NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below shows our net pension expense for the years ended
December 31, 2013 and 2012. Net interest cost is included in finance
costs and other pension expenses are included in the salaries and
benefits expense in the consolidated statements of income.
2013 2012
Plan cost:
Service cost $7 1 $4 6
Net interest cost 12 5
Net pension expense 83 51
Administrative expense 2 2
Total pension cost recognized in net income $8 5 $5 3
Net interest cost, a component of the plan cost above is included in
finance costs and is outlined as follows.
2013 2012
Net interest cost:
Interest income on plan assets $ (40) $ (40)
Interest cost on plan obligation 52 45
Net interest cost recognized in finance costs $1 2 $5
The remeasurement recognized in other comprehensive income, is
determined as follows.
2013 2012
Return on plan assets (excluding interest income) $6 5 $3 7
Change in financial assumptions 140 (220)
Change in demographic assumptions (43) –
Effect of experience adjustments (16) (49)
Change in asset ceiling (9) –
Remeasurement recognized in other comprehensive income
(loss) and equity $ 137 $ (232)
We also provide supplemental unfunded pension benefits to certain
executives. The table below includes our accrued benefit obligations,
pension expense included in employee salaries and benefits, net interest
cost and other comprehensive income.
2013 2012
Accrued benefit obligation $4 9 $4 5
Pension expense included in employee salaries and benefits
expense 2 2
Net interest cost recognized in finance costs 2 2
Remeasurement recognized in other comprehensive income 3 5
Certain subsidiaries have defined contribution plans with total pension
expense of $2 million in 2013 (2012 – $2 million), which is included in
employee salaries and benefits expense.
Assumptions
There are significant assumptions that are used in the calculations
provided by our actuaries, and it is the responsibility of management to
determine which assumptions could result in a significant impact when
determining the accrued benefit obligations and pension expense.
Principal Actuarial Assumptions
2013 2012
Weighted average of significant
assumptions:
Defined benefit obligation
Discount rate 5.1% 4.5%
Rate of compensation increase 3.0% 3.0%
Mortality rate CPM-RPP2014 Priv UP94 Generational
Pension expense
Discount rate 4.5% 5.5%
Rate of compensation increase 3.0% 3.0%
Mortality rate UP94 Generational UP94 Generational
Sensitivity of Key Assumptions
In the sensitivity analysis shown below, we determine the defined
benefit obligation using the same method used to calculate the defined
benefit obligation we recognize in the consolidated statements of
financial position. We calculate sensitivity by changing one assumption
while holding the others constant. The actual change in defined benefit
obligation will likely be different from that shown in the table, since it is
likely that more than one assumption will change at a time, and that
some assumptions are correlated.
Increase/(decrease) in accrued
benefit obligation
Increase/(decrease) in
pension expense
2013 2012 2013 2012
Discount rate
Impact of:
0.5% increase $ (105) $ (99) $ (11) $ (11)
0.5% decrease 120 110 13 9
Rate of future compensation
increase
Impact of:
0.25% increase $1 4 $1 5 $3 $1
0.25% decrease (14) (15) (2) (3)
Mortality rate
Impact of:
1 year increase $2 6 $2 8 $4 $1
1 year decrease (27) (28) (3) (4)
Allocation of Plan Assets
Percentage of plan assets Target asset
allocation
percentageAsset category
December 31,
2013
December 31,
2012
Equity securities:
Domestic 20.1% 19.3% 10% to 29%
International 40.7% 38.3% 29% to 48%
Debt securities 38.9% 41.8% 38% to 47%
Other – cash 0.3% 0.6% 0% to 2%
100.0% 100.0%
Plan assets consist primarily of pooled funds that invest in common
stocks and bonds. The pooled Canadian equity funds has investments in
our equity securities. As a result, approximately $3 million (2012 –