EMPLOYEE POST-RETIREMENT BENEFITS

12 Months Ended

Dec. 31, 2016

Compensation and Retirement Disclosure [Abstract]

EMPLOYEE POST-RETIREMENT BENEFITS

EMPLOYEE POST-RETIREMENT BENEFITS

The Company sponsors DB Plans for its employees. Pension benefits provided under the DB Plans are based on years of service and highest average earnings over three consecutive years of employment. Upon commencement of retirement, pension benefits in the Canadian DB Plan increase annually by a portion of the increase in the Consumer Price Index. Net actuarial gains or losses are amortized out of AOCI over the expected average remaining service life of employees, which is approximately nine years at December 31, 2016 (2015 and 2014 – nine years).

The Company also provides its employees with a savings plan in Canada, DC Plans consisting of 401(k) Plans in the U.S., and post-employment benefits other than pensions, including termination benefits and life insurance and medical benefits beyond those provided by government-sponsored plans. Net actuarial gains or losses are amortized out of AOCI over the expected average remaining life expectancy of former employees, which was approximately 12 years at December 31, 2016 (2015 – 12 years;

2014 – 12 years). In 2016, the Company expensed $52 million (2015 – $41 million; 2014 – $37 million) for the savings and DC Plans.

Total cash contributions by the Company for employee post-retirement benefits were as follows:

year ended December 31	2016	2015	2014
(millions of Canadian $)
DB Plans	111	96	73
Other post-retirement benefit plans	8	6	6
Savings and DC Plans	52	41	37
	171	143	116

Current Canadian pension legislation allows for partial funding of solvency requirements over a number of years through letters of credit in lieu of cash contributions, up to certain limits. As such, in addition to the cash contributions noted above, the Company provided a $20 million letter of credit to the Canadian DB Plan in 2016 (2015 – $33 million; 2014 – $47 million), resulting in a total of $233 million provided to the Canadian DB Plan under letters of credit at December 31, 2016.

The most recent actuarial valuation of the pension plans for funding purposes was as at January 1, 2016 and the next required valuation will be as at January 1, 2017.

The Company's funded status at December 31 is comprised of the following:

at December 31	Pension Benefit Plans				Other Post-Retirement Benefit Plans
(millions of Canadian $)	2016		2015		2016		2015
Change in Benefit Obligation1
Benefit obligation – beginning of year	2,780		2,658		225		216
Service cost	107		108		3		3
Interest cost	127		115		13		10
Employee contributions	4		4		2		—
Benefits paid	(204	)	(129	)	(16	)	(7	)
Actuarial loss/(gain)	111		(57	)	(8	)	(11	)
Acquisition of Columbia	527		—		151		—
Settlement loss	2		—		—		—
Foreign exchange rate changes	2		81		2		14
Benefit obligation – end of year	3,456		2,780		372		225
Change in Plan Assets
Plan assets at fair value – beginning of year	2,591		2,398		45		39
Actual return on plan assets	227		160		14		(1	)
Employer contributions2	111		96		8		6
Employee contributions	4		4		2		—
Benefits paid	(204	)	(129	)	(16	)	(7	)
Acquisition of Columbia	475		—		294		—
Foreign exchange rate changes	4		62		7		8
Plan assets at fair value – end of year	3,208		2,591		354		45
Funded Status – Plan Deficit	(248	)	(189	)	(18	)	(180	)

1 The benefit obligation for the Company’s pension benefit plans represents the projected benefit obligation. The benefit obligation for the Company’s other post-retirement benefit plans represents the accumulated post-retirement benefit obligation.

2 Excludes $233 million in letters of credit provided to the Canadian DB Plans for funding purposes (2015 – $214 million).

The amounts recognized in the Company's Consolidated balance sheet for its DB Plans and other post-retirement benefits plans are as follows:

at December 31	Pension Benefit Plans				Other Post-Retirement Benefit Plans
(millions of Canadian $)	2016		2015		2016		2015
Intangible and other assets (Note 12)	—		—		189		18
Accounts payable and other	—		—		(7	)	(7	)
Other long-term liabilities (Note 15)	(248	)	(189	)	(200	)	(191	)
	(248	)	(189	)	(18	)	(180	)

Included in the above benefit obligation and fair value of plan assets were the following amounts for plans that are not fully funded:

at December 31	Pension Benefit Plans				Other Post-Retirement Benefit Plans
(millions of Canadian $)	2016		2015		2016		2015
Projected benefit obligation1	(3,456	)	(2,780	)	(207	)	(198	)
Plan assets at fair value	3,208		2,591		—		—
Funded Status – Plan Deficit	(248	)	(189	)	(207	)	(198	)

1 The projected benefit obligation for the pension benefit plan differs from the accumulated benefit obligation in that it includes an assumption with respect to future compensation levels.

The funded status based on the accumulated benefit obligation for all DB Plans is as follows:

at December 31	2016		2015
(millions of Canadian $)
Accumulated benefit obligation	(3,202	)	(2,600	)
Plan assets at fair value	3,208		2,591
Funded Status – Plan Surplus/(Deficit)	6		(9	)

Included in the above accumulated benefit obligation and fair value of plan assets are the following amounts in respect of plans that are not fully funded.

at December 31	2016		2015
(millions of Canadian $)
Accumulated benefit obligation	(990	)	(807	)
Plan assets at fair value	868		680
Funded Status – Plan Deficit	(122	)	(127	)

The Company pension plans' weighted average asset allocations and target allocations by asset category were as follows:

	Percentage of Plan Assets				Target Allocations
at December 31	2016		2015		2016
Debt securities	31	%	34	%	25% to 40%
Equity securities	63	%	66	%	45% to 75%
Alternatives	6	%	—		5% to 15%
	100	%	100	%

Debt and equity securities include the Company's debt and common shares as follows:

at December 31			Percentage of Plan Assets
(millions of Canadian $)	2016	2015	2016		2015
Debt securities	9	2	0.2	%	0.1	%
Equity securities	4	4	0.1	%	0.1	%

Pension plan assets are managed on a going concern basis, subject to legislative restrictions, and are diversified across asset classes to maximize returns at an acceptable level of risk. Asset mix strategies consider plan demographics and may include traditional equity and debt securities, as well as alternative assets such as infrastructure, private equity, real estate and derivatives to diversify risk. Derivatives are not used for speculative purposes and the use of leveraged derivatives is prohibited.

All investments are measured at fair value using market prices. Where the fair value cannot be readily determined by reference to generally available price quotations, the fair value is determined by considering the discounted cash flows on a risk-adjusted basis and by comparison to similar assets which are publicly traded. In Level I, the fair value of assets is determined by reference to quoted prices in active markets for identical assets that the Company has the ability to access at the measurement date. In Level II, the fair value of assets is determined using valuation techniques, such as option pricing models and extrapolation using significant inputs, which are observable directly or indirectly. In Level III, the fair value of assets is determined using a market approach based on inputs that are unobservable and significant to the overall fair value measurement.

The following table presents plan assets for DB Plans and other post-retirement benefits measured at fair value, which have been categorized into the three categories based on a fair value hierarchy. For further information on the fair value hierarchy, refer to Note 24, Risk management and financial instruments.

at December 31	Quoted Prices in Active Markets (Level I)		Significant Other Observable Inputs (Level II)		Significant Unobservable Inputs (Level III)		Total		Percentage of Total Portfolio
(millions of Canadian $)	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
Asset Category
Cash and Cash Equivalents	22	44	12	2	—	—	34	46	1	2
Equity Securities:
Canadian	388	317	143	147	—	—	531	464	15	17
U.S.	504	589	476	40	—	—	980	629	27	24
International	39	38	327	300	—	—	366	338	10	13
Global	—	—	235	154	—	—	235	154	7	6
Emerging	7	7	137	143	—	—	144	150	4	6
Fixed Income Securities:
Canadian Bonds:
Federal	—	—	192	206	—	—	192	206	5	8
Provincial	—	—	179	202	—	—	179	202	5	8
Municipal	—	—	8	7	—	—	8	7	—	—
Corporate	—	—	126	113	—	—	126	113	4	4
U.S. Bonds:
Federal	—	—	82	—	—	—	82	—	2	—
State	—	—	41	50	—	—	41	50	1	2
Municipal	—	—	39	—	—	—	39	—	1	—
Corporate	—	—	188	57	—	—	188	57	5	2
International:
Government	—	—	6	—	—	—	6	—	—	—
Corporate	—	—	21	25	—	—	21	25	1	1
Mortgage backed	—	—	62	58	—	—	62	58	2	2
Other Investments:
Real Estate	—	—	—	—	133	—	133	—	4	—
Infrastructure	—	—	—	—	58	—	58	—	2	—
Private equity funds	—	—	—	—	8	14	8	14	—	—
Funds held on deposit	129	123	—	—	—	—	129	123	4	5
	1,089	1,118	2,274	1,504	199	14	3,562	2,636	100	100

The following table presents the net change in the Level III fair value category:

(millions of Canadian $, pre-tax)	Private Equity Funds
Balance at December 31, 2014	13
Purchases and sales	(1	)
Realized and unrealized gains	2
Balance at December 31, 2015	14
Purchases and sales	183
Realized and unrealized gains	2
Balance at December 31, 2016	199

The Company's expected funding contributions in 2017 are approximately $100 million for the DB Plans, approximately $7 million for the other post-retirement benefit plans and approximately $51 million for the savings plan and DC Plans. The Company expects to provide an additional estimated $20 million letter of credit to the Canadian DB Plan for the funding of solvency requirements.

The following are estimated future benefit payments, which reflect expected future service:

(millions of Canadian $)	Pension Benefits	Other Post- Retirement Benefits
2017	178	19
2018	183	19
2019	189	20
2020	196	20
2021	200	20
2022 to 2026	1,067	97

The rate used to discount pension and other post-retirement benefit plan obligations was developed based on a yield curve of corporate AA bond yields at December 31, 2016. This yield curve is used to develop spot rates that vary based on the duration of the obligations. The estimated future cash flows for the pension and other post-retirement obligations were matched to the corresponding rates on the spot rate curve to derive a weighted average discount rate.

The significant weighted average actuarial assumptions adopted in measuring the Company's benefit obligations were as follows:

	Pension Benefit Plans				Other Post-Retirement Benefit Plans
at December 31	2016		2015		2016		2015
Discount rate	4.00	%	4.20	%	4.15	%	4.40	%
Rate of compensation increase	1.20	%	0.50	%	—		—

The significant weighted average actuarial assumptions adopted in measuring the Company's net benefit plan costs were as follows:

	Pension Benefit Plans						Other Post-Retirement Benefit Plans
year ended December 31	2016		2015		2014		2016		2015		2014
Discount rate	4.20	%	4.15	%	4.95	%	4.30	%	4.20	%	5.00	%
Expected long-term rate of return on plan assets	6.70	%	6.95	%	6.90	%	5.95	%	4.60	%	4.60	%
Rate of compensation increase	0.80	%	3.15	%	3.15	%	—		—		—

The overall expected long-term rate of return on plan assets is based on historical and projected rates of return for the portfolio in aggregate and for each asset class in the portfolio. Assumed projected rates of return are selected after analyzing historical experience and estimating future levels and volatility of returns. Asset class benchmark returns, asset mix and anticipated benefit payments from plan assets are also considered in determining the overall expected rate of return. The discount rate is based on market interest rates of high-quality bonds that match the timing and benefits expected to be paid under each plan.

An eight per cent weighted average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2017 measurement purposes. The rate was assumed to decrease gradually to five per cent by 2024 and remain at this level thereafter. A one per cent change in assumed health care cost trend rates would have the following effects:

(millions of Canadian $)	Increase	Decrease
Effect on total of service and interest cost components	1	(1	)
Effect on post-retirement benefit obligation	15	(13	)

The Company's net benefit cost recognized is as follows:

at December 31	Pension Benefit Plans						Other Post-Retirement Benefit Plans
(millions of Canadian $)	2016		2015		2014		2016		2015		2014
Service cost	107		108		85		3		3		2
Interest cost	127		115		113		13		10		10
Expected return on plan assets	(175	)	(155	)	(139	)	(11	)	(2	)	(2	)
Amortization of actuarial loss	20		35		21		2		3		2
Amortization of past service cost	—		2		2		—		1		—
Amortization of regulatory asset	27		23		18		1		1		1
Amortization of transitional obligation related to regulated business	—		—		—		2		2		2
Net Benefit Cost Recognized	106		128		100		10		18		15

Pre-tax amounts recognized in AOCI were as follows:

	2016		2015		2014
at December 31	Pension Benefits	Other Post- Retirement Benefits	Pension Benefits	Other Post- Retirement Benefits	Pension Benefits	Other Post- Retirement Benefits
(millions of Canadian $)
Net loss	268	23	247	28	348	39
Prior service cost	—	—	—	—	2	1
	268	23	247	28	350	40

The estimated net loss for the DB Plans and for the other post-retirement benefit plans that will be amortized from AOCI into net periodic benefit cost in 2017 is $20 million and $2 million, respectively.

Pre-tax amounts recognized in OCI were as follows:

	2016				2015				2014
at December 31	Pension Benefits		Other Post- Retirement Benefits		Pension Benefits		Other Post- Retirement Benefits		Pension Benefits		Other Post- Retirement Benefits
(millions of Canadian $)
Amortization of net loss from AOCI to OCI	(20	)	(2	)	(34	)	(4	)	(21	)	(2	)
Amortization of prior service costs from AOCI to OCI	—		—		(2	)	(1	)	(2	)	—
Funded status adjustment	43		(5	)	(67	)	(7	)	137		9
	23		(7	)	(103	)	(12	)	114		7