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Employee Benefit Plans | 12 Months Ended
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Dec. 31, 2019
20. Employee Benefit Plans |
Employee Benefit Plans | 20. 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 Sc otia, New Brunswick, Newfoundland and Labrador, Florida, Maine, New Mexico, Barbados, Dominica and Grand Bahama Island. On March 25, 2019, Emera announced the sale of Emera Maine. As at December 31, 2019, Emera Maine's assets and liabilities, including bal ances related to benefit plans, were classified as held for sale. Refer to note 4 for further details. Benefit Obligation and Plan Assets The changes in b enefit o bligation and p lan a ssets, and the f unded s tatus for all plans were as follows:
For the | Year ended December 31
millions of Canadian dollars | 2019 | 2018
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 | $ | 2,650 | $ | 350 | $ | 2,683 | $ | 356
Service cost |  | 47 |  | 4 |  | 51 |  | 6
Plan participant contributions |  | 8 |  | 5 |  | 8 |  | 5
Interest cost |  | 102 |  | 14 |  | 95 |  | 13
Benefits paid |  | (130) |  | (23) |  | (143) |  | (33)
Actuarial (gains) losses |  | 231 |  | 19 |  | (133) |  | (25)
Settlements and curtailments |  | (20) |  | - |  | (18) |  | -
Foreign currency translation adjustment |  | (66) |  | (16) |  | 107 |  | 28
Balance, December 31 |  | 2,822 |  | 353 |  | 2,650 |  | 350
Change in plan assets |  |  |  |  |  |  |  |
Balance, January 1 |  | 2,300 |  | 49 |  | 2,408 |  | 45
Employer contributions |  | 52 |  | 19 |  | 51 |  | 31
Plan participant contributions |  | 8 |  | 5 |  | 8 |  | 5
Benefits paid |  | (130) |  | (23) |  | (143) |  | (33)
Actual return on assets, net of expenses |  | 424 |  | 7 |  | (105) |  | (3)
Settlements and curtailments |  | (7) |  | - |  | (18) |  | -
Foreign currency translation adjustment |  | (54) |  | (1) |  | 99 |  | 4
Balance, December 31 |  | 2,593 |  | 56 |  | 2,300 |  | 49
Funded status, end of year | $ | (229) | $ | (297) | $ | (350) | $ | (301)
Plans with PBO/APBO in E xcess of P lan A ssets T he 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 |  |  | 2019 | 2018
| Defined benefit pension plans | Non-pension benefit plans | Defined benefit pension plans | Non-pension benefit plans
PBO/APBO | $ | 2,797 | $ | 323 | $ | 2,623 | $ | 318
Fair value of plan assets |  | 2,557 |  | 7 |  | 2,264 |  | 6
Funded status | $ | (240) | $ | (316) | $ | (359) | $ | (312)
Plans with Accumulated Benefit Obligation (“ABO”) in E xcess of P lan A ssets The ABO for the defined benefit pension plans was $2,687 million as at December 31, 2019 (2018 – $2,527 million). T he aggregate financial position for those plan s with an ABO in excess of the p lan assets for the years ended December 31 is as follows:
millions of Canadian dollars | 2019 | 2018
| Defined benefit pension plans | Defined benefit pension plans
ABO | $ | 2,665 | $ | 2,504
Fair value of plan assets |  | 2,557 |  | 2,264
Funded status | $ | (108) | $ | (240)
Balance Sheet The amounts recognized in the Consolidated Balance Sheets consisted of the following:
As at |  | December 31 |  | December 31
millions of Canadian dollars | 2019 | 2018
| Defined benefit pension plans | Non-pension benefit plans | Defined benefit pension plans | Non-pension benefit plans
Other current liabilities | $ | (4) | $ | (18) | $ | (12) | $ | (19)
Long-term liabilities |  | (206) |  | (254) |  | (347) |  | (294)
Long-term liabilities associated with assets held for sale (1) |  | (30) |  | (44) |  | - |  | -
Other long-term assets |  | 11 |  | 19 |  | 9 |  | 11
Amount included in deferred income tax |  | (7) |  | 1 |  | 5 |  | (2)
AOCI, net of tax and regulatory assets |  | 524 |  | 72 |  | 628 |  | 60
Net amount recognized | $ | 288 | $ | (224) | $ | 283 | $ | (244)
(1) On March 25, 2019, Emera announced the sale of Emera Maine. As at December 31, 2019, Emera Maine's assets and liabilities were classified as held for sale. Refer to note 4 for further details.
Amounts R ecognized in AOCI and Regulatory A ssets Unamortized gains and losses and past service costs arising on post-retirement benefits are recorded in AOCI or regulatory assets. As at December 31, 2019, regulatory asset balances related to Emera Maine have been reclassified as assets held for sale. The following table summarizes the change in AOCI and r egulatory assets:
| Regulatory assets | Actuarial (gains) losses | Past service (gains) costs
millions of Canadian dollars
Defined Benefit Pension Plans |  |  |  |  |  |
Balance, January 1, 2019 | $ | 389 | $ | 246 | $ | (2)
Amortized in current period |  | (20) |  | (17) |  | 1
Current year addition to AOCI or regulatory assets |  | 6 |  | (69) |  | -
Change in foreign exchange rate |  | (17) |  | - |  | -
Balance, December 31, 2019 | $ | 358 | $ | 160 | $ | (1)
Non-pension benefits plans |  |  |  |  |  |
Balance, January 1, 2019 | $ | 65 | $ | (7) | $ | -
Amortized in current period |  | 5 |  | - |  | -
Current year addition to AOCI or regulatory assets |  | 11 |  | 2 |  | -
Change in foreign exchange rate |  | (3) |  | - |  | -
Balance, December 31, 2019 | $ | 78 | $ | (5) | $ | -
| 2019 | 2018
| Defined benefit pension plans | Non-pension benefit plans | Defined benefit pension plans | Non-pension benefit plans
Actuarial losses (gains) | $ | 160 | $ | (5) | $ | 246 | $ | (7)
Past service (gains) costs |  | (1) |  | - |  | (2) |  | -
Regulatory assets |  | 358 |  | 78 |  | 389 |  | 65
Total AOCI and regulatory assets before deferred income taxes |  | 517 |  | 73 |  | 633 |  | 58
Amount included in deferred income tax assets |  | 7 |  | (1) |  | (5) |  | 2
Net amount in AOCI and regulatory assets | $ | 524 | $ | 72 | $ | 628 | $ | 60
Benefit C ost C omponents Emera's net periodic benefit cost included the following:
As at |  |  |  |  |  | Year ended December 31
millions of Canadian dollars | 2019 | 2018
| Defined benefit pension plans | Non-pension benefit plans | Defined benefit pension plans | Non-pension benefit plans
Service cost | $ | 47 | $ | 4 | $ | 51 | $ | 6
Interest cost |  | 102 |  | 14 |  | 95 |  | 13
Expected return on plan assets |  | (147) |  | (2) |  | (138) |  | (2)
Current year amortization of: |  |  |  |  |  |  |  |
Actuarial losses |  | 16 |  | - |  | 33 |  | (1)
Past service costs (gains) |  | (1) |  | - |  | (1) |  | -
Regulatory assets (liability) |  | 20 |  | (5) |  | 26 |  | (2)
Settlement, curtailments |  | 1 |  | - |  | 4 |  | -
Total | $ | 38 | $ | 11 | $ | 70 | $ | 14
The expected return on plan assets is determined based on the market-related value of plan assets of $2,401 million as at January 1, 2019 (2018 – $2,223 million), adjusted for interest on certa in cash flows during the year. The market-related value of assets is based on a f ive-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 assumpt ions. 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 bas ket of investment and non-investme nt 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 |  | 30% | to | 55%
Non-Canadian Pension Plans |  |  |  |
Asset Class | Target Range at Market Weighted average
Fixed income |  | 40% | to | 45%
Equities |  | 55% | to | 60%
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, 2019 |
Cash and cash equivalents | $ | - | $ | 44 | $ | - | $ | 44 |  | 2 | %
Net in-transits |  | - |  | (48) |  | - |  | (48) |  | -2 | %
Equity Securities: |  |  |  |  |  |  |  |  |  |  |
Canadian equity |  | - |  | 210 |  | - |  | 210 |  | 8 | %
US equity |  | - |  | 388 |  | - |  | 388 |  | 15 | %
Other equity |  | - |  | 176 |  | - |  | 176 |  | 7 | %
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |
Government |  | - |  | - |  | 93 |  | 93 |  | 3 | %
Corporate |  | - |  | - |  | 126 |  | 126 |  | 5 | %
Other |  | - |  | 5 |  | 9 |  | 14 |  | - | %
Mutual funds |  | - |  | 199 |  | - |  | 199 |  | 8 | %
Other |  | - |  | (5) |  | 1 |  | (4) |  | - | %
Open-ended investments measured at NAV (1) |  | 860 |  | - |  | - |  | 860 |  | 33 | %
Common collective trusts measured at NAV (2) |  | 535 |  | - |  | - |  | 535 |  | 21 | %
Total | $ | 1,395 | $ | 969 | $ | 229 | $ | 2,593 |  | 100 | %
|  |  |  | 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 | %
(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 14 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 most of the Company’s post-retirement benefit plans. As is common practice, post-retirement health benefits are paid from general accounts as required. The primary exceptions to this are the NMGC Retiree Medical Plan, which is fully funded, and the Emera M aine post-retirement benefits plans, which are partially-funded. Investments in Emera As at December 31, 2019 and 2018, 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 (1) | Non-pension benefit plans (2)
Expected employer contributions |  |  |  |
2020 | $ | 44 | $ | 21
Expected benefit payments |  |  |  |
2020 |  | 143 |  | 23
2021 |  | 154 |  | 23
2022 |  | 158 |  | 23
2023 |  | 165 |  | 23
2024 |  | 173 |  | 23
2025 – 2029 |  | 959 |  | 115
(1) Includes expected employer contributions related to Emera Maine of $3 million in 2020; and expected benefit payments related to Emera Maine of $10 million in 2020; $10 million in 2021; $11 million in 2022; $11 million in 2023; $12 million in 2024 and $62 million in 2025-2029.
(2) Includes expected employer contributions related to Emera Maine of $3 million in 2020; and expected benefit payments related to Emera Maine of $3 million in 2020; $3 million in 2021; $3 million in 2022; $3 million in 2023; $4 million in 2024 and $17 million in 2025-2029.
Assumptions |  |  |  |  |  |  |  |
The following table shows the assumptions that have been used in accounting for defined benefit pension and other post-retirement benefit plans: |
| 2019 | 2018
(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 - past service | 3.17 | % | 3.27 | % | 4.05 | % | 4.30 | %
Discount rate - future service | 3.21 | % | 3.28 | % | 4.05 | % | 4.30 | %
Rate of compensation increase | 3.32 | % | 3.70 | % | 3.30 | % | 3.67 | %
Health care trend - initial (next year) | - |  | 6.15 | % | - |  | 6.39 | %
- ultimate | - |  | 4.38 | % | - |  | 4.45 | %
- year ultimate reached | - |  | 2038 |  | - |  | 2035 |
Benefit cost for year ended December 31: |  |  |  |  |  |  |  |
Discount rate - past and future service | 4.05 | % | 4.30 | % | 3.55 | % | 3.65 | %
Expected long-term return on plan assets | 6.50 | % | 2.81 | % | 6.38 | % | 3.73 | %
Rate of compensation increase | 3.30 | % | 3.67 | % | 3.12 | % | 3.28 | %
Health care trend - initial (current year) | - |  | 6.39 | % | - |  | 6.65 | %
- ultimate | - |  | 4.45 | % | - |  | 4.45 | %
- year ultimate reached | - |  | 2035 |  | - |  | 2036 |
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 allo cation, 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 amount s 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 2019:
millions of Canadian dollars | Increase | Decrease
Service cost and interest cost | $ | 1 | $ | (1)
Accumulated post-retirement benefit obligation, December 31 |  | 16 |  | (14)
Sensitivity Analysis for Defined Benefit Pension Plans The impact on the 2019 benefit cost of a 25 basis point change in the discount rate and asset return assumptions i s as follows:
millions of Canadian dollars | Increase | Decrease
Discount rate assumption | $ | (9) | $ | 9
Asset rate assumption |  | (6) |  | 6
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 2020:
millions of Canadian dollars | Defined benefit pension plans | Non-pension benefit plans
Actuarial gains (losses) | $ | (14) | $ | -
Past service gains |  | (1) |  | -
Regulatory assets |  | (29) |  | (1)
Total | $ | (44) | $ | (1)
Defined Contribution Plan Emera also provides a defined contribution pension plan for certain employees. The Company’s contribution for the year ended December 31, 2019 was $34 million (2018 – $31 million).

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