Employee Benefit Plans

12 Months Ended

Dec. 31, 2016

21. EMPLOYEE BENEFIT PLANS

Emera maintains a number of contributory defined-benefit and defined-contribution pension plans, which cover substantially all of its employees. In addition, the Company provides non-pension benefits for its retirees. These plans cover employees in Nova Scotia, New Brunswick, Newfoundland and Labrador, Florida, Maine, Connecticut, Massachusetts, Rhode Island, New Mexico, Barbados, Dominica and Grand Bahama Island.

The acquisition of TECO Energy has added three defined benefit pension plans:

TECO Energy Group Retirement Plan. An ongoing qualified pension plan covering all employees of TECO Energy, Inc. and its affiliates. This plan is a pension equity plan funded solely by employer contributions. There are no employee contributions to this plan.
TECO Energy Group Supplemental Executive Retirement Plan. An unqualified supplemental executive retirement plan covering certain officers elected by the previous TECO Energy Board of Directors. This plan was historically unfunded, but was funded as a result of Emera’s acquisition of TECO Energy.
TECO Energy Group Benefit Restoration Plan. An unfunded supplemental executive retirement plan effective January 1, 2016. The plan provides the benefits under the TECO Energy Group Retirement Plan formula that would otherwise be restricted as a result of the Internal Revenue Code.

In addition, there are two non-pension benefit plans:

TECO Energy Post-retirement Health and Welfare Plan. This plan offers retirees under age 65 and their dependents a self-funded health reimbursement account (“HRA”) medical plan identical to that offered to active TECO Energy employees. Retirees over the age of 65 are enrolled in a Medicare Advantage plan.
New Mexico Gas Company Retiree Medical Plan. This plan offers retirees under age 65 and their dependents a self-funded HRA medical plan identical to that offered to active TECO Energy employees. Retirees over age 65 and their dependents receive a fixed subsidy with which they can purchase additional coverage through a medical supplement program. Dental benefits are provided to retirees and spouses. Plan assets are held in a trust.

The net periodic costs below that relate to TECO Energy reflect purchase accounting at the acquisition date. In accordance with the Company’s accounting policies, unamortized gains and losses and past service costs are recognized in AOCI for TECO Energy’s unregulated companies and as regulatory assets for their regulated companies.

Benefit Obligation and Plan Assets

The changes in benefit obligation and plan assets, and the funded status for all plans were as follows:

For the	Year ended December 31
millions of Canadian dollars	2016				2015
Change in Projected Benefit Obligation ("PBO") and Accumulated Post-retirement Benefit Obligation ("APBO")	Defined benefit pension plans		Non-pension benefit plans		Defined benefit pension plans		Non-pension benefit plans
Balance, January 1	$	1,520	$	88	$	1,470	$	102
Addition of TECO Energy, July 1, 2016		1,035		277		-		-
Service cost		35		4		22		3
Plan participant contributions		8		-		8		-
Interest cost		79		9		59		4
Plan amendments		-		2		-		(27)
Benefits paid		(94)		(16)		(61)		(6)
Actuarial losses		(2)		(12)		(15)		1
Foreign currency translation adjustment		26		6		37		11
Balance, December 31		2,607		358		1,520		88
Change in plan assets
Balance, January 1		1,300		6		1,205		5
Addition of TECO Energy, July 1, 2016		830		29		-		-
Employer contributions		49		17		23		6
Plan participant contributions		8		-		8		-
Benefits paid		(94)		(16)		(61)		(6)
Actual return on assets, net of expenses		93		2		96		-
Foreign currency translation adjustment		22		1		29		1
Balance, December 31		2,208		39		1,300		6
Funded status, end of year	$	(399)	$	(319)	$	(220)	$	(82)

Plans with PBO/APBO in excess of plan assets

The aggregate financial position for all pension plans where the PBO or, for post-retirement benefit plans, the APBO exceeds the plan assets for the years ended December 31 is as follows:

millions of Canadian dollars			2016		2015
	Defined benefit pension plans		Non-pension benefit plans		Defined benefit pension plans		Non-pension benefit plans
PBO/APBO	$	2,579	$	358	$	1,489	$	87
Fair value of plan assets		2,171		39		1,261		5
Funded status	$	(408)	$	(319)	$	(228)	$	(82)

Plans with Accumulated Benefit Obligation (“ABO”) in excess of plan assets

The ABO for the defined benefit pension plans was $2,489 million as at December 31, 2016 (2015 – $1,427 million). The aggregate financial position for those plans with an ABO in excess of the plan assets for the years ended December 31 is as follows:

millions of Canadian dollars	2016		2015
	Defined benefit pension plans		Defined benefit pension plans
ABO	$	2,462	$	1,424
Fair value of plan assets		2,171		1,261
Funded status	$	(291)	$	(163)

Balance Sheet

The amounts recognized in the Consolidated Balance Sheets consisted of the following:

As at						December 31
millions of Canadian dollars	2016				2015
	Defined benefit pension plans		Non-pension benefit plans		Defined benefit pension plans		Non-pension benefit plans
Current liabilities	$	(41)	$	(17)	$	(4)	$	(3)
Long-term liabilities		(367)		(302)		(224)		(79)
Other asset (non-current)		9		-		9		-
Amount included in deferred tax asset		16		(1)		19		(3)
AOCL (AOCI) and regulatory assets after-tax adjustment		620		45		330		(9)
Net amount recognized at end of year	$	237	$	(275)	$	130	$	(94)

Amounts recognized in AOCI and Regulatory assets

Unamortized gains and losses and past service costs arising on post-retirement benefits are recorded in AOCI or regulatory assets. Unamortized net losses and past service costs as at the acquisition date for TECO Energy’s regulated companies were recorded as regulatory assets. The following table summarizes the change in AOCI and regulatory assets:

	Regulatory assets		Actuarial losses(gains)		Past service(gains) costs
millions of Canadian dollars	Regulatory assets		Actuarial losses(gains)		Past service(gains) costs
Defined Benefit Pension Plans
Balance, January 1, 2016	$	-	$	353	$	(4)
Amortized in current period		(9)		(42)		1
Current year addition to AOCL or regulatory assets		318		19		-
Balance, December 31, 2016	$	309	$	330	$	(3)
Non-pension benefits plans
Balance, January 1, 2016	$	-	$	15	$	(27)
Amortized in current period		-		(2)		8
Current year addition to AOCL (AOCI) or regulatory assets		48		2		-
Balance, December 31, 2016	$	48	$	15	$	(19)

	2016				2015
	Defined benefit pension plans		Non-pension benefit plans		Defined benefit pension plans		Non-pension benefit plans
Actuarial losses	$	330	$	15	$	353	$	15
Past service (gains)		(3)		(19)		(4)		(27)
Regulatory assets		309		48		-		-
Total AOCL (AOCI) and regulatory assets on a pre-tax basis		636		44		349		(12)
Amount included in deferred tax asset		(16)		1		(19)		3
Net amount in AOCL (AOCI) and regulatory assets after-tax adjustment	$	620	$	45	$	330	$	(9)

Benefit cost components

Emera's net periodic benefit cost included the following:

As at						Year ended December 31
millions of Canadian dollars	2016				2015
	Defined benefit pension plans		Non-pension benefit plans		Defined benefit pension plans		Non-pension benefit plans
Service cost	$	35	$	4	$	22	$	3
Interest cost		79		9		59		3
Expected return on plan assets		(97)		(1)		(65)		-
Current year amortization of:
Actuarial losses		42		2		48		1
Past service costs (gains)		(1)		(8)		(1)		(6)
Regulatory assets (liability)		9		-		-		-
Total	$	67	$	6	$	63	$	1

The expected return on plan assets is determined based on the market-related value of plan assets of $1,180 million as at January 1, 2016 and $859 million as at the acquisition date for TECO Energy (2015 – $1,089 million), adjusted for interest on certain cash flows during the year. The market-related value of assets for TECO Energy was reset to equal the market value of assets as at July 1, 2016. The market-related value of assets is based on a five-year smoothed asset value. Any investment gains (or losses) in excess of (or less than) the expected return on plan assets are recognized on a straight-line basis into the market-related value of assets over a five-year period.

Pension Plan Asset Allocations

Emera’s investment policy includes discussion regarding the investment philosophy, the level of risk which the Company is prepared to accept with respect to the investment of the Pension Funds, and the basis for measuring the performance of the assets. Central to the policy is the target asset allocation by major asset categories. The objective of the target asset allocation is to diversify risk and to achieve asset returns that meet or exceed the plan’s actuarial assumptions. The diversification of assets reduces the inherent risk in financial markets by requiring that assets be spread out amongst various asset classes. Within each asset class, a further diversification is undertaken through the investment in a broad basket of investment and non-investment grade securities. Emera’s target asset allocation is as follows:

Canadian Pension Plans

Asset Class	Target Range at Market
Short-term securities		0%	to	5%
Fixed income		35%	to	50%
Equities:
Canadian		12%	to	22%
Non-Canadian		36%	to	50%

Non-Canadian Pension Plans

Asset Class	Target Range at MarketWeighted average
Short-term securities		0%	to	2%
Fixed income		40%	to	48%
Equities		50%	to	61%

Pension Plan assets are overseen by the respective Management Pension Committees in the sponsoring companies. All pension investments are in accordance with policies approved by the respective Board of Directors of each sponsoring company.

The following tables set out the classification of the methodology used by the Company to fair value its investments:

As at					December 31, 2016
millions of Canadian dollars	NAV		Level 1		Level 2		Total		Percentage
Cash and cash equivalents		-	$	31		-	$	31	1	%
Net in-transits		-		(42)		-		(42)	(2)	%
Equity Securities:
Canadian equity				192				192	9	%
US equity		-		303		-		303	14	%
Other equity		-		243				243	11	%
Fixed income securities:
Government		-		-	$	47		47	2	%
Corporate		-		-		53		53	2	%
Other		-		5		14		19	1	%
Open-ended investments measured at NAV (1)	$	1,132		-		-		1,132	51	%
Common collective trusts measured at NAV (2)		230		-		-		230	11	%
Total	$	1,362	$	732	$	114	$	2,208	100	%
(1) NAV investments are open-ended registered and non-registered mutual funds, collective investment trusts, or pooled funds. NAV’s are calculated daily and the funds honor subscription and redemption activity regularly.
(2) The common collective trusts are private funds valued at NAV. The NAVs are calculated based on bid prices of the underlying securities. Since the prices are not published to external sources, NAV is used as a practical expedient. Certain funds invest primarily in equity securities of domestic and foreign issuers while others invest in long duration U.S. investment grade fixed income assets and seeks to increase return through active management of interest rate and credit risks. The funds honor subscription and redemption activity regularly.

As at				December 31, 2015
millions of Canadian dollars		NAV	Level 1		Total		Percentage
Cash and cash equivalents		-	$	12	$	12	1	%
Equity securities:
Canadian equity		-		190		190	-	%
US equity		-		240		240	18	%
Other equity		-		240		240	18	%
Other investments measured at NAV	$	619		-		619	48	%
Total	$	619	$	682	$	1,301	100	%

Refer to note 16 for more information on the fair value hierarchy and inputs used to measure fair value.

Canadian Post-Retirement Benefit Plans

There are no assets set aside to pay for the Canadian post-retirement benefit plans. As is common in Canada, post-retirement health benefits are paid from general accounts as required.

US Post-Retirement Benefit Plans

Emera’s US subsidiaries currently provide certain post-retirement health care and life insurance benefits for employees retiring after age 50 who meet eligibility requirements. Post-retirement benefit levels are substantially unrelated to salary. The company reserves the right to terminate or modify plans in whole or in part at any time.

Emera Maine provides retiree medical benefits to certain groups of employees. The Company's retiree medical expenses are incorporated into rate filings with its regulators and are recovered through its electric rates to customers.

TECO Energy and NMGC offers retirees under age 65 and their dependents a self-funded HRA medical plan identical to that offered to active TECO Energy employees. TECO Energy retirees over the age of 65 are enrolled in a Medicare Advantage plan. NMGC retirees over age 65 and their dependents receive a fixed subsidy with which they can purchase additional coverage through a medical supplement program. NMGC also provides dental benefits to retirees and spouses.

The target asset allocation for the Emera Maine Post-Retirement Benefits Plan is as follows:

Asset Class	Target Range at Market
Short-term securities		10%	to	50%
Fixed income		0%	to	40%
Equities:
US		30%	to	60%
Non-US		0%	to	60%

The assets for the NMGC Post-Retirement Benefits Plan are invested in life insurance policies. The life insurance does not mirror any specific employee benefit. The plan can tap into the cash surrender value of the life insurance policies to generate cash to pay retiree medical costs. In addition, as the individuals covered by the life insurance die, the plan receives the life insurance proceeds (less any cash surrender value previously drawn upon) to cover retiree medical costs.

The fair values of investments as at December 31, 2016, for all Post-Retirement Benefit Plans by asset category, are as follows:

				December 31,2016
millions of Canadian dollars	NAV		Level 1		Level 2		Total		Percentage
Cash and cash equivalents		-	$	1	$	-	$	1	3	%
Life insurance policies (1)		-		-		33		33	85	%
Other investments measured at NAV	$	5		-		-		5	12	%
Total	$	5	$	1	$	33	$	39	100	%
(1) For valuation purposes, the life insurance policies held for the NMGC retiree medical plan are valued at the cash surrender value and are considered Level 2 assets

				December 31, 2015
millions of Canadian dollars	NAV		Level 1		Level 2		Total		Percentage
Cash and cash equivalents		-	$	1	$	-	$	1	20	%
Other investments measured at NAV	$	4		-		-		4	80	%
Total	$	4	$	1	$	-	$	5	100	%

Refer to Note 16 for more information on the fair value hierarchy and inputs used to measure fair value.

Investments in Emera

As at December 31, 2016 and 2015, the assets related to the pension funds and post-retirement benefit plans do not hold any material investments in Emera or its subsidiaries securities. However, as a significant portion of assets for the benefit plan are held in pooled assets, there may be indirect investments in these securities.

Cash Flows

The following table shows the expected cash flows for defined benefit pension and other post-retirement benefit plans:

millions of Canadian dollars	Defined benefit pension plans		Non-pension benefit plans
Expected employer contributions
2017	$	117	$	25
Expected benefit payments
2017		172		22
2018		140		23
2019		150		23
2020		156		24
2021		165		25
2022 – 2026		912		130

Assumptions

The following table shows the assumptions that have been used in accounting for defined benefit pension and other post-retirement benefit plans:
	2016				2015
(weighted average assumptions)	Defined benefit pension plans		Non-pension benefit plans		Defined benefit pension plans		Non-pension benefit plans
Benefit obligation – December 31:
Discount rate	3.96	%	4.18	%	4.02	%	4.04	%
Rate of compensation increase	2.82	%	2.54	%	3.07	%	3.50	%
Health care trend - initial (next year)	-		6.78	%	-		5.50	%
- ultimate	-		4.45	%	-		4.20	%
- year ultimate reached	-		2020		-		2020
Benefit cost for year ended December 31:
Discount rate	3.79	%	3.88	%	3.99	%	3.98	%
Expected long-term return on plan assets	6.33	%	4.43		5.91	%	-
Rate of compensation increase	2.88	%	2.56	%	3.07	%	3.50	%
Health care trend - initial (current year)	-		6.76	%	-		5.90	%
- ultimate	-		4.45	%	-		4.30	%
- year ultimate reached	-		2020		-		2020
Figures shown are weighted averages. Actual assumptions used differ by plan.

The expected long-term rate of return on plan assets is based on historical and projected real rates of return for the plan’s current asset allocation, and assumed inflation. A real rate of return is determined for each asset class. Based on the asset allocation, an overall expected real rate of return for all assets is determined. The asset return assumption is equal to the overall real rate of return assumption added to the inflation assumption, adjusted for assumed expenses to be paid from the plan.

The discount rate is based on high-quality long-term corporate bonds, with maturities matching the estimated cash flows from the pension plan

Sensitivity Analysis for Non-Pension Benefits Plans

The health care cost trend significantly influences the amounts presented for health care plans. An increase or decrease of one percentage point of the assumed health care cost trend would have had the following impact in 2016:

millions of Canadian dollars	Increase		Decrease
Service cost and interest cost	$	1	$	(1)
Accumulated post-retirement benefit obligation, December 31		20		(17)

Sensitivity Analysis for Defined Benefit Pension Plans

The impact on the 2016 benefit cost of a 25 basis point change in the discount rate and asset return assumptions is as follows:

millions of Canadian dollars	Increase		Decrease
Discount rate assumption	$	(7)	$	7
Asset rate assumption		(4)		4

Amounts to be Amortized in the Next Fiscal Year

The following table shows the amounts from the AOCL and regulatory assets, which are expected to be recognized as part of the net periodic benefit cost in fiscal 2017:

			2017
millions of Canadian dollars	Defined benefit pension plans		Non-pensionbenefit plans
Actuarial gains (losses)	$	(53)	$	(1)
Past service gains		1		8
Regulatory assets		(16)		3
Total	$	(68)	$	10

Defined Contribution Plan

Emera also provides a defined contribution pension plan for certain employees. The Company’s contribution for the year ended December 31, 2016 was $17 million (2015 – $9 million), with the increase due to the acquisition of TECO Energy.