Notes to Consolidated Financial Statements
The Company sponsors DB Plans that cover a significant majority of 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 Plans increase annually by a portion of the increase in the Consumer Price Index. Past service costs are amortized over the expected average remaining service life of employees, which is approximately eight years (2010 – eight years; 2009 – eight 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. Past service costs are amortized over the expected average remaining life expectancy of former employees, which was approximately 12 years at December 31, 2011. Contributions to the Savings Plan and DC Plans are expensed as incurred. In 2011, the Company expensed $23 million (2010 and 2009 – $21 million) for the Savings Plan and DC Plans. Total cash payments for employee future benefits, consisting of cash contributed by the Company to the DB Plans and other benefit plans, was $93 million in 2011 (2010 – $127 million; 2009 – $168 million), including $23 million in 2011 (2010 and 2009 – $21 million) related to the Savings Plan and DC Plans. In addition to these cash payments, in 2011 the Company provided a $27 million letter of credit to the DB Plan. The Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes as at December 31 of each year. The most recent actuarial valuation of the pension plans for funding purposes was as at January 1, 2012, and the next required valuation will be as at January 1, 2013.
The accrued benefit asset/(liability) net of valuation allowance of nil in the Company's Balance Sheet was as follows:
Included in the above benefit obligation and fair value of plan assets were the following amounts for plans that are not fully funded:
The Company's expected funding contributions in 2012 are approximately $119 million for the DB Plans and approximately $31 million for the other benefit plans, Savings Plan and DC Plans. In addition to these contributions, the Company expects to provide a $48 million letter of credit in 2012 to the DB Plan. The following are estimated future benefit payments, which reflect expected future service:
The rate used to discount pension and other post-employment benefit plan obligations was developed based on a yield curve of corporate AA bond yields at December 31, 2011. 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-employment 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:
The significant weighted average actuarial assumptions adopted in measuring the Company's net benefit plan cost were as follows:
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 8.50 per cent average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2012 measurement purposes. The rate was assumed to decrease gradually to five per cent by 2019 and remain at this level thereafter. A one per cent change in assumed health care cost trend rates would have the following effects:
The Company's net benefit cost is as follows:
The Company pension plans' weighted average asset allocations and target allocations by asset category were as follows: Asset Category
Debt securities included the Company's debt of $2 million (0.1 per cent of total plan assets) and $4 million (0.2 per cent of total plan assets) at December 31, 2011 and 2010, respectively. Equity securities included the Company's common shares of $3 million (0.2 per cent of total plan assets) and $3 million (0.2 per cent of total plan assets) at December 31, 2011 and 2010, respectively. 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 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. The following table presents plan assets for DB Plans and other post-employment benefits measured at fair value, which have been categorized into three categories based on a fair value hierarchy. In Level I, the fair value of assets is determined by reference to quoted prices in active markets for identical assets. In Level II, determination of the fair value of assets includes valuations using inputs, other than quoted prices, for which all significant inputs are observable, directly or indirectly. This category includes fair value determined using valuation techniques, such as option pricing models and extrapolation using observable inputs. In Level III, determination of the fair value of assets is based on inputs that are not readily observable and are significant to the overall fair value measurement.
The following table presents the net change in the Level III fair value category:
Employee Future Benefits of Joint VenturesCertain of the Company's joint ventures sponsor DB Plans as well as post-employment benefits other than pensions, including defined life insurance and medical benefits beyond those provided by government-sponsored plans. The obligations of these plans are non-recourse to TransCanada. The following amounts in this note, including those in the accompanying tables, represent TransCanada's proportionate share with respect to these plans. Total cash payments for employee future benefits, consisting of cash contributed by the Company's joint ventures to DB Plans and other benefit plans was $59 million in 2011 (2010 – $58 million; 2009 – $54 million). The Company's joint ventures measure the benefit obligations and the fair value of plan assets for accounting purposes as at December 31 of each year. The most recent actuarial valuations of the pension plans for funding purposes were as at January 1, 2012, and the next required valuations will be as at January 1, 2013.
The accrued benefit asset/(liability), net of valuation allowance of nil in the Company's Balance Sheet was as follows:
The following amounts were included in the above benefit obligation and fair value of plan assets for plans that are not fully funded:
The expected total funding contributions of the Company's joint ventures in 2012 are approximately $73 million for the pension benefit plans and approximately $7 million for the other benefit plans. The following are estimated future benefit payments, which reflect expected future service:
The significant weighted average actuarial assumptions adopted in measuring the benefit obligations of the Company's joint ventures were as follows:
The significant weighted average actuarial assumptions adopted in measuring the net benefit plan costs of the Company's joint ventures were as follows:
An 8.50 per cent average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2012 measurement purposes. The rate was assumed to decrease gradually to five per cent by 2019 and remain at this level thereafter. A one per cent change in assumed health care cost trend rates would have the following effects:
The Company's proportionate share of net benefit cost of joint ventures is as follows:
The weighted average asset allocations and target allocations by asset category in the pension plans of the Company's joint ventures were as follows:
Debt securities included the Company's debt of $1 million (0.2 per cent of total plan assets) and $1 million (0.2 per cent of total plan assets) at December 31, 2011 and 2010, respectively. Equity securities included the Company's common shares of $4 million (0.6 per cent of total plan assets) and $4 million (0.5 per cent of total plan assets) at December 31, 2011 and 2010, respectively. The assets of the joint ventures' pension plans are managed on a going concern basis subject to legislative restrictions. The plans' investment policies are to maximize returns within an acceptable risk tolerance. Pension assets are invested in a diversified manner with consideration given to the demographics of the plans' participants. |
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