19. 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.

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	2018				2017
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	$	2,683	$	356	$	2,607	$	358
Service cost		51		6		49		5
Plan participant contributions		8		5		8		4
Interest cost		95		13		99		14
Benefits paid		(143)		(33)		(129)		(27)
Actuarial (gains) losses		(133)		(25)		171		25
Settlements and curtailments		(18)		-		(35)		-
Foreign currency translation adjustment		107		28		(87)		(23)
Balance, December 31		2,650		350		2,683		356
Change in plan assets
Balance, January 1		2,408		45		2,208		39
Employer contributions		51		31		109		27
Plan participant contributions		8		5		8		4
Benefits paid		(143)		(33)		(129)		(27)
Actual return on assets, net of expenses		(105)		(3)		313		5
Settlements and curtailments		(18)		-		(34)		-
Foreign currency translation adjustment		99		4		(67)		(3)
Balance, December 31		2,300		49		2,408		45
Funded status, end of year	$	(350)	$	(301)	$	(275)	$	(311)

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			2018		2017
	Defined benefit pension plans		Non-pension benefit plans		Defined benefit pension plans		Non-pension benefit plans
PBO/APBO	$	2,623	$	318	$	2,655	$	325
Fair value of plan assets		2,264		6		2,370		6
Funded status	$	(359)	$	(312)	$	(285)	$	(319)

Plans with Accumulated Benefit Obligation (“ABO”) in Excess of Plan Assets

The ABO for the defined benefit pension plans was $2,527 million as at December 31, 2018 (2017 – $2,561 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:

As at		December 31				December 31
millions of Canadian dollars	2018				2017
	Defined benefit pension plans		Non-pension benefit plans		Defined benefit pension plans		Non-pension benefit plans
Other current liabilities	$	(12)	$	(19)	$	(23)	$	(18)
Long-term liabilities		(347)		(294)		(264)		(295)
Other long-term assets		9		11		10		-
Amount included in deferred income tax		5		(2)		2		-
AOCI, net of tax and regulatory assets		628		60		561		74
Net amount recognized	$	283	$	(244)	$	286	$	(239)

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. The following table summarizes the change in AOCI and regulatory assets:

	Regulatory assets		Actuarial (gains) losses		Past service (gains) costs
millions of Canadian dollars	Regulatory assets		Actuarial (gains) losses		Past service (gains) costs
Defined Benefit Pension Plans (1)
Balance, January 1, 2018	$	315	$	251	$	(3)
Amortized in current period		(26)		(37)		1
Current year addition to AOCI or regulatory assets		73		32		-
Change in foreign exchange rate		27		-		-
Balance, December 31, 2018	$	389	$	246	$	(2)
Non-pension benefits plans (1)
Balance, January 1, 2018	$	78	$	(4)	$	-
Amortized in current period		2		1		-
Current year addition to AOCI or regulatory assets		(17)		(4)		-
Change in foreign exchange rate		2		-		-
Balance, December 31, 2018	$	65	$	(7)	$	-
(1) The January 1, 2018 balances include a prior period reclassification from AOCI to Regulatory assets, for changes in unrecognized pension and post-retirement benefit costs to be consistent with current year presentation. Refer to notes 10 and 14 for further details.

	2018				2017
	Defined benefit pension plans		Non-pension benefit plans		Defined benefit pension plans		Non-pension benefit plans
Actuarial losses	$	246	$	(7)	$	251	$	(4)
Past service (gains) costs		(2)		-		(3)		-
Regulatory assets		389		65		315		78
Total AOCI and regulatory assets before deferred income taxes		633		58		563		74
Amount included in deferred income tax assets		(5)		2		(2)		-
Net amount in AOCI and regulatory assets	$	628	$	60	$	561	$	74

As at						Year ended December 31
millions of Canadian dollars	2018				2017
	Defined benefit pension plans		Non-pension benefit plans		Defined benefit pension plans		Non-pension benefit plans
Service cost	$	51	$	6	$	49	$	5
Interest cost		95		13		99		14
Expected return on plan assets		(138)		(2)		(129)		(3)
Current year amortization of:
Actuarial losses		33		(1)		38		2
Past service costs (gains)		(1)		-		-		(8)
Regulatory assets (liability)		26		(2)		17		(1)
Settlement, curtailments		4		-		(1)		-
Total	$	70	$	14	$	73	$	9

The expected return on plan assets is determined based on the market-related value of plan assets of $2,223 million as at January 1, 2018 (2017 – $2,153 million), adjusted for interest on certain cash flows during the year. 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:

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:

millions of Canadian dollars	NAV		Level 1		Level 2		Total		Percentage
					December 31, 2018
Cash and cash equivalents	$	-	$	30	$	-	$	30	1	%
Net in-transits		-		(56)		-		(56)	-2	%
Equity Securities:
Canadian equity		-		191		-		191	8	%
US equity		-		330		-		330	14	%
Other equity		-		157		-		157	7	%
Fixed income securities:
Government		-		-		119		119	5	%
Corporate		-		-		108		108	5	%
Other		-		4		3		7	-
Mutual funds		-		132		-		132	6	%
Other		-		8		4		12	1	%
Open-ended investments measured at NAV (1)		820		-		-		820	36	%
Common collective trusts measured at NAV (2)		450		-		-		450	19	%
Total	$	1,270	$	796	$	234	$	2,300	100	%

				December 31, 2017
Cash and cash equivalents	$	-	$	32	$	-	$	32	1	%
Net in-transits		-		(36)		-		(36)	-1	%
Equity securities:
Canadian equity		-		214		-		214	9	%
US equity		-		390		-		390	16	%
Other equity		-		197		-		197	8	%
Fixed Income securities:
Government		-		-		72		72	3	%
Corporate		-		-		56		56	2	%
Other		-		5		-		5	-
Mutual funds		-		246		-		246	10	%
Other		-		-		4		4	-
Open-ended investments measured at NAV (1)		819		-		-		819	34	%
Common collective trusts measured at NAV (2)		409		-		-		409	18	%
Total	$	1,228	$	1,048	$	132	$	2,408	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.

Refer to note 13 for more information on the fair value hierarchy and inputs used to measure fair value.

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.

Investments in Emera

As at December 31, 2018 and 2017, 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:

Assumptions

The following table shows the assumptions that have been used in accounting for defined benefit pension and other post-retirement benefit plans:
	2018				2017
(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	4.05	%	4.30	%	3.55	%	3.65	%
Rate of compensation increase	3.30	%	3.67	%	3.12	%	3.28	%
Health care trend - initial (next year)	-		6.39	%	-		6.65	%
- ultimate	-		4.45	%	-		4.45	%
- year ultimate reached	-		2035		-		2036
Benefit cost for year ended December 31:
Discount rate	3.55	%	3.65	%	3.96	%	4.18	%
Expected long-term return on plan assets	6.38	%	3.73	%	6.29	%	6.08	%
Rate of compensation increase	3.12	%	3.28	%	2.82	%	2.54	%
Health care trend - initial (current year)	-		6.65	%	-		6.78	%
- ultimate	-		4.45	%	-		4.45	%
- year ultimate reached	-		2036		-		2035
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 2018:

Sensitivity Analysis for Defined Benefit Pension Plans

The impact on the 2018 benefit cost of a 25 basis point change in the discount rate and asset return assumptions is as follows:

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 2019:

millions of Canadian dollars	Defined benefit pension plans		Non-pensionbenefit plans
Actuarial gains (losses)	$	(15)	$	(1)
Past service gains		1		6
Regulatory assets		(16)		2
Total	$	(30)	$	7

Defined Contribution Plan

Emera also provides a defined contribution pension plan for certain employees. The Company’s contribution for the year ended December 31, 2018 was $31 million (2017 – $23 million).