Companies provide other employee future benefits in addition

Companies provide other employee future benefits in addition to defined benefit pension plans. In many cases, these obligations and expenses can be significant, but often are ignored. Access the 2009 fiscal year-end statements for the following companies from SEDAR (www.sedar.com): BCE Inc., Potash Corp., Canadian Pacific Railway, and Air Canada.

Instructions

(a) For each company, outline the other employee future benefits that are provided. Detail the assumptions that have been used to account for these other employee future benefits.

(b) For each company, provide the following:

1. Funded status of the pension plans

2. Pension expense

3. Funded status of the other employee future benefits

4. Other employee future benefit expense and any plan assets to support the other employee future benefits

(c) Comment on the relative amounts of the deficit and expenses of the pension plans and the other benefits. What impact does this have on any analysis completed for companies?

(a)

    BCE Inc. provides health care and life insurance benefits for retirees.  These benefits are being phased over a ten year period ending in December, 2016.The assumptions used are 6.4% to 7.0% for the discount rate, and   health care rates of 4.5%, compensation increases of 3% and expected return on the plan assets of 7.25%.

    Potash provides health care and life insurance benefits for retirees. The assumptions used are 5.85% to 6.25% for the discount rate, and   health care rates of 6%.

    Canadian National Railway provides medical and life insurance benefits for retirees and for a closed group of employees free rail passes during retirement.  Assumptions stated: Discount rate is 6.01%, to 6.84% and rate increase in health care costs are 11% for 2009 and 2010, with cost trend rates declining to 4.5% by 2028 and compensation increases of 3.5%

    Air Canada provides other post-employment benefits such as health, life and disability. Assumptions stated: Discount rate is 6.25%, to 7.35% and rate increase in health care costs are 8.25%, with cost trend rates declining to 5.00% by 2015 and compensation increases of 2.5%

(b) in $millions

	Pension Deficit	Pension Expense	Other Benefits Deficit	Other benefits expense	Plan asset for other benefits
BCE Inc.	1,611	239	1,431	71	191
Potash Corp	143.3	40.6	275.9	23.2	0
Canadian Pacific Railway Limited	(624) surplus	(34)	286	19	0
Air Canada	1,186	(20)	851	63	0

(c) From the analysis in part (b), we find the following for each company:

BCE – the other benefits deficit is 89% of the pension deficit, and the expense is about 30% of the defined benefit plan expense.  This indicates that the other employee benefits have a significant impact on the company’s report.

Potash – In the case of Potash, the deficit for the other benefits is 190% higher than the pension deficit indicating it is a significant expense.  The other benefit expense is about 57% of the defined benefit pension expense.

CNR – Although CNR’s defined benefit plan is in a surplus, its other benefit plan obligation is in a deficit of $286 million.  In addition, although the defined benefit expense is showing a net gain position, the other benefits expense is $19 million.

Air Canada – Air Canada`s other benefit obligation is 72% of the defined benefit deficit.  The other benefit expense is $63 million whereas the defined benefit expense shows a net gain.

From the four companies analyzed above, it is obvious that the other future benefits obligations are just as significant (or more in some cases) as the defined benefit obligations, and should be considered as part of any analysis.