PNG-PNG ( NE ) 2012 P ENSION & N ON -P ENSION B ENEFITS E XHIBIT B-2-1 Pension & Non-Pension Benefits Application Workshop for BC Utilities Commission Pacific Northern Gas (PNG) February 4, 2013
Agenda • Accounting vs. Funding Valuations • Plan Obligation and Assets (for accounting purposes) • Overview of Financial Disclosure for Employee Future Benefit Plans • Non-Pension Post-Retirement Benefits (NPPRB) Unrecovered Historical Liability Morneau Shepell 2
ACCOUNTING VS. FUNDING VALUATIONS
Actuarial Valuations of Employee Future Benefits • Accounting valuation : used to determine amounts to be recognized on company’s financial statement • Funding valuation : used to determine contribution requirements • Both attempt to answer the same question: what is the value / cost of benefits? • Both are just estimates based on assumptions Morneau Shepell 4
Why is Accounting Different than Funding? • Accounting standards value benefits as corporate debt - Creates difference in assumptions • Funding considered financing procedure to systematically accumulate assets so they are sufficient to pay benefits as they fall due • Accounting places greater emphasis on allocating costs to when benefits are earned, rather than when contributions are made • Both ultimately recognize same cost, but allocation to each year differs Morneau Shepell 5
PLAN OBLIGATION AND ASSETS (for accounting purposes)
Accrued Benefit Obligation • Represents value of future benefits earned by employees prior to a particular date • Calculated as present value of future benefit payments • Determined based on actuarial valuation for accounting purposes - Discount rate based on current market yields on high quality corporate bonds - Other assumptions are management’s best estimates Morneau Shepell 7
Changes in the Accrued Benefit Obligation Pension Cdn GAAP Plans NPPRB $000’s 2011 2011 Accrued benefit obligation at beginning of year 29,275 6,531 Current service cost 1,104 224 Employees’ contributions 23 Interest cost 1,554 346 Benefits paid (1,029) (214) Actuarial losses (gains) 889 (68) Accrued benefit obligation at measurement date 31,816 6,819 Morneau Shepell 8
Actuarial Gains and Losses • Actuarial gains and losses arise due to: - Actual experience differing from assumptions (backward looking) - Changes in assumptions (forward looking) Morneau Shepell 9
Plan Assets • Funds held in trust to provide benefits for plan beneficiaries Employer contributions Trust Employee contributions Benefit payments Fund Net investment return Morneau Shepell 10
Changes in Plan Assets Pension Cdn GAAP Plans NPPRB $000’s 2011 2011 Fair value of assets at beginning of year 21,879 1,122 Actual return on plan assets (486) (22) Employer contributions 2,260 420 Employees’ contributions 23 Benefits paid (1,029) (214) Fair value of assets at measurement date 22,647 1,306 Morneau Shepell 11
Ultimate Employer Cost of Benefits Employer Employee Net investment Benefit contributions contributions return payments Employer Benefit Employee Net investment contributions payments contributions return Employer cost of benefits reduced by employee contributions and net investment return Morneau Shepell 12
Contributions • Registered Pension Plan contributions prescribed by legislation • No legislated contribution requirements for Supplemental Pension Plan or NPPRB - If benefits are not pre- funded, then funding is on “pay as you go” basis (i.e. contributions = benefit payments) Morneau Shepell 13
Registered Pension Plan Contributions • Minimum and maximum funding rules prescribed by legislation - Contributions must be determined by actuary - PNG policy is to contribute the minimum required amount • Minimum required contributions: - Current service contributions › in respect of benefits earned by employees in current year - Special contributions to amortize any deficits › in respect of benefits earned in prior years Morneau Shepell 14
OVERVIEW OF FINANCIAL DISCLOSURE FOR EMPLOYEE FUTURE BENEFIT PLANS • Accrued Benefit Asset (Liability) • Expense • Canadian GAAP vs. US GAAP
Accrued Benefit Asset (Liability) • Net asset or liability recognized on balance sheet • Deferred recognition of certain amounts permitted • Fiscal year-end date vs. measurement date Morneau Shepell 16
Accrued Benefit Asset (Liability) Pension Cdn GAAP Plans NPPRB $000’s 2011 2011 Plan assets at measurement date 22,647 1,306 Accrued benefit obligation at measurement date (31,816) (6,819) Surplus (deficit) (9,169) (5,513) Unamortized net actuarial losses (gains) 12,052 1,791 Unamortized transitional obligation (asset) (38) 863 Accrued benefit asset (liability) at measurement date 2,845 (2,859) Employer contributions betw. measurement date and EOY 574 357 Accrued benefit asset (liability) at EOY 3,419 (2,502) * Unamortized past service costs n/a for PNG Morneau Shepell 17
Unamortized Net Actuarial Losses (Gains) • Sum of cumulative losses (gains) not yet recognized • Deferred recognition permitted based on assumption that losses and gains expected to balance out over time • Amortized prospectively using a “corridor approach” Pension Cdn GAAP Plans NPPRB $000’s 2011 2011 Unamortized net actuarial losses (gains) at BOY 9,355 1,889 Loss (gain) on obligation during year 889 (68) Loss (gain) on assets during year 2,174 65 Amortization of net actuarial losses (366) (95) Unamortized net actuarial losses (gains) at measurement date 12,052 1,791 Morneau Shepell 18
Unamortized Transitional Obligation (Asset) • When new Canadian accounting standards (CICA 3461) took effect in 2000 (2002 for NPPRB), many plan sponsors had not been accounting (properly) for their plans • Instead of reflecting the “full balance sheet impact” of switching to CICA 3461 immediately, plan sponsors were given the option to recognize this change over time • Will eventually disappear once amortization period expires Morneau Shepell 19
Unamortized Transitional Obligation (Asset) • NPPRB transitional obligation in 2002: $2,093K • Amortized over 17 years (2002 – 2018) • Amount recognized each year: $2,093 ÷ 17 yrs = $123K Pension Cdn GAAP Plans NPPRB $000’s 2011 2011 Unamortized transitional obligation (asset) at BOY (38) 986 * Amortization of transitional (obligation) asset (123) Unamortized transitional obligation (asset) at measurement date (38) 863 * Registered Pension Plan = (9); Supplemental Pension Plan = 9; Pension Plans Total = 0 Morneau Shepell 20
Expense • Cost of benefits recognized for the year on the income statement (based on accounting rules) • Different than actual contributions remitted to the plan (based on funding rules) • Both recognize same ultimate cost, but there is a difference in timing Morneau Shepell 21
Expense Components • Current service cost - Value of benefits earned by employees in current year (net of employee contributions) • Interest cost - Interest on accrued benefit obligation • Expected return on plan assets - Reduces the expense - May be determined using “market - related” value of assets instead of fair value of assets • Amortization of past service costs - Value of new benefits granted in respect of prior years (n/a for PNG) Morneau Shepell 22
Expense Components (cont’d) • Amortization of transitional obligation (asset) • Amortization of net actuarial losses (gains) - Amortization period = expected average remaining service lifetime of active employees (i.e. average period to retirement) - Amount subject to amortization based on “corridor approach” - Corridor = 10% of max [ Assets, Accrued Benefit Obligation ] - Net actuarial losses (gains) that fall outside the corridor are amortized - Amount subject to amortization also adjusted if market-related value of assets is used Morneau Shepell 23
Expense Components Pension Cdn GAAP Plans NPPRB $000’s 2011 2011 Current service cost 1,104 224 Interest cost 1,554 346 Expected return on plan assets (1,688) (43) Amortization of transitional obligation (asset) 123 Amortization of net actuarial losses (gains) 366 95 Expense 1,336 745 Morneau Shepell 24
Accrued Benefit Asset (Liability) Reconciliation • Accrued benefit asset (liability) is related to expense and contributions as follows: Pension Cdn GAAP Plans NPPRB $000’s 2011 2011 Accrued benefit asset (liability) at prior measurement date 1,921 (2,534) Expense (1,336) (745) Employer contributions 2,260 420 Accrued benefit asset (liability) 2,845 (2,859) at current measurement date Accrued benefit asset (liability) also represents the cumulative difference between expense and contributions Morneau Shepell 25
Expense to Balance Sheet Map ∑ (Expense) + ∑ Contributions + 0 = Asset/(Liability) Expense Employer Funding Employees’ Share Balance Sheet (Current Service Cost) (Interest Cost) (ABO) Return on Assets Employer Employee Contributions Contributions FV Assets Surplus(Deficit) (TO Amort) TO/(A) (PSC Amort) PSC Gain/(Loss) Amort (Gain)/Loss Morneau Shepell 26
Recommend
More recommend
