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Note 22 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 OPEB plans.

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 plan to an increase in life expectancy.

COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS SERVICE COST

FOR THE YEAR ENDED DECEMBER 31 2016   2015  

DB pension

(203 ) (232 )

DC pension

(100 ) (96 )

OPEBs

(7 ) (8 )

Plan amendment gain on DB pension and OPEBs

27

Less:

       

Capitalized benefit plans cost

59   55  

Total post-employment benefit plans service cost included in operating costs

(224 ) (281 )

Other costs recognized in severance, acquisition and other costs

5 (44 )

Total post-employment benefit plans service cost

(219 ) (325 )

COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS FINANCING COST

FOR THE YEAR ENDED DECEMBER 31 2016   2015  

DB pension

(24 ) (53 )

OPEBs

(57 ) (57 )

Total interest on post-employment benefit obligations

(81 ) (110 )

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

  2016   2015  

Cumulative losses recognized directly in equity, January 1

(2,384 ) (2,974 )

Actuarial (losses) gains in other comprehensive income(1)

(264 ) 594

Increase in the effect of the asset limit(2)

2 (4 )

Cumulative losses recognized directly in equity, December 31

(2,646 ) (2,384 )

 

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
  2016   2015   2016   2015   2016   2015  

Post-employment benefit obligations, January 1

(20,675 ) (20,988 ) (1,705 ) (1,707 ) (22,380 ) (22,695 )

Current service cost

(203 ) (232 ) (7 ) (8 ) (210 ) (240 )

Interest on obligations

(852 ) (825 ) (68 ) (67 ) (920 ) (892 )

Actuarial (losses) gains(1)

(311 ) 291 12   5 (299 ) 296

Net curtailment gains (losses)

27 (39 ) 5 (5 ) 32 (44 )

Benefit payments

1,169   1,122   79   77   1,248   1,199  

Employee contributions

(5 ) (5 ) (5 )   (5 ) (5 )

Other

(3 ) 1     (3 ) 1

Post-employment benefit obligations, December 31

(20,853 ) (20,675 ) (1,684 ) (1,705 ) (22,537 ) (22,380 )

Fair value of plan assets, January 1

20,244   19,819   266   261   20,510   20,080  

Expected return on plan assets(2)

828   772   11   10   839   782  

Actuarial gains (losses)

29   301   6 (3 ) 35   298  

Benefit payments

(1,169 ) (1,122 ) (79 ) (77 ) (1,248 ) (1,199 )

Employer contributions

626   469   76   75   702   544  

Employee contributions

5   5       5   5  

Fair value of plan assets, December 31

20,563   20,244   280   266   20,843   20,510  

Plan deficit

(290 ) (431 ) (1,404 ) (1,439 ) (1,694 ) (1,870 )

Effect of asset limit

(8 ) (10 )     (8 ) (10 )

Post-employment benefit liability, December 31

(298 ) (441 ) (1,404 ) (1,439 ) (1,702 ) (1,880 )

Post-employment benefit assets included in other non-current assets

403   158       403   158  

Post-employment benefit obligations

(701 ) (599 ) (1,404 ) (1,439 ) (2,105 ) (2,038 )

 

 

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 2016   2015   2016   2015   2016   2015   2016   2015  

Present value of post-employment benefit obligations

(20,249 ) (20,064 ) (1,995 ) (2,061 ) (293 ) (255 ) (22,537 ) (22,380 )

Fair value of plan assets

20,520   20,204   323   306       20,843   20,510  

Plan surplus (deficit)

271   140 (1,672 ) (1,755 ) (293 ) (255 ) (1,694 ) (1,870 )

 

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

  2016   2015  

At December 31

       

Post-employment benefit obligations

       

Discount rate

4.0 % 4.2 %

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  

For the year ended December 31

       

Net post-employment benefit plans cost

       

Discount rate

4.3 % 4.0 %

Rate of compensation increase

2.5 % 2.5 %

Cost of living indexation rate(1)

1.6 % 1.6 %

Life expectancy at age 65 (years)

23.0   23.0  

 

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 2016 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 3.2%
  • 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   (6 )

Post-employment benefit obligations

142   (120 )
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 2016 –
INCREASE/(DECREASE)
  IMPACT ON POST-EMPLOYMENT BENEFIT
OBLIGATIONS AT DECEMBER 31, 2016 –
INCREASE/(DECREASE)
  CHANGE IN   INCREASE IN   DECREASE IN   INCREASE IN   DECREASE IN  
  ASSUMPTION   ASSUMPTION   ASSUMPTION   ASSUMPTION   ASSUMPTION  
Discount rate 0.5 % (77 ) 66   (1,435 ) 1,533  
Life expectancy at age 65 1 year 34 (33 ) 699 (678 )

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 2016 and the allocation of our post-employment benefit plan assets at December 31, 2016 and 2015.

  WEIGHTED AVERAGE
TARGET ALLOCATION
  TOTAL PLAN ASSETS FAIR VALUE
AT DECEMBER 31 (%)
ASSET CATEGORY 2016   2016   2015  

Equity securities

20–35 % 22 % 26 %

Debt securities

55–80 % 68 % 65 %

Alternative investments

0%–25 % 10 % 9 %

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 2016   2015  

Observable market data

       

Equity securities

       

Canadian

901   910  

Foreign

3,682   4,263  

Debt securities

       

Canadian

12,469   12,038  

Foreign

1,068   718  

Money market

387   431  

Non-observable market inputs

       

Alternative investments

       

Private equities

1,219   1,124  

Hedge funds

726   687  

Other

111   73

Total

20,563   20,244  

Equity securities included approximately $17 million of BCE common shares, or 0.08% of total plan assets, at December 31, 2016 and approximately $12 million of BCE common shares, or 0.06% of total plan assets, at December 31, 2015.

Debt securities included approximately $15 million of Bell Canada debentures, or 0.07% of total plan assets, at December 31, 2016 and approximately $32 million of Bell Canada debentures, or 0.16% of total plan assets, at December 31, 2015.

Alternative investments included the pension plan’s investment in MLSE of $135 million, or 0.66% of total plan assets, at December 31, 2016 and $135 million, or 0.67% of total plan assets at December 31, 2015.

On February 23, 2015, the Bell Canada pension plan entered into an investment arrangement to hedge 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 2016   2015   2016   2015   2016   2015  
Contributions (626 ) (469 ) (99 ) (97 ) (76 ) (75 )

 

We expect to contribute approximately $225 million to our DB pension plans in 2017, subject to actuarial valuations being completed. We expect to pay approximately $80 million to beneficiaries under OPEB plans and to contribute approximately $105 million to the DC pension plans in 2017.

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