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Post-employee benefit plans | 12 Months Ended
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Dec. 31, 2018
Employee Benefits [Abstract] |
Post-employment benefit plans |
Note 24 | Post-employment benefit plans
Post-employment benefit plans cost We provide pension and other benefits for most of our employees. These include DB pension plans, DC pension plans and OPEBs. We operate our DB and DC pension plans under applicable Canadian and provincial pension legislation, which prescribes minimum and maximum DB funding requirements. Plan assets are held in trust, and the oversight of governance of the plans, including investment decisions, contributions to DB plans and the selection of the DC plans investment options offered to plan participants, lies with the Pension Fund Committee, a committee of our board of directors. The interest rate risk is managed using a liability matching approach, which reduces the exposure of the DB plans to a mismatch between investment growth and obligation growth. The longevity risk is managed using a longevity swap, which reduces the exposure of the DB plans to an increase in life expectancy. COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS SERVICE COST
FOR THE YEAR ENDED DECEMBER 31 | 2018 |  | 2017 |
DB pension | (213 | ) | (208 | )
DC pension | (106 | ) | (102 | )
OPEBs | (3 | ) | (6 | )
Plan amendment gain on OPEBs and DB pension | — |  | 16 |
Less: |  |
| Capitalized benefit plans cost | 56 |  | 58 |
Total post-employment benefit plans service cost included in operating costs | (266 | ) | (242 | )
Other costs recognized in severance, acquisition and other costs | (4 | ) | (10 | )
Total post-employment benefit plans service cost | (270 | ) | (252 | )
COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS FINANCING COST
FOR THE YEAR ENDED DECEMBER 31 | 2018 |  | 2017 |
DB pension | (23 | ) | (18 | )
OPEBs | (46 | ) | (54 | )
Total interest on post-employment benefit obligations | (69 | ) | (72 | )
The statements of comprehensive income include the following amounts before income taxes.
|  | 2018 |  | 2017 |
Cumulative losses recognized directly in equity, January 1 | (2,984 | ) | (2,646 | )
| Actuarial gains (losses) in other comprehensive income(1) | 79 |  | (313 | )
| Decrease (increase) in the effect of the asset limit(2) | 13 |  | (25 | )
Cumulative losses recognized directly in equity, December 31 | (2,892 | ) | (2,984 | )
(1)The cumulative actuarial losses recognized in the statements of comprehensive income are $3,138 million in 2018. (2)The cumulative decrease in the effect of the asset limit recognized in the statements of comprehensive income is $246 million in 2018. COMPONENTS OF POST-EMPLOYMENT BENEFIT (OBLIGATIONS) ASSETS The following table shows the change in post-employment benefit obligations and the fair value of plan assets.
|  |  |  | DB PENSION PLANS | OPEB PLANS | TOTAL
|  |  |  | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Post-employment benefit obligations, January 1 | (24,404 | ) | (20,853 | ) | (1,653 | ) | (1,684 | ) | (26,057 | ) | (22,537 | )
| Current service cost | (213 | ) | (208 | ) | (3 | ) | (6 | ) | (216 | ) | (214 | )
| Interest on obligations | (864 | ) | (896 | ) | (56 | ) | (65 | ) | (920 | ) | (961 | )
| Actuarial gains (losses) (1) | 750 |  | (1,193 | ) | 163 |  | (28 | ) | 913 |  | (1,221 | )
| Net curtailment (losses) gains | (4 | ) | (4 | ) | — |  | 16 |  | (4 | ) | 12 |
| Loss on plan transfer | — |  | (6 | ) | — |  | — |  | — |  | (6 | )
| Benefit payments | 1,342 |  | 1,320 |  | 80 |  | 81 |  | 1,422 |  | 1,401 |
| Employee contributions | (11 | ) | (10 | ) | — |  | — |  | (11 | ) | (10 | )
| Acquisition of MTS | — |  | (2,677 | ) | — |  | (5 | ) | — |  | (2,682 | )
| Plan transfer | — |  | 122 |  | — |  | — |  | — |  | 122 |
| Other | — |  | 1 |  | — |  | 38 |  | — |  | 39 |
Post-employment benefit obligations, December 31 | (23,404 | ) | (24,404 | ) | (1,469 | ) | (1,653 | ) | (24,873 | ) | (26,057 | )
Fair value of plan assets, January 1 | 23,945 |  | 20,563 |  | 299 |  | 280 |  | 24,244 |  | 20,843 |
| Expected return on plan assets(2) | 841 |  | 878 |  | 10 |  | 11 |  | 851 |  | 889 |
| Actuarial (losses) gains(1) | (817 | ) | 896 |  | (17 | ) | 12 |  | (834 | ) | 908 |
| Benefit payments | (1,342 | ) | (1,320 | ) | (80 | ) | (81 | ) | (1,422 | ) | (1,401 | )
| Employer contributions | 433 |  | 305 |  | 75 |  | 77 |  | 508 |  | 382 |
| Employee contributions | 11 |  | 10 |  | — |  | — |  | 11 |  | 10 |
| Acquisition of MTS | — |  | 2,735 |  | — |  | — |  | — |  | 2,735 |
| Plan transfer | — |  | (122 | ) | — |  | — |  | — |  | (122 | )
Fair value of plan assets, December 31 | 23,071 |  | 23,945 |  | 287 |  | 299 |  | 23,358 |  | 24,244 |
Plan deficit |  |  | (333 | ) | (459 | ) | (1,182 | ) | (1,354 | ) | (1,515 | ) | (1,813 | )
Effect of asset limit |  |  | (20 | ) | (33 | ) | — |  | — |  | (20 | ) | (33 | )
Post-employment benefit liability, December 31 | (353 | ) | (492 | ) | (1,182 | ) | (1,354 | ) | (1,535 | ) | (1,846 | )
Post-employment benefit assets included in other non-current assets | 331 |  | 262 |  | — |  | — |  | 331 |  | 262 |
Post-employment benefit obligations | (684 | ) | (754 | ) | (1,182 | ) | (1,354 | ) | (1,866 | ) | (2,108 | )
(1)Actuarial gains (losses) include experience (losses) gains of ($693 million) in 2018 and $911 million in 2017. (2)The actual return on plan assets was $17 million or 0.2% in 2018 and $1,797 million or 8.2% in 2017. On January 15, 2016, MTS completed the sale of its wholly-owned subsidiaries Allstream Inc., Allstream Fibre U.S., and Delphi Solutions Corp. (collectively, Allstream), to Zayo Group Holdings Inc. As part of the sale agreement, MTS retained Allstream’s two existing DB pension plans including the benefit obligations for retirees and other former employees. On October 31, 2017, we completed the transfer of assets and liabilities related to pre-closing service obligations for Allstream’s active employees from the existing Allstream DB pension plans to two new Zayo Canada Inc. pension plans. FUNDED STATUS OF POST-EMPLOYMENT BENEFIT PLANS COST The following table shows the funded status of our post-employment benefit obligations.
|  | FUNDED | PARTIALLY FUNDED(1) | UNFUNDED(2) | TOTAL
|  | Decem-ber 31, 2018 |  | Decem-ber 31, 2017 |  | January 1, 2017 |  | Decem-ber 31, 2018 |  | Decem-ber 31, 2017 |  | January 1, 2017 |  | Decem-ber 31, 2018 |  | Decem-ber 31, 2017 |  | January 1, 2017 |  | Decem-ber 31, 2018 |  | Decem-ber 31, 2017 |  | January 1, 2017 |
Present value of post-employment benefit obligations | (22,765 | ) | (23,746 | ) | (20,249 | ) | (1,816 | ) | (1,976 | ) | (1,995 | ) | (292 | ) | (335 | ) | (293 | ) | (24,873 | ) | (26,057 | ) | (22,537 | )
Fair value of plan assets | 23,018 |  | 23,894 |  | 20,520 |  | 340 |  | 350 |  | 323 |  | — |  | — |  | — |  | 23,358 |  | 24,244 |  | 20,843 |
Plan surplus (deficit) | 253 |  | 148 |  | 271 |  | (1,476 | ) | (1,626 | ) | (1,672 | ) | (292 | ) | (335 | ) | (293 | ) | (1,515 | ) | (1,813 | ) | (1,694 | )
(1) | The partially funded plans consist of supplementary executive retirement plans (SERPs) for eligible employees and OPEBs. The company partially funds the SERPs through letters of credit and a retirement compensation arrangement account with Canada Revenue Agency. Certain paid-up life insurance benefits are funded through life insurance contracts.
(2) | Our unfunded plans consist of OPEBs, which are pay-as-you-go.
SIGNIFICANT ASSUMPTIONS We used the following key assumptions to measure the post-employment benefit obligations and the net benefit plans cost for the DB pension plans and OPEB plans. These assumptions are long-term, which is consistent with the nature of post-employment benefit plans.
|  |  | DB PENSION PLANS AND OPEB PLANS
AS AT |  | December 31, 2018 |  | December 31, 2017 |  | January 1, 2017 |
Post-employment benefit obligations |  |  |
| Discount rate | 3.8 | % | 3.6 | % | 4.0 | %
| Rate of compensation increase | 2.25 | % | 2.25 | % | 2.25 | %
| Cost of living indexation rate(1) | 1.6 | % | 1.6 | % | 1.6 | %
| Life expectancy at age 65 (years) | 23.1 |  | 23.2 |  | 23.1 |
(1)Cost of living indexation rate is only applicable to DB pension plans.
|  |  | DB PENSION PLANS AND OPEB PLANS
For the year ended December 31 |  | 2018 |  | 2017 |
Net post-employment benefit plans cost |  |
| Discount rate | 3.7 | % | 4.2 | %
| Rate of compensation increase | 2.25 | % | 2.25 | %
| Cost of living indexation rate(1) | 1.6 | % | 1.6 | %
| Life expectancy at age 65 (years) | 23.2 |  | 23.1 |
(1)Cost of living indexation rate is only applicable to DB pension plans. The weighted average duration of the post-employment benefit obligation is 14 years. We assumed the following trend rates in healthcare costs: •an annual increase in the cost of medication of 7% for 2018 decreasing to 4.5% over 20 years •an annual increase in the cost of covered dental benefits of 4% •an annual increase in the cost of covered hospital benefits of 3.3% •an annual increase in the cost of other covered healthcare benefits of 3% Assumed trend rates in healthcare costs have a significant effect on the amounts reported for the healthcare plans. The following table shows the effect of a 1% change in the assumed trend rates in healthcare costs.
EFFECT ON POST-EMPLOYMENT BENEFITS – INCREASE/(DECREASE) | 1% INCREASE |  | 1% DECREASE |
Total service and interest cost | 5 |  | (3 | )
Post-employment benefit obligations | 111 |  | (90 | )
SENSITIVITY ANALYSIS The following table shows a sensitivity analysis of key assumptions used to measure the net post-employment benefit obligations and the net post-employment benefit plans cost for our DB pension plans and OPEB plans.
|  |  |  | IMPACT ON NET POST-EMPLOYMENT BENEFIT PLANS COST FOR 2018 – INCREASE/(DECREASE) | IMPACT ON POST-EMPLOYMENT BENEFIT OBLIGATIONS AT DECEMBER 31, 2018 – INCREASE/(DECREASE)
|  |  | CHANGE IN ASSUMPTION |  | INCREASE IN ASSUMPTION |  | DECREASE IN ASSUMPTION |  | INCREASE IN ASSUMPTION |  | DECREASE IN ASSUMPTION |
Discount rate | 0.5 | % | (77 | ) | 65 |  | (1,605 | ) | 1,716 |
Life expectancy at age 65 | 1 year |  | 35 |  | (34 | ) | 796 |  | (771 | )
POST-EMPLOYMENT BENEFIT PLAN ASSETS The investment strategy for the post-employment benefit plan assets is to maintain a diversified portfolio of assets invested in a prudent manner to maintain the security of funds. The following table shows the target allocations for 2018 and the allocation of our post-employment benefit plan assets at December 31, 2018 and 2017, and at January 1, 2017.
|  |  | WEIGHTED AVERAGE TARGET ALLOCATION | TOTAL PLAN ASSETS FAIR VALUE
ASSET CATEGORY | 2018 | December 31, 2018 |  | December 31, 2017 |  | January 1, 2017 |
Equity securities | 20% - 40% | 20 | % | 22 | % | 22 | %
Debt securities | 60% - 100% | 64 | % | 65 | % | 68 | %
Alternative investments | 0% - 40% | 16 | % | 13 | % | 10 | %
Total |  | 100 | % | 100 | % | 100 | %
The following table shows the fair value of the DB pension plan assets for each category.
AS AT | December 31, 2018 |  | December 31, 2017 |  | January 1, 2017 |
Observable markets data |  |  |
| Equity securities |  |  |
|  | Canadian | 844 |  | 1,045 |  | 901 |
|  | Foreign | 3,770 |  | 4,349 |  | 3,682 |
| Debt securities |  |  |
|  | Canadian | 12,457 |  | 13,126 |  | 12,469 |
|  | Foreign | 2,004 |  | 1,890 |  | 1,068 |
|  | Money market | 327 |  | 491 |  | 387 |
Non-observable markets inputs |  |  |
| Alternative investments |  |  |
|  | Private equities | 1,804 |  | 1,484 |  | 1,164 |
|  | Hedge funds | 1,014 |  | 965 |  | 726 |
|  | Real estate | 758 |  | 484 |  | 55 |
|  | Other | 93 |  | 111 |  | 111 |
Total | 23,071 |  | 23,945 |  | 20,563 |
Equity securities included approximately $8 million of BCE common shares, or 0.03% of total plan assets, at December 31, 2018, approximately $13 million of BCE common shares, or 0.05% of total plan assets, at December 31, 2017 and approximately $17 million of BCE common shares, or 0.08% of total plan assets, at January 1, 2017. Debt securities included approximately $68 million of Bell Canada debentures, or 0.30% of total plan assets, at December 31, 2018, approximately $11 million of Bell Canada debentures, or 0.05% of total plan assets, at December 31, 2017 and approximately $15 million of Bell Canada debentures, or 0.07% of total plan assets, at January 1, 2017 . Alternative investments included the pension plan’s investment in MLSE of $135 million, or 0.59% of total plan assets, at December 31, 2018, $135 million, or 0.56% of total plan assets, at December 31, 2017, and $135 million, or 0.66% of total plan assets, at January 1, 2017. The Bell Canada pension plan has an investment arrangement which hedges part of its exposure to potential increases in longevity, which covers approximately $5 billion of post-employment benefit obligations. The fair value of the arrangement is included within other alternative investments. As a hedging arrangement of the pension plan, the transaction requires no cash contributions from BCE. CASH FLOWS We are responsible for adequately funding our DB pension plans. We make contributions to them based on various actuarial cost methods that are permitted by pension regulatory bodies. Contributions reflect actuarial assumptions about future investment returns, salary projections and future service benefits. Changes in these factors could cause actual future contributions to differ from our current estimates and could require us to increase contributions to our post-employment benefit plans in the future, which could have a negative effect on our liquidity and financial performance. We contribute to the DC pension plans as employees provide service. The following table shows the amounts we contributed to the DB and DC pension plans and the payments made to beneficiaries under OPEB plans.
|  |  | DB PLANS(1) | DC PLANS | OPEB PLANS
FOR THE YEAR ENDED DECEMBER 31 | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Contributions | (433 | ) | (305 | ) | (106 | ) | (108 | ) | (75 | ) | (77 | )
(1)Includes voluntary contributions of $240 million in 2018 and $100 million in 2017. We expect to contribute approximately $180 million to our DB pension plans in 2019, subject to actuarial valuations being completed. We expect to pay approximately $80 million to beneficiaries under OPEB plans and to contribute approximately $115 million to the DC pension plans in 2019.

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