RETIREMENT AND POSTRETIREMENT BENEFITS

12 Months Ended

Dec. 31, 2012

RETIREMENT AND POSTRETIREMENT BENEFITS

RETIREMENT AND POSTRETIREMENT BENEFITS

24. RETIREMENT AND POSTRETIREMENT BENEFITS

PENSION PLANS

The Company has three registered pension plans which provide either defined benefit or defined contribution pension benefits, or both, to employees of the Company. The Liquids Pipelines and Gas Distribution pension plans (collectively, the Canadian Plans) provide Company funded defined benefit pension and/or defined contribution benefits to Canadian employees of Enbridge. The Enbridge United States pension plan (the United States Plan) provides Company funded defined benefit pension benefits for United States based employees. The Company has four supplemental pension plans which provide pension benefits in excess of the basic plans for certain employees.

A measurement date of December 31, 2012 was used to determine the plan assets and accrued benefit obligation for the Canadian and United States plans.

Defined Benefit Plans

Benefits payable from the defined benefit plans are based on members’ years of service and final average remuneration. These benefits are partially inflation indexed after a member’s retirement. Contributions by the Company are made in accordance with independent actuarial valuations and are invested primarily in publicly-traded equity and fixed income securities. The effective dates of the most recent actuarial valuations and the next required actuarial valuations for the basic plans are as follows:

	Effective Date of Most Recently Filed Actuarial Valuation	Effective Date of Next Required Actuarial Valuation
Canadian Plans
Liquids Pipelines	December 31, 2011	December 31, 2012
Gas Distribution	December 31, 2009	December 31, 2012
United States Plan	December 31, 2011	December 31, 2012

Defined Contribution Plans

Contributions are generally based on the employee’s age, years of service and remuneration. For defined contribution plans, benefit costs equal amounts required to be contributed by the Company.

OTHER POSTRETIREMENT BENEFITS

OPEB primarily includes supplemental health and dental, health spending account and life insurance coverage for qualifying retired employees.

BENEFIT OBLIGATIONS AND FUNDED STATUS

The following tables detail the changes in the benefit obligation, the fair value of plan assets and the recorded asset or liability for the Company’s defined benefit pension plans and OPEB plans using the accrual method.

	Pension		OPEB
December 31,	2012	2011	2012	2011
(millions of Canadian dollars)
Change in accrued benefit obligation
Benefit obligation at beginning of year	1,686	1,323	243	195
Service cost	84	61	8	6
Interest cost	74	73	10	11
Employees’ contributions	-	-	1	1
Actuarial loss	106	270	14	28
Benefits paid	(64)	(54)	(8)	(7)
Effect of foreign exchange rate changes	(5)	5	(2)	2
Other	(2)	8	(5)	7
Benefit obligation at end of year	1,879	1,686	261	243
Change in plan assets
Fair value of plan assets at beginning of year	1,355	1,314	54	41
Actual return on plan assets	117	16	5	1
Employer’s contributions	97	72	13	13
Employees’ contributions	-	-	1	1
Benefits paid	(64)	(54)	(8)	(7)
Effect of foreign exchange rate changes	(3)	3	(1)	1
Other	(2)	4	(2)	4
Fair value of plan assets at end of year	1,500	1,355	62	54
Underfunded status at end of year	(379)	(331)	(199)	(189)
Presented as follows:
Accounts payable and other	-	-	(5)	(5)
Other long-term liabilities (Note 17)	(379)	(331)	(194)	(184)
	(379)	(331)	(199)	(189)

The weighted average assumptions made in the measurement of the projected benefit obligations of the pension plans and OPEB are as follows:

	Pension			OPEB
Year ended December 31,	2012	2011	2010	2012	2011	2010
Discount rate	4.2%	4.5%	5.6%	4.0%	4.4%	5.6%
Average rate of salary increases	3.7%	3.5%	3.5%

NET BENEFIT COSTS RECOGNIZED

	Pension			OPEB
Year ended December 31,	2012	2011	2010	2012	2011	2010
(millions of Canadian dollars)
Benefits earned during the year	84	61	48	8	6	5
Interest cost on projected benefit obligations	74	73	72	10	11	11
Expected return on plan assets	(93)	(92)	(80)	(3)	(3)	(2)
Amortization of prior service costs	2	2	2	-	1	-
Amortization of actuarial loss	51	25	19	2	1	1
Net defined benefit costs on an accrual basis	118	69	61	17	16	15
Defined contribution benefit costs	4	4	5	-	-	-
Net benefit cost recognized in the
Consolidated Statements of Earnings	122	73	66	17	16	15
Net amount recognized in OCI
Net actuarial loss1	42	172	35	10	29	11
Net prior service cost/(credit)2	-	-	-	-	(1)	6
Total amount recognized in OCI	42	172	35	10	28	17
Total amount recognized in Comprehensive income	164	245	101	27	44	32

1	Unamortized actuarial losses included in AOCI, before tax, were $388 million (2011 - $346 million) relating to the pension plans and $60 million (2011 - $51 million) relating to OPEB at December 31, 2012.
2	Unamortized prior service costs included in AOCI, before tax, were $4 million (2011 - $5 million) relating to OPEB at December 31, 2012.

The Company estimates that approximately $24 million related to pension plans and $2 million related to OPEB at December 31, 2012 will be reclassified from AOCI into earnings in the next 12 months.

Regulatory adjustments are recorded in the Consolidated Statements of Earnings, the Consolidated Statements of Comprehensive Income and the Consolidated Statements of Financial Position to reflect the difference between pension expense for accounting purposes and pension expense for ratemaking purposes. Offsetting regulatory assets or liabilities are recorded to the extent pension or OPEB costs or gains are expected to be collected from or refunded to customers in future rates (Note 5).

The weighted average assumptions made in the measurement of the cost of the pension plans and OPEB are as follows:

	Pension			OPEB
Year ended December 31,	2012	2011	2010	2012	2011	2010
Discount rate	4.5%	5.6%	6.5%	4.4%	5.6%	6.3%
Average rate of return on pension plan assets	7.1%	7.3%	7.3%	6.0%	6.0%	6.0%
Average rate of salary increases	3.5%	3.5%	3.7%

MEDICAL COST TRENDS

The assumed rates for the next year used to measure the expected cost of benefits are as follows:

	Medical Cost Trend Rate Assumption for Next Fiscal Year	Ultimate Medical Cost Trend Rate Assumption	Year in which Ultimate Medical Cost Trend Rate Assumption is Achieved
Canadian Plans
Drugs	8.6%	4.5%	2029
Other Medical	4.5%	4.5%	-
United States Plan	7.6%	4.5%	2030

A 1% increase in the assumed medical care trend rate would result in an increase of $36 million in the benefit obligation and an increase of $3 million in benefit and interest costs. A 1% decrease in the assumed medical care trend rate would result in a decrease of $29 million in the benefit obligation and a decrease of $2 million in benefit and interest costs.

PLAN ASSETS

The Company manages the investment risk of its pension funds by setting a long-term asset mix policy for each plan after consideration of: (i) the nature of pension plan liabilities; (ii) the investment horizon of the plan; (iii) the going concern and solvency funded status and cash flow requirements of the plan; (iv) the operating environment and financial situation of the Company and its ability to withstand fluctuations in pension contributions; and (v) the future economic and capital markets outlook with respect to investment returns, volatility of returns and correlation between assets. The overall expected rate of return is based on the asset allocation targets with estimates for returns on equity and debt securities based on long-term expectations.

Expected Rate of Return on Plan Assets

	Pension		OPEB
Year ended December 31,	2012	2011	2012	2011
Canadian Plans	6.9%	7.0%
United States Plan	7.3%	7.5%	6.0%	6.0%

Target Mix for Plan Assets

	Liquids Pipelines Plan	Gas Distribution Plan	United States Plan
Equity securities	62.5%	53.5%	62.5%
Fixed income securities	30.0%	40.0%	30.0%
Other	7.5%	6.5%	7.5%

Major Categories of Plan Assets

Plan assets are invested primarily in readily marketable investments with constraints on the credit quality of fixed income securities. As at December 31, 2012, the pension assets were invested 59.1% (2011 - 56.7%) in equity securities, 32.4% (2011 - 36.6%) in fixed income securities and 8.5% (2011 - 6.7%) in other. The OPEB assets were invested 58.1% (2011 - 55.3%) in equity securities, 35.5% (2011 - 40.3%) in fixed income securities and 6.4% (2011 - 4.4%) in other.

The following table summarizes the Company’s pension financial instruments at fair value. Non-financial instruments with a carrying value of $59 million (2011 - $77 million) have been excluded from the table below.

	2012				2011
December 31,	Level 11	Level 22	Level 33	Total	Level 11	Level 22	Level 33	Total
(millions of Canadian dollars)
Pension
Cash and cash equivalents	44	-	-	44	14	-	-	14
Fixed income securities
Canadian government bonds	87	-	-	87	115	-	-	115
Corporate bonds and debentures	-	4	-	4	-	4	-	4
Canadian corporate bond index fund	196	-	-	196	158	-	-	158
Canadian government bond index fund	152	-	-	152	157	-	-	157
United States debt index fund	45	2	-	47	62	-	-	62
Equity
Canadian equity securities	190	-	-	190	148	-	-	148
United States equity securities	24	-	-	24	-	-	-	-
Global equity securities	9	-	-	9	-	-	-	-
Canadian equity funds	64	39	-	103	21	74	-	95
United States equity funds	60	26	-	86	170	89	-	259
Global equity funds	255	159	-	414	191	7	-	198
Private equity investment4	-	-	61	61	-	-	68	68
Real estate5	-	-	24	24	-	-	-	-
OPEB
Cash and cash equivalents	4	-	-	4	3	-	-	3
Fixed income securities
United States government and government agency bonds	22	-	-	22	22	-	-	22
Equity
United States equity funds	17	19	-	36	15	14	-	29

1	Level 1 assets include assets with quoted prices in active markets for identical assets.
2	Level 2 assets include assets with significant observable inputs.
3	Level 3 assets include assets with significant unobservable inputs.
4	The fair value of the investment in United States Limited Partnership - Global Infrastructure Fund is established through the use of valuation models.
5	The fair value of the investment in Bentall Kennedy Prime Canadian Property Fund Ltd is established through the use of valuation models.

Changes in the net fair value of plan assets classified as Level 3 in the fair value hierarchy were as follows:

	2012	2011
(millions of Canadian dollars)
Balance at beginning of year	68	65
Unrealized and realized gains	11	8
Purchases and settlements, net	6	(5)
Balance at end of year	85	68

Plan Contributions by the Company

	Pension		OPEB
Year ended December 31,	2012	2011	2012	2011
(millions of Canadian dollars)
Total contributions	97	72	13	13
Contributions expected to be paid in 2013	140		13

Benefits Expected to be Paid by the Company

Year ended December 31,	2013	2014	2015	2016	2017	2018-2022
(millions of Canadian dollars)
Expected future benefit payments	73	78	83	88	93	558