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Post-employee benefit plans
 12 Months Ended
Dec. 31, 2017
Employee Benefits [Abstract]  
Post-employment benefit plans
 
Note 22 Post-employment benefit plans
Post-employment benefit plans cost
We provide pension and other benefits for most of our employees. These include DB pension plans, DC pension plans and OPEBs.
We operate our DB and DC pension plans under applicable Canadian and provincial pension legislation, which prescribes minimum and maximum DB funding requirements. Plan assets are held in trust, and the oversight of governance of the plans, including investment decisions, contributions to DB plans and the selection of the DC plans investment options offered to plan participants, lies with the Pension Fund Committee, a committee of our board of directors.
The interest rate risk is managed using a liability matching approach, which reduces the exposure of the DB plans to a mismatch between investment growth and obligation growth.
The longevity risk is managed using a longevity swap, which reduces the exposure of the DB plans to an increase in life expectancy.
COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS SERVICE COST
FOR THE YEAR ENDED DECEMBER 31
2017

2016

DB pension
(208
)
(203
)
DC pension
(102
)
(100
)
OPEBs
(6
)
(7
)
Plan amendment gain on OPEBs and DB pension
16

27

Less:
 
 
 
Capitalized benefit plans cost
58

59

Total post-employment benefit plans service cost included in operating costs
(242
)
(224
)
Other costs recognized in severance, acquisition and other costs
(10
)
5

Total post-employment benefit plans service cost
(252
)
(219
)

COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS FINANCING COST
FOR THE YEAR ENDED DECEMBER 31
2017

2016

DB pension
(18
)
(24
)
OPEBs
(54
)
(57
)
Total interest on post-employment benefit obligations
(72
)
(81
)

The statements of comprehensive income include the following amounts before income taxes.
 
 
2017

2016

Cumulative losses recognized directly in equity, January 1
(2,646
)
(2,384
)
 
Actuarial losses in other comprehensive income(1)
(313
)
(264
)
 
(Increase) decrease in the effect of the asset limit(2)
(25
)
2

Cumulative losses recognized directly in equity, December 31
(2,984
)
(2,646
)
(1)
The cumulative actuarial losses recognized in the statements of comprehensive income are $3,217 million in 2017.
(2)
The cumulative decrease in the effect of the asset limit recognized in the statements of comprehensive income is $233 million in 2017.



COMPONENTS OF POST-EMPLOYMENT BENEFIT (OBLIGATIONS) ASSETS
The following table shows the change in post-employment benefit obligations and the fair value of plan assets.
 
 
 
 
DB PENSION PLANS
OPEB PLANS
TOTAL
 
 
 
 
2017

2016

2017

2016

2017

2016

Post-employment benefit obligations, January 1
(20,853
)
(20,675
)
(1,684
)
(1,705
)
(22,537
)
(22,380
)
 
Current service cost
(208
)
(203
)
(6
)
(7
)
(214
)
(210
)
 
Interest on obligations
(896
)
(852
)
(65
)
(68
)
(961
)
(920
)
 
Actuarial (losses) gains(1)
(1,193
)
(311
)
(28
)
12

(1,221
)
(299
)
 
Net curtailment (losses) gains
(4
)
27

16

5

12

32

 
Loss on plan transfer
(6
)
—

—

—

(6
)
—

 
Benefit payments
1,320

1,169

81

79

1,401

1,248

 
Employee contributions
(10
)
(5
)
—

—

(10
)
(5
)
 
Acquisition of MTS
(2,677
)
—

(5
)
—

(2,682
)
—

 
Plan transfer
122

—

—

—

122

—

 
Other
1

(3
)
38

—

39

(3
)
Post-employment benefit obligations, December 31
(24,404
)
(20,853
)
(1,653
)
(1,684
)
(26,057
)
(22,537
)
Fair value of plan assets, January 1
20,563

20,244

280

266

20,843

20,510

 
Expected return on plan assets(2)
878

828

11

11

889

839

 
Actuarial gains(1)
896

29

12

6

908

35

 
Benefit payments
(1,320
)
(1,169
)
(81
)
(79
)
(1,401
)
(1,248
)
 
Employer contributions
305

626

77

76

382

702

 
Employee contributions
10

5

—

—

10

5

 
Acquisition of MTS
2,735

—

—

—

2,735

—

 
Plan transfer
(122
)
—

—

—

(122
)
—

Fair value of plan assets, December 31
23,945

20,563

299

280

24,244

20,843

Plan deficit
 
 
(459
)
(290
)
(1,354
)
(1,404
)
(1,813
)
(1,694
)
Effect of asset limit
 
 
(33
)
(8
)
—

—

(33
)
(8
)
Post-employment benefit liability, December 31
(492
)
(298
)
(1,354
)
(1,404
)
(1,846
)
(1,702
)
Post-employment benefit assets included in other non-current assets
262

403

—

—

262

403

Post-employment benefit obligations
(754
)
(701
)
(1,354
)
(1,404
)
(2,108
)
(2,105
)
(1)
Actuarial (losses) gains include experience gains of $911 million in 2017 and $157 million in 2016.
(2)
The actual return on plan assets was $1,797 million or 8.2% in 2017 and $874 million or 4.7% in 2016.

On January 15, 2016, MTS completed the sale of its wholly-owned subsidiaries Allstream Inc., Allstream Fibre U.S., and Delphi Solutions Corp. (collectively, Allstream), to Zayo Group Holdings Inc. As part of the sale agreement, MTS retained Allstream’s two existing DB pension plans including the benefit obligations for retirees and other former employees. On October 31, 2017, we completed the transfer of assets and liabilities related to pre-closing service obligations for Allstream’s active employees from the existing Allstream DB pension plans to two new Zayo Canada Inc. pension plans.
FUNDED STATUS OF POST-EMPLOYMENT BENEFIT PLANS COST
The following table shows the funded status of our post-employment benefit obligations.
 
 
FUNDED
PARTIALLY FUNDED(1)
UNFUNDED(2)
TOTAL
FOR THE YEAR ENDED DECEMBER 31
2017

2016

2017

2016

2017

2016

2017

2016

Present value of post-
    employment benefit
    obligations
(23,746
)
(20,249
)
(1,976
)
(1,995
)
(335
)
(293
)
(26,057
)
(22,537
)
Fair value of plan assets
23,894

20,520

350

323

—

—

24,244

20,843

Plan surplus (deficit)
148

271

(1,626
)
(1,672
)
(335
)
(293
)
(1,813
)
(1,694
)
(1)
The partially funded plans consist of supplementary executive retirement plans (SERPs) for eligible employees and OPEBs. The company partially funds the SERPs through letters of credit and a retirement compensation arrangement account with Canada Revenue Agency. Certain paid-up life insurance benefits are funded through life insurance contracts.
(2)
Our unfunded plans consist of OPEBs, which are pay-as-you-go.

SIGNIFICANT ASSUMPTIONS
We used the following key assumptions to measure the post-employment benefit obligations and the net benefit plans cost for the DB pension plans and OPEB plans. These assumptions are long-term, which is consistent with the nature of post-employment benefit plans.
 
 
 
DB PENSION PLANS AND OPEB PLANS
 
 
 
2017

2016

At December 31
 
 
Post-employment benefit obligations
 
 
 
Discount rate
3.6
%
4.0
%
 
Rate of compensation increase
2.25
%
2.25
%
 
Cost of living indexation rate(1)
1.6
%
1.6
%
 
Life expectancy at age 65 (years)
23.2

23.1

For the year ended December 31
 
 
Net post-employment benefit plans cost
 
 
 
Discount rate
4.2
%
4.3
%
 
Rate of compensation increase
2.25
%
2.5
%
 
Cost of living indexation rate(1)
1.6
%
1.6
%
 
Life expectancy at age 65 (years)
23.1

23.0

(1)
Cost of living indexation rate is only applicable to DB pension plans.
The weighted average duration of the post-employment benefit obligation is 15 years.
We assumed the following trend rates in healthcare costs:
•
an annual increase in the cost of medication of 8.0% for 2017 decreasing to 4.5% over 20 years
•
an annual increase in the cost of covered dental benefits of 4.0%
•
an annual increase in the cost of covered hospital benefits of 3.3%
•
an annual increase in the cost of other covered healthcare benefits of 3.0%
Assumed trend rates in healthcare costs have a significant effect on the amounts reported for the healthcare plans.
The following table shows the effect of a 1% change in the assumed trend rates in healthcare costs.
EFFECT ON POST-EMPLOYMENT BENEFITS – INCREASE/(DECREASE)
1% INCREASE

1% DECREASE

Total service and interest cost
7

(5
)
Post-employment benefit obligations
133

(115
)


SENSITIVITY ANALYSIS
The following table shows a sensitivity analysis of key assumptions used to measure the net post-employment benefit obligations and the net post-employment benefit plans cost for our DB pension plans and OPEB plans.
 
 
 
 
IMPACT ON NET POST-EMPLOYMENT
BENEFIT PLANS COST FOR 2017 –
INCREASE/(DECREASE)
IMPACT ON POST-EMPLOYMENT BENEFIT
OBLIGATIONS AT DECEMBER 31, 2017 –
INCREASE/(DECREASE)
 
 
 
CHANGE IN
ASSUMPTION

INCREASE IN
ASSUMPTION

DECREASE IN
ASSUMPTION

INCREASE IN
ASSUMPTION

DECREASE IN
ASSUMPTION

Discount rate
0.5
%
(70
)
62

(1,636
)
1,746

Life expectancy at age 65
1 year

33

(31
)
834

(808
)

POST-EMPLOYMENT BENEFIT PLAN ASSETS
The investment strategy for the post-employment benefit plan assets is to maintain a diversified portfolio of assets invested in a prudent manner to maintain the security of funds.
The following table shows the target allocations for 2017 and the allocation of our post-employment benefit plan assets at December 31, 2017 and 2016.
 
 
 
WEIGHTED AVERAGE
TARGET ALLOCATION
TOTAL PLAN ASSETS FAIR VALUE
AT DECEMBER 31 ( % )
ASSET CATEGORY
2017
2017

2016

Equity securities
20%–35%
22
%
22
%
Debt securities
55%–80%
65
%
68
%
Alternative investments
0%–25%
13
%
10
%
Total
 
 
100
%
100
%
The following table shows the fair value of the DB pension plan assets at the end of the year for each category.
FOR THE YEAR ENDED DECEMBER 31
2017

2016

Observable markets data
 
 
 
Equity securities
 
 
 
 
Canadian
1,045

901

 
 
Foreign
4,349

3,682

 
Debt securities
 
 
 
 
Canadian
13,126

12,469

 
 
Foreign
1,890

1,068

 
 
Money market
491

387

Non-observable markets inputs
 
 
 
Alternative investments
 
 
 
 
Private equities
1,484

1,164

 
 
Hedge funds
965

726

 
 
Real estate
484

55

 
 
Other
111

111

Total
 
23,945

20,563


Equity securities included approximately $13 million of BCE common shares, or 0.05% of total plan assets, at December 31, 2017 and approximately $17 million of BCE common shares, or 0.08% of total plan assets, at December 31, 2016.
Debt securities included approximately $11 million of Bell Canada debentures, or 0.05% of total plan assets, at December 31, 2017 and approximately $15 million of Bell Canada debentures, or 0.07% of total plan assets, at December 31, 2016.
Alternative investments included the pension plan’s investment in MLSE of $135 million, or 0.56% of total plan assets, at December 31, 2017 and $135 million, or 0.66% of total plan assets at December 31, 2016.
The Bell Canada pension plan has an investment arrangement which hedges part of its exposure to potential increases in longevity, which covers approximately $5 billion of post-employment benefit obligations. The fair value of the arrangement is included within other alternative investments. As a hedging arrangement of the pension plan, the transaction requires no cash contributions from BCE.
CASH FLOWS
We are responsible for adequately funding our DB pension plans. We make contributions to them based on various actuarial cost methods that are permitted by pension regulatory bodies. Contributions reflect actuarial assumptions about future investment returns, salary projections and future service benefits. Changes in these factors could cause actual future contributions to differ from our current estimates and could require us to increase contributions to our post-employment benefit plans in the future, which could have a negative effect on our liquidity and financial performance.
We contribute to the DC pension plans as employees provide service.
The following table shows the amounts we contributed to the DB and DC pension plans and the payments made to beneficiaries under OPEB plans.
 
 
 
DB PLANS(1)
DC PLANS
OPEB PLANS
FOR THE YEAR ENDED DECEMBER 31
2017

2016

2017

2016

2017

2016

Contributions
(305
)
(626
)
(108
)
(99
)
(77
)
(76
)
(1)
Includes voluntary contributions of $100 million in 2017 and $400 million in 2016.
We expect to contribute approximately $210 million to our DB pension plans in 2018, subject to actuarial valuations being completed. We expect to pay approximately $80 million to beneficiaries under OPEB plans and to contribute approximately $110 million to the DC pension plans in 2018.