29. EMPLOYEE BENEFIT PLANS
The expenses included on the consolidated statements of income (loss) and the consolidated statements of comprehensive income (loss) were as follows:
| Pension plans | Other post-employment benefit plans | |||||||||||||||||||||||
| Years ended December 31, | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
| Consolidated statements of income (loss) | ||||||||||||||||||||||||
| Operating expenses | $ | 6,239 | $ | 6,235 | $ | 7,659 | $ | 243 | $ | 221 | $ | 494 | ||||||||||||
| Interest expense | $ | 650 | $ | 875 | $ | 933 | $ | 861 | $ | 858 | $ | 1,043 | ||||||||||||
| Consolidated statements of comprehensive income (loss) | ||||||||||||||||||||||||
| Actuarial losses (gains) on employee benefit plans | $ | 3,761 | $ | (4,376 | ) | $ | (1,140 | ) | $ | 1,410 | $ | (724 | ) | $ | (4,085 | ) | ||||||||
In October 2013, the Company ceased allowing new employees to join certain of the defined benefit plans, except under certain circumstances, and commenced a defined contribution pension plan for new employees.
The Company made contributions of $0.8 million for various defined contribution arrangements during 2017 (December 31, 2016 — $0.8 million).
The Company’s funding policy is to make contributions to its defined benefit pension funds based on actuarial cost methods as permitted by pension regulatory bodies. Contributions reflect actuarial assumptions concerning future investment returns, salary projections and future service benefits. Plan assets are represented primarily by Canadian and foreign equity securities, fixed income instruments and short-term investments.
The Company provides certain health care and life insurance benefits for some of its retired employees and their dependents. Participants are eligible for these benefits generally when they retire from active service and meet the eligibility requirements for the pension plan. These benefits are funded primarily on a pay-as-you-go basis, with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions.
The balance sheet obligations, distributed between pension and other post-employment benefits, included in other long-term liabilities (Note 23) were as follows:
| As at December 31, | 2017 | 2016 | ||||||
| Pension benefits | $ | 16,169 | $ | 14,330 | ||||
| Other post-employment benefits | 23,896 | 22,388 | ||||||
| Accrued benefit liabilities | $ | 40,065 | $ | 36,718 | ||||
The amounts recognized in the balance sheets and the funded statuses of the benefit plans were as follows:
| 2017 | 2016 | |||||||||||||||
| As at December 31, | Pension | Other | Pension | Other | ||||||||||||
| Present value of funded obligations | $ | 306,660 | $ | — | $ | 279,428 | $ | — | ||||||||
| Fair value of plan assets | (291,612 | ) | — | (266,255 | ) | — | ||||||||||
| 15,048 | — | 13,173 | — | |||||||||||||
| Present value of unfunded obligations | 1,121 | 23,896 | 1,157 | 22,388 | ||||||||||||
| Accrued benefit liabilities | $ | 16,169 | $ | 23,896 | $ | 14,330 | $ | 22,388 | ||||||||
The changes in the benefit obligations and in the fair value of plan assets were as follows:
| Pension | Other | Total | ||||||||||
| Change in benefit obligations | ||||||||||||
| Benefit obligation, January 1, 2017 | $ | 280,585 | $ | 22,388 | $ | 302,973 | ||||||
| Current service cost | 5,741 | 243 | 5,984 | |||||||||
| Interest expense | 10,992 | 861 | 11,853 | |||||||||
| Remeasurements | ||||||||||||
| Actuarial losses arising from plan experience | 2,748 | 138 | 2,886 | |||||||||
| Actuarial losses from change in demographic assumptions | — | 13 | 13 | |||||||||
| Actuarial losses from changes in financial assumptions | 16,244 | 1,259 | 17,503 | |||||||||
| Benefits paid | (9,769 | ) | (750 | ) | (10,519 | ) | ||||||
| Contributions by plan participants | 1,168 | — | 1,168 | |||||||||
| Foreign exchange | — | (246 | ) | (246 | ) | |||||||
| Other | 72 | (10 | ) | 62 | ||||||||
| Benefit obligation, December 31, 2017 | 307,781 | 23,896 | 331,677 | |||||||||
| Change in fair value of plan assets | ||||||||||||
| Fair value of plan assets, January 1, 2017 | (266,255 | ) | — | (266,255 | ) | |||||||
| Contributions by plan participants | (1,168 | ) | — | (1,168 | ) | |||||||
| Contributions by employer | (8,883 | ) | (750 | ) | (9,633 | ) | ||||||
| Interest income | (10,342 | ) | — | (10,342 | ) | |||||||
| Benefits paid | 9,769 | 750 | 10,519 | |||||||||
| Remeasurements | ||||||||||||
| Return on plan assets, excluding interest income | (15,231 | ) | — | (15,231 | ) | |||||||
| Administrative costs | 498 | — | 498 | |||||||||
| Fair value of plan assets, December 31, 2017 | (291,612 | ) | — | (291,612 | ) | |||||||
| Accrued benefit liabilities, December 31, 2017 | $ | 16,169 | $ | 23,896 | $ | 40,065 | ||||||
| Pension | Other | Total | ||||||||||
| Change in benefit obligations | ||||||||||||
| Benefit obligation, January 1, 2016 | $ | 269,236 | $ | 22,861 | $ | 292,097 | ||||||
| Current service cost | 5,776 | 221 | 5,997 | |||||||||
| Interest expense | 10,834 | 858 | 11,692 | |||||||||
| Remeasurements | ||||||||||||
| Actuarial gains arising from plan experience | (1,415 | ) | (981 | ) | (2,396 | ) | ||||||
| Actuarial losses from change in demographic assumptions | — | 28 | 28 | |||||||||
| Actuarial losses from changes in financial assumptions | 3,823 | 229 | 4,052 | |||||||||
| Benefits paid | (8,837 | ) | (640 | ) | (9,477 | ) | ||||||
| Contributions by plan participants | 1,242 | — | 1,242 | |||||||||
| Foreign exchange | — | (149 | ) | (149 | ) | |||||||
| Other | (74 | ) | (39 | ) | (113 | ) | ||||||
| Benefit obligation, December 31, 2016 | 280,585 | 22,388 | 302,973 | |||||||||
| Change in fair value of plan assets | ||||||||||||
| Fair value of plan assets, January 1, 2016 | (249,335 | ) | — | (249,335 | ) | |||||||
| Contributions by plan participants | (1,242 | ) | — | (1,242 | ) | |||||||
| Contributions by employer | (8,231 | ) | (640 | ) | (8,871 | ) | ||||||
| Interest income | (9,959 | ) | — | (9,959 | ) | |||||||
| Benefits paid | 8,837 | 640 | 9,477 | |||||||||
| Remeasurements | ||||||||||||
| Return on plan assets, excluding interest income | (6,784 | ) | — | (6,784 | ) | |||||||
| Administrative costs | 459 | — | 459 | |||||||||
| Fair value of plan assets, December 31, 2016 | (266,255 | ) | — | (266,255 | ) | |||||||
| Accrued benefit liabilities, December 31, 2016 | $ | 14,330 | $ | 22,388 | $ | 36,718 | ||||||
The weighted average duration of the defined benefit obligation as at December 31, 2017 is 16 years for the defined benefit pension plans and 14 years for the other post-employment benefit plans. The weighted average duration of the current service cost as at December 31, 2017 is 23 years for the defined benefit pension plans and 25 years for the other post-employment benefit plans.
The estimated future benefit payments for the defined benefit pension plans and other post-employment benefit plans until 2027 are as follows:
| Pension | Other | ||||||||
| 2018 | $ | 10,552 | $ | 882 | |||||
| 2019 | $ | 11,194 | $ | 919 | |||||
| 2020 | $ | 11,662 | $ | 960 | |||||
| 2021 | $ | 12,173 | $ | 1,001 | |||||
| 2022 | $ | 12,644 | $ | 1,044 | |||||
| 2023 to 2027 | $ | 73,263 | $ | 6,862 | |||||
Benefit payments include obligations to 2027 only as obligations beyond this date are not quantifiable.
The fair value of the plan assets were allocated as follows between the various types of investments:
| As at December 31, | 2017 | 2016 | ||||||
| Equity securities | ||||||||
| Canada | 22.3 | % | 23.3 | % | ||||
| United States | 14.1 | % | 14.6 | % | ||||
| International (other than United States) | 18.9 | % | 18.9 | % | ||||
| Fixed income instruments | ||||||||
| Canada | 42.6 | % | 40.7 | % | ||||
| Cash and cash equivalents | ||||||||
| Canada | 2.1 | % | 2.6 | % | ||||
Plan assets are valued at the measurement date of December 31 each year.
The investments are made in accordance with the Statement of Investment Policies and Procedures. The Statement of Investment Policies and Procedures is reviewed on an annual basis by the Management Level Pension Fund Investment Committee with approval of the policy being provided by the Audit Committee.
The following are the significant assumptions adopted in measuring the Company’s pension and other benefit obligations:
| Pension | Other | Pension | Other | |||||||||||||
| As at December 31, | 2017 | 2017 | 2016 | 2016 | ||||||||||||
| Actuarial benefit obligation | ||||||||||||||||
| Discount rate | 3.50 | % | 3.25% to 3.50% | 3.90 | % | 3.75% to 3.80% | ||||||||||
| Benefit costs for the year ended | ||||||||||||||||
| Discount rate | 4.00 | % | 3.75% to 4.00% | 4.20 | % | 4.00% to 4.10% | ||||||||||
| Future salary growth | 2.50 | % | N/A | 2.50 | % | N/A | ||||||||||
| Health care cost trend rate | N/A | 4.50 | % | N/A | 4.50 | % | ||||||||||
| Other medical trend rates | N/A | 4.50 | % | N/A | 4.50 | % | ||||||||||
For certain Canadian post-retirement benefits, the medical trend rate for drugs was assumed to be 6.50% in 2018, decreasing by 0.25% per annum, to a rate of 4.50% in 2026 and thereafter.
Sensitivity of assumptions
The calculation of the defined benefit obligation is sensitive to the assumptions set out above. The following table summarizes how the impact on the defined benefit obligation as at December 31, 2017 and 2016 would have increased or decreased as a result of the change in the respective assumptions by one percent.
| Pension | Other | |||||||||||||||
| As at December 31, 2017 | 1% increase | 1% decrease | 1% increase | 1% decrease | ||||||||||||
| Discount rate | $ | (42,092 | ) | $ | 53,148 | $ | (2,786 | ) | $ | 3,588 | ||||||
| Future salary growth | $ | 7,988 | $ | (7,457 | ) | N/A | N/A | |||||||||
| Medical and dental trend rates | N/A | N/A | $ | 2,165 | $ | (1,663 | ) | |||||||||
| Pension | Other | |||||||||||||||
| As at December 31, 2016 | 1% increase | 1% decrease | 1% increase | 1% decrease | ||||||||||||
| Discount rate | $ | (37,649 | ) | $ | 47,853 | $ | (2,618 | ) | $ | 3,345 | ||||||
| Future salary growth | $ | 8,028 | $ | (7,076 | ) | N/A | N/A | |||||||||
| Medical and dental trend rates | N/A | N/A | $ | 1,856 | $ | (1,444 | ) | |||||||||
The above sensitivities are hypothetical and should be used with caution. Changes in amounts based on a one percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in amounts may not be linear. The sensitivities have been calculated independently of changes in other key variables. Changes in one factor may result in changes in another, which could amplify or reduce certain sensitivities.
The Company expects to make contributions of $8.0 million to the defined benefit plans and $0.2 million to the defined contribution plan of Telesat Canada during the next fiscal year.