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Employee Benefit Plans
 12 Months Ended
Dec. 31, 2020
21. Employee Benefit Plans  
Employee Benefit Plans

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, 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 dollars20202019
Change in Projected Benefit Obligation ("PBO") and Accumulated Post-retirement Benefit Obligation ("APBO")Defined benefit pension plansNon-pension benefit plansDefined benefit pension plansNon-pension benefit plans
Balance, January 1$ 2,822$ 353$ 2,650$ 350
Service cost 46 5 47 4
Plan participant contributions 7 5 8 5
Interest cost 84 10 102 14
Benefits paid (135) (27) (130) (23)
Actuarial losses 189 52 231 19
Settlements and curtailments (229) (52) (20) -
Foreign currency translation adjustment (25) (7) (66) (16)
Balance, December 31 2,759 339 2,822 353
Change in plan assets
Balance, January 1 2,593 56 2,300 49
Employer contributions 41 21 52 19
Plan participant contributions 7 5 8 5
Benefits paid (135) (27) (130) (23)
Actual return on assets, net of expenses 310 5 424 7
Settlements and curtailments (191) (7) (7) -
Foreign currency translation adjustment (20) (1) (54) (1)
Balance, December 31 2,605 52 2,593 56
Funded status, end of year $ (154)$ (287)$ (229)$ (297)

Plans with PBO/APBO in Excess of Plan Assets

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

millions of Canadian dollars20202019
Defined benefit pension plansNon-pension benefit plansDefined benefit pension plansNon-pension benefit plans
PBO/APBO$ 2,736$ 308$ 2,797$ 323
Fair value of plan assets 2,568 - 2,557 7
Funded status$ (168)$ (308)$ (240)$ (316)

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

The ABO for the defined benefit pension plans was $2,639 million as at December 31, 2020 (2019 – $2,687 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 dollars20202019
Defined benefit pension plansDefined benefit pension plans
ABO$ 1,519$ 2,665
Fair value of plan assets 1,419 2,557
Funded status$ (100)$ (108)

Balance Sheet

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

As atDecember 31December 31
millions of Canadian dollars20202019
Defined benefit pension plansNon-pension benefit plansDefined benefit pension plansNon-pension benefit plans
Other current liabilities$ (4)$ (19)$ (4)$ (18)
Long-term liabilities (163) (290) (206) (254)
Long-term liabilities associated with assets held for sale (1) - - (30) (44)
Other long-term assets 13 20 11 19
Amount included in deferred income tax (4) (1) (7) 1
AOCI and regulatory assets, net of tax 443 107 524 72
Net amount recognized$ 285$ (183)$ 288$ (224)
(1) On March 24, 2020, Emera sold Emera Maine, refer to note 4 for further details. As at December 31, 2019, Emera Maine's assets and liabilities were classified as held for sale.

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 assetsActuarial (gains) lossesPast service (gains) costs
millions of Canadian dollars
Defined Benefit Pension Plans
Balance, January 1, 2020$ 358$ 160$ (1)
Amortized in current period (25) (15) 1
Current year addition to AOCI or regulatory assets (12) 14 -
Change in current year related to sale of Emera Maine (39) - -
Change in foreign exchange rate (3) 1 -
Balance, December 31, 2020$ 279$ 160$ -
Non-pension benefits plans
Balance, January 1, 2020$ 78$ (5)$ -
Amortized in current period - - -
Current year addition to AOCI or regulatory assets 48 2 -
Change in current year related to sale of Emera Maine (13) - -
Change in foreign exchange rate (3) (1) -
Balance, December 31, 2020$ 110$ (4)$ -

20202019
Defined benefit pension plansNon-pension benefit plansDefined benefit pension plansNon-pension benefit plans
Actuarial losses (gains)$ 160$ (4)$ 160$ (5)
Past service (gains) costs - - (1) -
Regulatory assets 279 110 358 78
Total AOCI and regulatory assets before deferred income taxes 439 106 517 73
Amount included in deferred income tax assets 4 1 7 (1)
Net amount in AOCI and regulatory assets$ 443$ 107$ 524$ 72

Benefit Cost Components

Emera's net periodic benefit cost included the following:

As atYear ended December 31
millions of Canadian dollars20202019
Defined benefit pension plansNon-pension benefit plansDefined benefit pension plansNon-pension benefit plans
Service cost$ 46$ 5$ 47$ 4
Interest cost 84 10 102 14
Expected return on plan assets (141) (1) (147) (2)
Current year amortization of:
Actuarial losses (gains) 15 - 16 -
Past service costs (gains) (1) - (1) -
Regulatory assets (liability) 25 - 20 (5)
Settlement, curtailments - - 1 -
Total$ 28$ 14$ 38$ 11

The expected return on plan assets is determined based on the market-related value of plan assets of $2,476 million as at January 1, 2020 (2019 – $2,401 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 range of investment and non-investment grade securities. Emera’s target asset allocation is as follows:

Canadian Pension Plans
Asset ClassTarget Range at Market
Short-term securities0%to5%
Fixed income35%to50%
Equities:
Canadian12%to22%
Non-Canadian30%to55%

Non-Canadian Pension Plans
Asset ClassTarget Range at MarketWeighted average
Fixed income30%to50%
Equities50%to70%

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 dollarsNAVLevel 1Level 2TotalPercentage
December 31, 2020
Cash and cash equivalents$-$68$-$683%
Net in-transits-(99)-(99)(4)%
Equity Securities:
Canadian equity-154-1546%
US equity -380-38015%
Other equity-243-2439%
Fixed income securities:
Government--1191195%
Corporate--1411415%
Other-10313-%
Mutual funds-88-883%
Other-(3)(4)(7)-%
Open-ended investments measured at NAV (1)801--80131%
Common collective trusts measured at NAV (2)704--70427%
Total $1,505$841$259$2,605100%

December 31, 2019
Cash and cash equivalents$ - $ 44$ - $ 442%
Net in-transits - (48) - (48) (2)%
Equity securities:
Canadian equity - 210 - 2108%
US equity - 388 - 38815%
Other equity - 176 - 1767%
Fixed Income securities:
Government - - 93 933%
Corporate - - 126 1265%
Other - 5 9 14 -
Mutual funds - 199 - 1998%
Other - (5) 1 (4) - %
Open-ended investments measured at NAV (1) 860 - - 86033%
Common collective trusts measured at NAV (2) 535 - - 53521%
Total $ 1,395$ 969$ 229$ 2,593100%
(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 16 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 is the NMGC Retiree Medical Plan, which is fully funded

Investments in Emera

As at December 31, 2020 and 2019, 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 dollarsDefined benefit pension plansNon-pension benefit plans
Expected employer contributions
2021$ 41$ 19
Expected benefit payments
2021 140 21
2022 154 22
2023 154 22
2024 162 22
2025 170 22
2026 – 2030 914 105

Assumptions
The following table shows the assumptions that have been used in accounting for defined benefit pension and other post-retirement benefit plans:
20202019
(weighted average assumptions)Defined benefit pension plansNon-pension benefit plansDefined benefit pension plansNon-pension benefit plans
Benefit obligation – December 31:
Discount rate - past service2.49%2.48%3.17%3.27%
Discount rate - future service2.64%2.51%3.21%3.28%
Rate of compensation increase2.89%3.04%3.32%3.70%
Health care trend - initial (next year)-5.64%-6.15%
- ultimate -4.35%-4.38%
- year ultimate reached20382038
Benefit cost for year ended December 31:
Discount rate - past service3.17%3.28%4.05%4.30%
Discount rate - future service3.21%3.28%4.05%4.30%
Expected long-term return on plan assets6.29%3.25%6.50%2.81%
Rate of compensation increase3.34%3.70%3.30%3.67%
Health care trend - initial (current year)-5.91%-6.39%
- ultimate -4.37%-4.45%
- year ultimate reached20382035
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.

millions of Canadian dollarsIncreaseDecrease
Service cost and interest cost$ - $ -
Accumulated post-retirement benefit obligation, December 31 - -

millions of Canadian dollarsIncreaseDecrease
Discount rate assumption$ - $ -
Asset rate assumption - -

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 2021:
millions of Canadian dollarsDefined benefit pension plansNon-pensionbenefit plans
Actuarial gains (losses)$ - $ -
Past service gains - -
Regulatory assets - -
Total$ - $ -

Defined Contribution Plan

Emera also provides a defined contribution pension plan for certain employees. The Company’s contribution for the year ended December 31, 2020 was $45 million (2019 – $34 million).