28. Pension and other post-retirement benefits
Cameco maintains both defined benefit and defined contribution plans providing pension and post-retirement benefits to substantially all of its employees.
Under the defined pension benefit plans, Cameco provides benefits to retirees based on their length of service and final average earnings. The non-pension post-retirement plan covers such benefits as group life and supplemental health insurance to eligible employees and their dependants. The costs related to the non-pension post-retirement plans are charged to earnings in the period during which the employment services are rendered. However, these future obligations are not funded.
The effective date for the most recent valuations for funding purposes on the pension benefit plans is January 1, 2012. The next planned effective date for valuation for funding purposes of the pension benefit plans is set to be January 1, 2013.
A reconciliation of the funded status of the benefit plans to the financial statements is as follows:
| Pension Benefit Plans | Other Benefit Plans | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |||
| Fair value of plan assets, beginning of year | $21,766 | $27,135 | $ | - | $ | - |
| Expected return on assets | 713 | 880 | - | - | ||
| Actuarial gain (loss) | 166 | (562) | - | - | ||
| Employer contributions | 10,015 | 1,875 | - | - | ||
| Benefits paid | (10,949) | (7,562) | - | - | ||
| Fair value of plan assets, end of year | $21,711 | $21,766 | $ | - | $ | - |
| Defined benefit obligation, beginning of year | $44,111 | $35,518 | $ | 16,276 | $ | 13,355 |
| Current service cost | 1,717 | 1,283 | 834 | 727 | ||
| Interest cost | 1,819 | 1,948 | 737 | 747 | ||
| Actuarial loss (gain) | 797 | 12,934 | (1,550) | 1,803 | ||
| Past service cost | - | - | - | 688 | ||
| Benefits paid | (10,949) | (7,562) | (980) | (1,044) | ||
| Foreign exchange | 2 | (10) | - | - | ||
| Defined benefit obligation, end of year | $37,497 | $44,111 | $ | 15,317 | $ | 16,276 |
| Funded status of plans - deficit | $(15,786) | $(22,345) | $ | (15,317) | $ | (16,276) |
| Unrecognized past service cost | - | - | 455 | 571 | ||
| Defined benefit liability [note 18] | $(15,786) | $(22,345) | $ | (14,862) | $ | (15,705) |
The actual return on plan assets for the pension benefit plans for the year ended December 31, 2012 was $878,800 (2011 - $318,400).
The percentages of the total fair value of assets in the pension plans for each asset category at December 31 were as follows:
| Pension Benefit Plans | ||
|---|---|---|
| 2012 | 2011 | |
|
||
| Asset Category (i) | ||
| Equity securities | 28% | 22% |
| Fixed income | 24% | 20% |
| Other (ii) | 48% | 58% |
| Total | 100% | 100% |
The following represents the components of net pension and other benefit expense included primarily as part of administration expense:
| Pension Benefit Plans | Other Benefit Plans | |||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Current service cost | $1,717 | $1,283 | $834 | $727 |
| Interest cost | 1,819 | 1,948 | 737 | 747 |
| Expected return on plan assets | (713) | (880) | - | - |
| Past service cost | - | - | 116 | 117 |
| Defined benefit expense | 2,823 | 2,351 | 1,687 | 1,591 |
| Defined contribution pension expense | 16,114 | 16,663 | - | - |
| Net pension and other benefit expense | $18,937 | $19,014 | $1,687 | $1,591 |
The assumptions used to determine the Company’s defined benefit obligation and net pension and other benefit expense were as follows at December 31:
| Pension Benefit Plans | Other Benefit Plans | |||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Discount rate | 4.0% | 4.5% | 4.0% | 4.5% |
| Rate of compensation increase | 3.0% | 4.0% | - | - |
| Long-term rate of return on assets | 5.9% | 5.9% | - | - |
| Initial health care cost trend rate | - | - | 7.0% | 9.0% |
| Cost trend rate declines to | - | - | 5.0% | - |
| Year the rate reaches its final level | - | - | 2018 | - |
The long-term rate of return on assets has been determined using an asset model that takes into account the allocation of assets among various asset classes, the expected rate of return on each asset class, the variability of returns and the correlation of returns among asset classes.
An increase of 1% in the assumed health care cost trend rate would increase the aggregate of the current service cost and interest cost components of other benefit expense by $30,400 and increase the defined benefit obligation for these plans by $292,300. A decrease of 1% in the assumed health care cost trend rate would decrease the aggregate of the current service cost and interest cost components of other benefit expense by $41,800 and decrease the defined benefit obligation for these plans by $366,500.
The total amount of actuarial losses (gains) recognized in other comprehensive income is:
| Pension Benefit Plans | Other Benefit Plans | ||||
|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | ||
| Balance at beginning of year | $14,070 | $574 | $1,803 | $ | - |
| Recognized during the year | 631 | 13,496 | (1,550) | 1,803 | |
| $14,701 | $14,070 | $253 | $1,803 | ||
The following table presents historical information on both the pension and other benefit plans:
| Pension Benefit Plans | Other Benefit Plans | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |||
| Fair value of plan assets | $21,711 | $21,766 | $ | - | $ | - |
| Defined benefit obligation | 37,497 | 44,111 | 15,317 | 16,276 | ||
| Deficit in the plan | $(15,786) | $(22,345) | $ | (15,317) | $ | (16,276) |
| Experience adjustments arising on plan assets | 0.8% | (2.6)% | - | - | ||
| Experience adjustments arising on plan liabilities | 2.1% | 29.3% | (10.1)% | 11.1% | ||
The following are the contributions expected to be paid to the plans during the annual period beginning after the end of the current reporting period:
| 2013 | |
|---|---|
| Employer contribution to funded pension plans | $281 |
| Benefits paid for unfunded benefit plans | 788 |
| Cash contributions to defined contribution plans | 16,598 |
BPLP
BPLP has a funded registered pension plan and an unfunded supplemental pension plan. The funded plan is a contributory, defined benefit plan covering all employees up to the limits imposed by the Income Tax Act. The supplemental pension plan is a non-contributory, defined benefit plan covering all employees with respect to benefits that exceed the limits under the Income Tax Act. These plans are based on years of service and final average salary.
BPLP also has other post-retirement benefit and other post-employment benefit plans that provide for group life insurance, health care and long-term disability benefits. These plans are non-contributory.
The effective date for the most recent valuations for funding purposes on the pension benefit plans is January 1, 2012. The next planned effective date for valuation for funding purposes of the pension benefit plans is set to be January 1, 2013. The status of Cameco’s proportionate share (31.6%) of the benefit plans is shown below.
A reconciliation of the funded status of the benefit plans to the financial statements is as follows:
| Pension Benefit Plans | Other Benefit Plans | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |||
| Fair value of plan assets, beginning of year | $758,652 | $717,320 | $ | - | $ | - |
| Expected return on assets | 54,036 | 50,484 | - | - | ||
| Actuarial gain (loss) | 18,644 | (26,300) | - | - | ||
| Employer contributions | 48,980 | 41,294 | - | - | ||
| Plan participants' contributions | 7,584 | 7,900 | - | - | ||
| Benefits paid | (44,240) | (32,046) | - | - | ||
| Fair value of plan assets, end of year | $843,656 | $758,652 | $ | - | $ | - |
| Defined benefit obligation, beginning of year | $1,017,453 | $887,419 | $ | 211,093 | $ | 181,011 |
| Current service cost | 35,430 | 26,752 | 9,936 | 9,312 | ||
| Interest cost | 49,427 | 47,122 | 9,665 | 9,424 | ||
| Actuarial loss (gain) | 122,495 | 81,064 | (12,938) | 16,029 | ||
| Plan participants' contributions | 7,584 | 7,900 | - | - | ||
| Benefits paid | (45,692) | (32,804) | (5,184) | (4,683) | ||
| Defined benefit obligation, end of year | $1,186,697 | $1,017,453 | $ | 212,572 | $ | 211,093 |
| Funded status of plans - deficit | $(343,041) | $(258,801) | $ | (212,572) | $ | (211,093) |
| Unrecognized past service cost | - | - | 1,081 | 1,531 | ||
| Defined benefit liability [note 18] | $(343,041) | $(258,801) | $ | (211,491) | $ | (209,562) |
The actual return on plan assets for the pension benefit plans for the year ended December 31, 2012 was $72,680,000 (2011 - $24,184,000).
The percentages of the total fair value of assets in the pension plans for each asset category at December 31 were as follows:
| Asset Allocation | Target Allocation | |||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
|
||||
| Asset Category (i) | ||||
| Equity securities | 58% | 55% | 60% | 60% |
| Fixed income | 39% | 43% | 40% | 40% |
| Cash | 3% | 2% | - | - |
| Total | 100% | 100% | 100% | 100% |
The assets of the pension plan are managed on a going concern basis subject to legislative restrictions. The plan’s investment policy is to maximize returns within an acceptable risk tolerance. Pension assets are invested in a diversified manner with consideration given to the demographics of the plan participants.
The following represents the components of net pension and other benefit expense included primarily as part of cost of products and services sold:
| Pension Benefit Plans | Other Benefit Plans | |||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Current service cost | $35,430 | $26,752 | $9,936 | $9,312 |
| Interest cost | 49,427 | 47,122 | 9,665 | 9,424 |
| Expected return on plan assets | (54,036) | (50,484) | - | - |
| Past service cost | - | - | 450 | 450 |
| Net pension and other benefit expense | $30,821 | $23,390 | $20,051 | $19,186 |
The assumptions used to determine BPLP’s defined benefit obligation and net pension and other benefit expense related to the pension benefit and other benefit plans were as follows:
| Pension Benefit Plans | Other Benefit Plans | |||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Discount rate | 4.3% | 4.8% | 4.1% | 4.6% |
| Rate of compensation increase | 3.5% | 3.5% | 3.5% | 3.5% |
| Long-term rate of return on assets | 7.0% | 7.0% | - | - |
| Initial health care cost trend rate | - | - | 8.5% | 9.0% |
| Cost trend rate declines to | - | - | 5.0% | 5.0% |
| Year the rate reaches its final level | - | - | 2019 | 2019 |
The overall expected rate of return is a weighted average of the expected returns of the various categories of plan assets held. The assessment of the expected returns is based on historical return trends with reference to market interest rates at the measurement date on high-quality debt instruments with cash flows that match the timing and amount of expected future benefit payments.
An increase of 1% in the assumed health care cost trend rate would increase the aggregate of the current service cost and interest cost components of other benefit expense by $4,188,000 and increase the defined benefit obligation for these plans by $37,521,000. A decrease of 1% in the assumed health care cost trend rate would decrease the aggregate of the current service cost and interest cost components of other benefit expense by $3,119,000 and decrease the defined benefit obligation for these plans by $28,780,000.
The total amount of actuarial losses (gains) recognized in other comprehensive income is:
| Pension Benefit Plans | Other Benefit Plans | |||
|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |
| Balance at beginning of year | $234,815 | $127,451 | $33,320 | $17,291 |
| Recognized during the year | 103,851 | 107,364 | (12,938) | 16,029 |
| $338,666 | $234,815 | $20,382 | $33,320 | |
The following table presents historical information on both the pension and other benefit plans:
| Pension Benefit Plans | Other Benefit Plans | |||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |||
| Fair value of plan assets | $843,656 | $758,652 | $ | - | $ | - |
| Defined benefit obligation | 1,186,697 | 1,017,453 | 212,572 | 211,093 | ||
| Deficit in the plan | $(343,041) | $(258,801) | $ | (212,572) | $ | (211,093) |
| Experience adjustments arising on plan assets | 2.2% | (3.5)% | - | - | ||
| Experience adjustments arising on plan liabilities | 10.3% | 8.0% | (6.1)% | 7.6% | ||
The following are the contributions expected to be paid to the plans during the annual period beginning after the end of the current reporting period:
| 2013 | |
|---|---|
| Employer contribution to funded pension plans | $87,532 |
| Benefits paid for unfunded benefit plans | 6,259 |