contributions42 42 — — 
Benefits paid(667)(653)(31)(34)
Foreign currency changes— (5)— — 
Plan amendments and other— 3 — — 
Actuarial loss (gain)(812)1,256 (48)17 
Projected benefit obligation at December 31$12,884 $13,799 $503 $553 

The net actuarial gains for Pensions and Other benefits in 2021 were primarily due to the increase in discount rate from 2.58% to 3.01%. The net actuarial losses for Pensions and Other benefits in 2020 were primarily due to the decrease in discount rate from 3.25% to 2.58%.
 PensionsOther benefits
(in millions of Canadian dollars)2021202020212020
Change in fund assets:
Fair value of fund assets at January 1$14,365 $13,319 $5 $5 
Actual return on fund assets1,180 1,634 — — 
Employer contributions18 27 31 34 
Employee contributions42 42 — — 
Benefits paid(667)(653)(31)(34)
Foreign currency changes— (4)— — 
Fair value of fund assets at December 31$14,938 $14,365 $5 $5 
Funded status – plan surplus (deficit)$2,054 $566 $(498)$(548)

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):
 20212020
(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$(12,346)$(538)$(13,220)$(579)
Fair value of fund assets at December 3114,663 275 14,114 251 
Funded status$2,317 $(263)$894 $(328)

The DB pension plans’ accumulated benefit obligation as at December 31, 2021 was $12,591 million (2020 – $13,528 million). The accumulated benefit obligation is calculated on a basis similar to the projected benefit obligation, except no future salary increases are assumed in the projection of future benefits. For pension plans with accumulated benefit obligations in excess of fair value of plan assets (i.e. deficit), the aggregate pension accumulated benefit obligation as at December 31, 2021 was $410 million (2020 – $443 million) and the aggregate fair value of plan assets as at December 31, 2021 was $201 million (2020 –$187 million).

All Other benefits plans were in a deficit position at December 31, 2021 and 2020.

Pension asset and liabilities in the Company’s Consolidated Balance Sheets
Amounts recognized in the Company’s Consolidated Balance Sheets are as follows:
 PensionsOther benefits
(in millions of Canadian dollars)2021202020212020
Pension asset$2,317 $894 $— $— 
Accounts payable and accrued liabilities(11)(11)(32)(33)
Pension and other benefit liabilities(252)(317)(466)(515)
Total amount recognized$2,054 $566 $(498)$(548)

The measurement date used to determine the plan assets and the benefit obligation is December 31. The most recent actuarial valuation for pension funding purposes for the Company’s main Canadian pension plan was performed as at January 1, 2021. During 2022, the Company expects to file with the pension regulator a new valuation performed as at January 1, 2022.
Accumulated other comprehensive loss
Amounts recognized in accumulated other comprehensive loss are as follows:
 PensionsOther benefits
(in millions of Canadian dollars)2021202020212020
Net actuarial loss:
Other than deferred investment gains$3,298 $3,960 $57 $104 
Deferred investment gains(672)(95)— — 
Prior service cost5 5 1 1 
Deferred income tax(759)(1,070)(15)(27)
Total (Note 8)
$1,872 $2,800 $43 $78 

Actuarial assumptions
Weighted-average actuarial assumptions used were approximately:
(percentages)202120202019
Benefit obligation at December 31:
Discount rate3.01 2.58 3.25 
Projected future salary increases2.75 2.75 2.75 
Health care cost trend rate (1)
5.00 5.00 5.50 
Benefit cost for year ended December 31:
Discount rate2.58 3.25 4.01 
Expected rate of return on fund assets (2)
6.90 7.25 7.50 
Projected future salary increases2.75 2.75 2.75 
Health care cost trend rate (1)
5.00 5.50 6.00 
(1) The health care cost trend rate was assumed to be 6.00% in 2019 and 5.50% in 2020 and is assumed to be 5.00% per year in 2021 and thereafter.
(2) The expected rate of return on fund assets that will be used to compute the 2022 net periodic benefit credit is 6.90%.

Plan assets
Plan assets are recorded at fair value. The major asset categories are public equity securities, fixed income securities, real estate, infrastructure, absolute return investments, and private debt. The fair values of the public equity and fixed income securities are primarily based on quoted market prices. Real estate and infrastructure values are based on the value of each fund’s assets as calculated by the fund manager, generally using third party appraisals or discounted cash flow analysis and taking into account current market conditions and recent sales transactions where practical and appropriate. Private debt values are based on the value of each fund’s assets as calculated by the fund manager taking into account current market conditions and reviewed annually by external parties. Absolute return investments are a portfolio of units of externally managed hedge funds and are valued by the fund administrators.
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 targetPolicy range20212020
Cash and cash equivalents1.2 
0 – 10
3.1 2.0 
Fixed income24.1 
20 – 40
24.1 28.1 
Public equity45.1 
35 – 55
50.5 49.3 
Real estate and infrastructure9.8 
4 – 13
6.7 6.3 
Private debt9.8 
4 – 13
4.6 3.3 
Absolute return10.0 
4 – 13
11.0 11.0 
Total100.0 100.0 100.0 
Summary of the assets of the Company’s DB pension plans
The following is a summary of the assets of the Company’s DB pension plans at December 31, 2021 and 2020. As of December 31, 2021 and 2020, 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, 2021
Cash and cash equivalents$363 $— $— $363 
Fixed income
Government bonds(2)
232 1,704 — 1,936 
Corporate bonds(2)
569 868 — 1,437 
Mortgages(3)
230 4 — 234 
Public equities
Canada1,004 — — 1,004 
U.S. and international6,536 — — 6,536 
Real estate(4)
— — 732 732 
Infrastructure(5)
— — 263 263 
Private debt(6)
— — 682 682 
Derivative instruments(7)
— 106 — 106 
Absolute return(8)
Funds of hedge funds— — 1,621 1,621 
Multi-strategy funds— — 24 24 
$8,934 $2,682 $3,322 $14,938 
December 31, 2020
Cash and cash equivalents$219 $— $— $219 
Fixed income
Government bonds(2)
284 1,699 — 1,983 
Corporate bonds(2)
691 1,144 — 1,835 
Mortgages(3)
220 5 — 225 
Public equities
Canada1,183 — — 1,183 
U.S. and international5,871 28 — 5,899 
Real estate(4)
— — 704 704 
Infrastructure(5)
— — 199 199 
Private debt(6)
— — 465 465 
Derivative instruments(7)
— 71 — 71 
Absolute return(8)
Funds of hedge funds— — 1,560 1,560 
Multi-strategy funds— — 22 22 
$8,468 $2,947 $2,950 $14,365 
(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, $613 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2020 – $580 million). The remaining $119 million is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying real estate investments (2020 – $124 million). As at December 31, 2021, there are $32 million of unfunded commitments for real estate investments (December 31, 2020 – $32 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, $107 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2020 – $112 million). The remaining $156 million is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying infrastructure investments (2020 – $87 million). As at December 31, 2021, there are $814 million of unfunded commitments for infrastructure investments (December 31, 2020 – $491 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, $152 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2020 – $154 million). The remaining $530 million is not subject to redemption and is normally returned through distributions as a result of the repayment of the underlying loans (2020 - $311 million). As at December 31, 2021, there are $774 million of unfunded commitments for private debt investments (December 31, 2020 – $533 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, 2021, there are currency forwards with a notional value of nil (December 31, 2020 – $1,041 million) and a fair value of $6 million (December 31, 2020 – $73 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, 2021, there are bond forwards with a notional value of $2,967 million (December 31, 2020 – $3,540 million) and a fair value of $100 million (December 31, 2020 – $(2) million).
(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.

Additional plan assets information
The Company's primary investment objective for pension plan assets is to achieve a long–term return, net of all fees and expenses, that is sufficient for the plan's assets to satisfy the current and future obligations to plan beneficiaries, while minimizing the financial impact on the Company. In identifying the asset allocation ranges, consideration was given to the long-term nature of the underlying plan liabilities, the solvency and going-concern financial position of the plan, long-term return expectations, and the risks associated with key asset classes as well as the relationships of returns on key asset classes with each other, inflation, and interest rates. When advantageous and with due consideration, derivative instruments may be utilized by investment managers, provided the total value of the underlying assets represented by financial derivatives (excluding currency forwards, liability hedging derivatives in fixed income portfolios, and derivatives held by absolute return funds) is limited to 30% of the market value of the fund.

The funded status of the plans is exposed to fluctuations in interest rates, which affects the relative values of the plans' liabilities and assets. In order to mitigate interest rate risk, the Company's main Canadian defined benefit pension plan utilizes a liability driven investment strategy in its fixed income portfolio, which uses a combination of long duration bonds and derivatives to hedge interest rate risk, managed by the investment manager. At December 31, 2021, the plan's solvency funded position was 47% hedged against interest rate risk (2020 – 47%).

When investing in foreign securities, the plans are exposed to foreign currency risk; the effect of which is included in the valuation of the foreign securities. At December 31, 2021, the plans were 43% exposed to the U.S. dollar, 5% exposed to the Euro, and 10% exposed to various other currencies. At December 31, 2020, the plans were 33% exposed to the U.S. dollar net of currency forwards (40% excluding the currency forwards), 6% exposed to the Euro, and 14% exposed to various other currencies.

At December 31, 2021, fund assets included 426,304 of the Common Shares of the Company (2020 – 545,040) at a market value of $39 million (2020 – $48 million) and Fixed Income securities of the Company at a market value of $5 million (2020 – nil).
Estimated future 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)PensionsOther benefits
2022$645 $32 
2023637 31 
2024638 30 
2025639 29 
2026640 29 
2027-20313,209 136 

The benefit payments from the Canadian registered and U.S. qualified DB pension plans are payable from their respective pension funds. Benefit payments from the supplemental pension plan and from the other benefits plans are payable directly by the Company.

Defined contribution plan
Canadian non-unionized employees hired prior to July 1, 2010 had the option to participate in the Canadian DC plan. All Canadian non-unionized employees hired after such date must participate in this plan. Employee contributions are based on a percentage of salary. The Company matches employee contributions to a maximum percentage each year.

Effective July 1, 2010, a new U.S. DC plan was established. All U.S. non-unionized employees hired after such date must participate in this plan. Employees do not contribute to the plan. The Company annually contributes a percentage of salary.

The DC plans provide a pension based on total employee, where appropriate, and employer contributions plus investment income earned on those contributions.

In 2021, the net cost of the DC plans, which generally equals the employer’s required contribution, was $13 million (2020 – $12 million; 2019 – $11 million).

Contributions to multi-employer plans
Some of the Company’s unionized employees in the U.S. are members of a U.S. national multi-employer benefit plan. Contributions made by the Company to this plan in 2021 in respect of post-retirement medical benefits were $3 million (2020 – $3 million; 2019 – $3 million).