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RETIREMENT AND POSTRETIREMENT BENEFITS | 12 Months Ended
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Dec. 31, 2012
RETIREMENT AND POSTRETIREMENT BENEFITS |
RETIREMENT AND POSTRETIREMENT BENEFITS | 24. RETIREMENT AND POSTRETIREMENT BENEFITS PENSION PLANS The Company has three registered pension plans which provide either defined benefit or defined contribution pension benefits, or both, to employees of the Company. The Liquids Pipelines and Gas Distribution pension plans (collectively, the Canadian Plans) provide Company funded defined benefit pension and/or defined contribution benefits to Canadian employees of Enbridge. The Enbridge United States pension plan (the United States Plan) provides Company funded defined benefit pension benefits for United States based employees. The Company has four supplemental pension plans which provide pension benefits in excess of the basic plans for certain employees. A measurement date of December 31, 2012 was used to determine the plan assets and accrued benefit obligation for the Canadian and United States plans. Defined Benefit Plans Benefits payable from the defined benefit plans are based on members’ years of service and final average remuneration. These benefits are partially inflation indexed after a member’s retirement. Contributions by the Company are made in accordance with independent actuarial valuations and are invested primarily in publicly-traded equity and fixed income securities. The effective dates of the most recent actuarial valuations and the next required actuarial valuations for the basic plans are as follows:
| Effective Date of Most Recently Filed Actuarial Valuation | Effective Date of Next Required Actuarial Valuation
Canadian Plans |  |
Liquids Pipelines | December 31, 2011 | December 31, 2012
Gas Distribution | December 31, 2009 | December 31, 2012
United States Plan | December 31, 2011 | December 31, 2012
Defined Contribution Plans Contributions are generally based on the employee’s age, years of service and remuneration. For defined contribution plans, benefit costs equal amounts required to be contributed by the Company. OTHER POSTRETIREMENT BENEFITS OPEB primarily includes supplemental health and dental, health spending account and life insurance coverage for qualifying retired employees. BENEFIT OBLIGATIONS AND FUNDED STATUS The following tables detail the changes in the benefit obligation, the fair value of plan assets and the recorded asset or liability for the Company’s defined benefit pension plans and OPEB plans using the accrual method.
| Pension |  | OPEB
December 31, | 2012 | 2011 |  | 2012 | 2011
(millions of Canadian dollars) |  |  |  |  |
Change in accrued benefit obligation |  |  |  |  |
Benefit obligation at beginning of year | 1,686 | 1,323 |  | 243 | 195
Service cost | 84 | 61 |  | 8 | 6
Interest cost | 74 | 73 |  | 10 | 11
Employees’ contributions | - | - |  | 1 | 1
Actuarial loss | 106 | 270 |  | 14 | 28
Benefits paid | (64) | (54) |  | (8) | (7)
Effect of foreign exchange rate changes | (5) | 5 |  | (2) | 2
Other | (2) | 8 |  | (5) | 7
Benefit obligation at end of year | 1,879 | 1,686 |  | 261 | 243
Change in plan assets |  |  |  |  |
Fair value of plan assets at beginning of year | 1,355 | 1,314 |  | 54 | 41
Actual return on plan assets | 117 | 16 |  | 5 | 1
Employer’s contributions | 97 | 72 |  | 13 | 13
Employees’ contributions | - | - |  | 1 | 1
Benefits paid | (64) | (54) |  | (8) | (7)
Effect of foreign exchange rate changes | (3) | 3 |  | (1) | 1
Other | (2) | 4 |  | (2) | 4
Fair value of plan assets at end of year | 1,500 | 1,355 |  | 62 | 54
Underfunded status at end of year | (379) | (331) |  | (199) | (189)
Presented as follows: |  |  |  |  |
Accounts payable and other | - | - |  | (5) | (5)
Other long-term liabilities (Note 17) | (379) | (331) |  | (194) | (184)
| (379) | (331) |  | (199) | (189)
The weighted average assumptions made in the measurement of the projected benefit obligations of the pension plans and OPEB are as follows:
| Pension |  | OPEB
Year ended December 31, | 2012 | 2011 | 2010 |  | 2012 | 2011 | 2010
Discount rate | 4.2% | 4.5% | 5.6% |  | 4.0% | 4.4% | 5.6%
Average rate of salary increases | 3.7% | 3.5% | 3.5% |  |  |  |
NET BENEFIT COSTS RECOGNIZED
| Pension |  | OPEB
Year ended December 31, | 2012 | 2011 | 2010 |  | 2012 | 2011 | 2010
(millions of Canadian dollars) |  |  |  |  |  |  |
Benefits earned during the year | 84 | 61 | 48 |  | 8 | 6 | 5
Interest cost on projected benefit obligations | 74 | 73 | 72 |  | 10 | 11 | 11
Expected return on plan assets | (93) | (92) | (80) |  | (3) | (3) | (2)
Amortization of prior service costs | 2 | 2 | 2 |  | - | 1 | -
Amortization of actuarial loss | 51 | 25 | 19 |  | 2 | 1 | 1
Net defined benefit costs on an accrual basis | 118 | 69 | 61 |  | 17 | 16 | 15
Defined contribution benefit costs | 4 | 4 | 5 |  | - | - | -
Net benefit cost recognized in the |  |  |  |  |  |  |
Consolidated Statements of Earnings | 122 | 73 | 66 |  | 17 | 16 | 15
Net amount recognized in OCI |  |  |  |  |  |  |
Net actuarial loss 1 | 42 | 172 | 35 |  | 10 | 29 | 11
Net prior service cost/(credit)2 | - | - | - |  | - | (1) | 6
Total amount recognized in OCI | 42 | 172 | 35 |  | 10 | 28 | 17
Total amount recognized in Comprehensive income | 164 | 245 | 101 |  | 27 | 44 | 32
1 | Unamortized actuarial losses included in AOCI, before tax, were $388 million (2011 - $346 million) relating to the pension plans and $60 million (2011 - $51 million) relating to OPEB at December 31, 2012.
2 | Unamortized prior service costs included in AOCI, before tax, were $4 million (2011 - $5 million) relating to OPEB at December 31, 2012.
The Company estimates that approximately $24 million related to pension plans and $2 million related to OPEB at December 31, 2012 will be reclassified from AOCI into earnings in the next 12 months. Regulatory adjustments are recorded in the Consolidated Statements of Earnings, the Consolidated Statements of Comprehensive Income and the Consolidated Statements of Financial Position to reflect the difference between pension expense for accounting purposes and pension expense for ratemaking purposes. Offsetting regulatory assets or liabilities are recorded to the extent pension or OPEB costs or gains are expected to be collected from or refunded to customers in future rates (Note 5). The weighted average assumptions made in the measurement of the cost of the pension plans and OPEB are as follows:
| Pension |  | OPEB
Year ended December 31, | 2012 | 2011 | 2010 |  | 2012 | 2011 | 2010
Discount rate | 4.5% | 5.6% | 6.5% |  | 4.4% | 5.6% | 6.3%
Average rate of return on pension plan assets | 7.1% | 7.3% | 7.3% |  | 6.0% | 6.0% | 6.0%
Average rate of salary increases | 3.5% | 3.5% | 3.7% |  |  |  |
MEDICAL COST TRENDS The assumed rates for the next year used to measure the expected cost of benefits are as follows:
| Medical Cost Trend Rate Assumption for Next Fiscal Year | Ultimate Medical Cost Trend Rate Assumption | Year in which Ultimate Medical Cost Trend Rate Assumption is Achieved
Canadian Plans |  |  |
Drugs | 8.6% | 4.5% | 2029
Other Medical | 4.5% | 4.5% | -
United States Plan | 7.6% | 4.5% | 2030
A 1% increase in the assumed medical care trend rate would result in an increase of $36 million in the benefit obligation and an increase of $3 million in benefit and interest costs. A 1% decrease in the assumed medical care trend rate would result in a decrease of $29 million in the benefit obligation and a decrease of $2 million in benefit and interest costs. PLAN ASSETS The Company manages the investment risk of its pension funds by setting a long-term asset mix policy for each plan after consideration of: (i) the nature of pension plan liabilities; (ii) the investment horizon of the plan; (iii) the going concern and solvency funded status and cash flow requirements of the plan; (iv) the operating environment and financial situation of the Company and its ability to withstand fluctuations in pension contributions; and (v) the future economic and capital markets outlook with respect to investment returns, volatility of returns and correlation between assets. The overall expected rate of return is based on the asset allocation targets with estimates for returns on equity and debt securities based on long-term expectations. Expected Rate of Return on Plan Assets
| Pension |  | OPEB
Year ended December 31, | 2012 | 2011 |  | 2012 | 2011
Canadian Plans | 6.9% | 7.0% |  |  |
United States Plan | 7.3% | 7.5% |  | 6.0% | 6.0%
Target Mix for Plan Assets
| Liquids Pipelines Plan | Gas Distribution Plan | United States Plan
Equity securities | 62.5% | 53.5% | 62.5%
Fixed income securities | 30.0% | 40.0% | 30.0%
Other | 7.5% | 6.5% | 7.5%
Major Categories of Plan Assets Plan assets are invested primarily in readily marketable investments with constraints on the credit quality of fixed income securities. As at December 31, 2012, the pension assets were invested 59.1% (2011 - 56.7%) in equity securities, 32.4% (2011 - 36.6%) in fixed income securities and 8.5% (2011 - 6.7%) in other. The OPEB assets were invested 58.1% (2011 - 55.3%) in equity securities, 35.5% (2011 - 40.3%) in fixed income securities and 6.4% (2011 - 4.4%) in other. The following table summarizes the Company’s pension financial instruments at fair value. Non-financial instruments with a carrying value of $59 million (2011 - $77 million) have been excluded from the table below.
| 2012 |  | 2011
December 31, | Level 1 1 | Level 2 2 | Level 3 3 | Total |  | Level 1 1 | Level 2 2 | Level 3 3 | Total
(millions of Canadian dollars) |  |  |  |  |  |  |  |  |
Pension |  |  |  |  |  |  |  |  |
Cash and cash equivalents | 44 | - | - | 44 |  | 14 | - | - | 14
Fixed income securities |  |  |  |  |  |  |  |  |
Canadian government bonds | 87 | - | - | 87 |  | 115 | - | - | 115
Corporate bonds and debentures | - | 4 | - | 4 |  | - | 4 | - | 4
Canadian corporate bond index fund | 196 | - | - | 196 |  | 158 | - | - | 158
Canadian government bond index fund | 152 | - | - | 152 |  | 157 | - | - | 157
United States debt index fund | 45 | 2 | - | 47 |  | 62 | - | - | 62
Equity |  |  |  |  |  |  |  |  |
Canadian equity securities | 190 | - | - | 190 |  | 148 | - | - | 148
United States equity securities | 24 | - | - | 24 |  | - | - | - | -
Global equity securities | 9 | - | - | 9 |  | - | - | - | -
Canadian equity funds | 64 | 39 | - | 103 |  | 21 | 74 | - | 95
United States equity funds | 60 | 26 | - | 86 |  | 170 | 89 | - | 259
Global equity funds | 255 | 159 | - | 414 |  | 191 | 7 | - | 198
Private equity investment 4 | - | - | 61 | 61 |  | - | - | 68 | 68
Real estate 5 | - | - | 24 | 24 |  | - | - | - | -
OPEB |  |  |  |  |  |  |  |  |
Cash and cash equivalents | 4 | - | - | 4 |  | 3 | - | - | 3
Fixed income securities |  |  |  |  |  |  |  |  |
United States government and government agency bonds | 22 | - | - | 22 |  | 22 | - | - | 22
Equity |  |  |  |  |  |  |  |  |
United States equity funds | 17 | 19 | - | 36 |  | 15 | 14 | - | 29
1 | Level 1 assets include assets with quoted prices in active markets for identical assets.
2 | Level 2 assets include assets with significant observable inputs.
3 | Level 3 assets include assets with significant unobservable inputs.
4 | The fair value of the investment in United States Limited Partnership - Global Infrastructure Fund is established through the use of valuation models.
5 | The fair value of the investment in Bentall Kennedy Prime Canadian Property Fund Ltd is established through the use of valuation models.
Changes in the net fair value of plan assets classified as Level 3 in the fair value hierarchy were as follows:
|  | 2012 |  | 2011
(millions of Canadian dollars) |  |  |  |
Balance at beginning of year |  | 68 |  | 65
Unrealized and realized gains |  | 11 |  | 8
Purchases and settlements, net |  | 6 |  | (5)
Balance at end of year |  | 85 |  | 68
Plan Contributions by the Company
| Pension |  | OPEB
Year ended December 31, | 2012 | 2011 |  | 2012 | 2011
(millions of Canadian dollars) |  |  |  |  |
Total contributions | 97 | 72 |  | 13 | 13
Contributions expected to be paid in 2013 | 140 |  |  | 13 |
Benefits Expected to be Paid by the Company
Year ended December 31, |  | 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018-2022
(millions of Canadian dollars) |  |  |  |  |  |  |  |  |  |  |  |
Expected future benefit payments |  | 73 |  | 78 |  | 83 |  | 88 |  | 93 |  | 558

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- Definition The entire disclosure for pension and other postretirement benefits. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 158 -Paragraph 7, 21, 22 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Staff Position (FSP) -Number FAS106-2 -Paragraph 20, 21, 22 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Implementation Guide (Q and A) -Number FAS88 -Paragraph 63 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 106 -Paragraph 518 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 715 -URI http://asc.fasb.org/topic&trid=2235017 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 5, 6, 7, 8 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 5 -Subparagraph b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 8 -Subparagraph m -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 87 -Paragraph 264 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Principles Board Opinion (APB) -Number 30 -Paragraph 26 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number 03-2 -Paragraph 8 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 5 -Subparagraph h -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 5 -Subparagraph a -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 132R -Paragraph 5 -Subparagraph q -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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