Obtain
the annual statements for BCE Inc. for the year ended December 31, 2009, from
the company's website or SEDAR (www.sedar.com).
Instructions
Refer
to the 2009 financial statements of BCE Inc and answer the following questions.
(a)
Determine what the funded status is of the defined benefit plans and what the
dollar amount of the over- or underfunding is at December 31, 2009, and
December 31, 2008. Has the status improved or deteriorated since the end of the
preceding year? What is the major reason for the change in BCE's funded status?
What is the status of the plans in the net deficit position and what is the
status of the plans in a net surplus position at December 31, 2009?
(b)
What is the amount of the pension asset or liability reported on BCE's December
31, 2009 balance sheet? Provide reconciliation to the funded status reported in
(a). Comment on this representation.
(c)
What was the expected return on the plan assets in 2009? What was the actual
return on the plan assets for the year? What amount of actuarial gains and
losses, if any, were amortized to pension expense in 2009? What was the total
amount of actuarial gains and losses arising during the year? How much has not
yet been recognized in the accounts at December 31, 2009? How much was
recognized for past service costs during the year? What was the total amount of
past service costs arising during the year? How much has not yet been
recognized in the accounts at December 27, 2009?
(d)
What was the expense that the company reported for its defined benefit plans?
Estimate the amount of expense that would have been reported under the
immediate recognition approach for December 31, 2009. Comment on any
differences.
(e)
What type of post-retirement plans does the company have? Are these in a
surplus or deficit position? What were the balances reported for these plan
obligations? How do these balances compare with the actual deficits or
surpluses in the plans and why?
(f)
What is the total expense for the defined contribution plans during 2009? 2008?
All of the answers
below are taken from Note 23 of the 2009 financial statements.
(a) The plan asset
and accrued benefit obligation balances at the end of years 2009 and 2008 are
presented below.
|
(in $millions )
|
Dec. 31, 2009
|
Dec. 31, 2008
|
|
Accrued benefit
obligation
|
14,680
|
13,602
|
|
|
|
|
|
Plan assets
|
13,069
|
11,510
|
|
Funded
status–deficit
|
1,611
|
2,092
|
he under-funded status has improved slightly since the end of the 2008 mainly because the employer made a
large contribution of $1.025 billion in 2009 compared to only $189 million in
2008. At the same time, the actual
return on the plan assets was a gain of $1,566 million compared to a loss of
$2,610 million in 2008.
This net deficit of $1,611 million
at December 31, 2009, is allocated as follows to the various plans
|
(in $millions )
|
Plans in a deficit
|
Plans in a surplus
|
|
Accrued benefit
obligation
|
14,553
|
127
|
|
|
|
|
|
Plan assets
|
12,811
|
258
|
|
Funded status–deficit
(surplus)
|
1,742
|
-131
|
(b) The reconciliation of the funded status of these plans at
December 31, 2009, to the amounts reported on the balance sheet is as follows:
|
(in $millions)
|
Dec. 31, 2009
|
|
|
|
|
Funded
status–deficit
|
$ (1,611)
|
|
Unamortized net
actuarial loss
|
3,358
|
|
Unamortized cost
of past services
|
56
|
|
Unamortized
transitional obligation
|
1
|
|
Valuation
allowance
|
(100)
|
|
Accrued benefit
asset,
net *
|
$ 1,704
|
|
Reported on the
statement of financial position as follows:
|
|
|
Long term asset –
Accrued benefit asset
|
2,316
|
|
Long term
liability – Accrued benefit liability
|
(612)
|
The company is showing a large asset of $2.316
billion, when in actual fact, the company’s plan in a surplus position is only
$131 million. In addition, the company’s actual deficit for its plans is $1.742
billion, and yet only $612 is reported as a liability. This results in a very distorted reporting of
the liabilities and assets of the company since the company does not really own
these assets, nor can they used for operating purposes. This would result in a distortion of various
debt to equity ratios calculated for the company, for example.
(c) The company’s results are shown below in
the table: (in $millions)
|
Expected return on plan assets (1,566 – 685)
|
881
|
|
Actual return on plan assets
|
1,566
|
|
Current year’s amortization of actuarial losses
|
(84)
|
|
Actual amount of actuarial losses arising during
the year
|
(1,043)
|
|
Actuarial losses not yet recognized
|
3,358
|
|
Current year’s amortization of past service costs
|
(5)
|
|
Actual amount of past service costs arising during
the year
|
0
|
|
Past service costs not yet recognized
|
56
|
(d) The
expense reported for the defined benefit plans $239 million.
The expense under the immediate recognition approach
would be calculated as follows:
|
Current service cost
|
175
|
|
Interest cost
|
892
|
|
Actual return on plan assets
|
(1,566)
|
|
Actuarial losses arising during the year
|
1,043
|
|
Valuation allowance
|
33
|
|
|
577
|
This is substantially higher than the expense under
the defer-and-amortize approach due to the differences in the returns on the
plan assets and the actuarial losses arising during the year.
(e) BCE has other post employment plans that
provide for health and life insurance coverage, but these plans are being
phased out over the next 10 years ending December 31, 2016.
The company also provides to some workers disability plans, workers’
compensation and medical benefits to former employees until their retirement
commences. These plans were a large
deficit position at December 31, 2009 and 2008 of $1,431 million and $1,355
million. The company has few assets top
fund these plans. For 2009 and 2008, the
company reported liabilities of $1,404 and $1,443 million respectively. In contrast to the pension benefits, these
liabilities are very close to the obligations, with differences of only $27
million in 2009, and $88 million in 2008.
The primary reason for this is that that company has few assets, and
unamortized amounts of actuarial gains and losses and past service costs, only
represent about 10% of the actual obligation balances.
(f) The total expense for the defined contribution
plans were: $45 million for both 2008
and 2009.
