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Pensions and Other Postretirement Benefits (Tables)
 12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
Schedule of allocation of plan assets
The Company's 2019 Policy and actual asset allocation for the Company's pension plans based on fair value are as follows:
 
 
 
Actual plan asset allocation
 
Policy

 
2019

 
2018

Cash and short-term investments
3
 %
 
3
 %
 
3
%
Bonds and mortgages (1)
35
 %
 
36
 %
 
35
%
Emerging market debt (1)
1.5
 %
 
3
 %
 
3
%
Private debt (1)
1.5
 %
 
3
 %
 
2
%
Equities
40
 %
 
37
 %
 
33
%
Real estate
4
 %
 
2
 %
 
2
%
Oil and gas
7
 %
 
5
 %
 
6
%
Infrastructure (1)
4
 %
 
3
 %
 
4
%
Absolute return
10
 %
 
10
 %
 
10
%
Risk-factor allocation
—
 %
 
1
 %
 
2
%
Investment-related liabilities
(6
)%
 
(3
)%
 
—
%
Total
100
 %
 
100
 %
 
100
%

(1)
Certain assets in the 2018 comparative figures have been reclassified from bonds and mortgages and infrastructure to emerging market debt and private debt, respectively, to conform to the current year's presentation.

Fair value of plan assets by class
The following tables present the fair value of plan assets by asset class as at December 31, 2019 and 2018:
 
Fair value measurements at December 31, 2019
In millions
Total

 
Level 1

 
Level 2

 
Level 3

 
NAV

Cash and short-term investments (1)
$
502

 
$
92

 
$
410

 
$
—

 
$
—

Bonds (2)


 


 


 


 


Canada, U.S. and supranational
771

 
—

 
771

 
—

 
—

Provinces of Canada and municipalities
4,503

 
—

 
4,503

 
—

 
—

Corporate
1,347

 
—

 
1,347

 
—

 
—

Emerging market debt (3)
500

 
—

 
500

 
—

 
—

Mortgages (4)
52

 
—

 
52

 
—

 
—

Private debt (5)
481

 
—

 
—

 
—

 
481

Public equities (6)


 


 


 


 


Canadian
338

 
338

 
—

 
—

 
—

U.S.
3,265

 
3,234

 
31

 
—

 
—

International
3,006

 
3,006

 
—

 
—

 
—

Private equities (7)
215

 
—

 
—

 
—

 
215

Real estate (8)
435

 
—

 
—

 
329

 
106

Oil and gas (9)
901

 
177

 
17

 
707

 
—

Infrastructure (10)
619

 
—

 
66

 
—

 
553

Absolute return funds (11)


 
 
 
 
 
 
 
 
Multi-strategy
1,083

 
—

 
—

 
—

 
1,083

Fixed income
175

 
—

 
—

 
—

 
175

Global macro
490

 
—

 
—

 
—

 
490

    Growth insurance
17

 
17

 
—

 
—

 
—

Risk-factor allocation (12)
288

 
—

 
—

 
—

 
288

Investments (13)
$
18,988

 
$
6,864

 
$
7,697

 
$
1,036

 
$
3,391

Investment-related liabilities (14)
(565
)
 


 
 
 


 
 
Other (15)
1

 
 
 
 
 
 
 
 
Total plan assets
$
18,424

 
 
 
 
 
 
 
 
 
Fair value measurements at December 31, 2018
In millions
Total

 
Level 1

 
Level 2

 
Level 3

 
NAV

Cash and short-term investments (1)
$
577

 
$
12

 
$
565

 
$
—

 
$
—

Bonds (2)


 


 


 


 


Canada, U.S. and supranational
1,801

 
—

 
1,801

 
—

 
—

Provinces of Canada and municipalities
2,987

 
—

 
2,987

 
—

 
—

Corporate
1,180

 
—

 
1,180

 
—

 
—

Emerging market debt (3)
540

 
—

 
540

 
—

 
—

Mortgages (4)
90

 
—

 
90

 
—

 
—

Private debt (5)
366

 
—

 
—

 
—

 
366

Public equities (6)


 


 


 


 


Canadian
1,561

 
1,561

 
—

 
—

 
—

U.S.
447

 
447

 
—

 
—

 
—

International
3,338

 
3,338

 
—

 
—

 
—

Private equities (7)
274

 
—

 
—

 
—

 
274

Real estate (8)
421

 
—

 
—

 
321

 
100

Oil and gas (9)
948

 
202

 
18

 
728

 
—

Infrastructure (10)
704

 
—

 
64

 
—

 
640

Absolute return funds (11)
 
 
 
 
 
 
 
 
 
Multi-strategy
898

 
—

 
—

 
—

 
898

Fixed income
239

 
—

 
—

 
—

 
239

Global macro
480

 
—

 
—

 
—

 
480

Risk-factor allocation (12)
286

 
—

 
—

 
—

 
286

Investments (13)
$
17,137

 
$
5,560

 
$
7,245

 
$
1,049

 
$
3,283

Other (15)
107

 


 


 


 


Total plan assets
$
17,244

 


 


 


 


Level 1: Fair value based on quoted prices in active markets for identical assets.
Level 2: Fair value based on other significant observable inputs.
Level 3: Fair value based on significant unobservable inputs.
NAV: Investments measured at net asset value as a practical expedient.
Footnotes to the table follow on the next page.
Reconciliation of the fair value of investments categorized as Level 3
The following table reconciles the beginning and ending balances of the fair value of investments classified as Level 3:
 
 
Fair value measurements based on significant unobservable inputs (Level 3)
In millions
 
Real estate (8)

 
Oil and gas (9)

 
Total

 
 
 
 
 
 
 
Balance at December 31, 2017
 
$
332

 
$
769

 
$
1,101

Actual return relating to assets still held at the reporting date
(2
)
 
(11
)
 
(13
)
Purchases
1

 
—

 
1

Sales
(1
)
 
—

 
(1
)
Disbursements
(9
)
 
(30
)
 
(39
)
Balance at December 31, 2018
 
321

 
728

 
1,049

Actual return relating to assets still held at the reporting date
13

 
7

 
20

Purchases
3

 
—

 
3

Sales
(1
)
 
—

 
(1
)
Disbursements
(7
)
 
(28
)
 
(35
)
Balance at December 31, 2019
 
$
329

 
$
707

 
$
1,036

(1)
Cash and short-term investments with related accrued interest are valued at cost, which approximates fair value, and are categorized as Level 1 and Level 2 respectively.
(2)
Bonds are valued using mid-market prices obtained from independent pricing data suppliers. When prices are not available from independent sources, the fair value is based on the present value of future cash flows using current market yields for comparable instruments.
(3)
Emerging market debt funds are valued based on the net asset value which is readily available and published by each fund's independent administrator.
(4)
Mortgages are valued based on the present value of future net cash flows using current market yields for comparable instruments.
(5)
Private debt investments are valued based on the net asset value as reported by each fund's manager, generally based on the present value of future net cash flows using current market yields for comparable instruments.
(6)
The fair value of public equity investments is based on quoted prices in active markets for identical assets.
(7)
Private equity investments are valued based on the net asset value as reported by each fund's manager, generally using discounted cash flow analysis or earnings multiples.
(8)
The fair value of real estate investments categorized as Level 3 includes immoveable properties. Land is valued based on the fair value of comparable assets, and income producing properties are valued based on the present value of estimated future net cash flows or the fair value of comparable assets. Independent valuations of all immoveable properties are performed triennially on a rotational basis. The fair value of real estate investments categorized as NAV consists mainly of investments in real estate private equity funds and is based on the net asset value as reported by each fund's manager, generally using a discounted cash flow analysis or earnings multiples.
(9)
Oil and gas investments categorized as Level 1 are valued based on quoted prices in active markets. Oil and gas participations traded on a secondary market are valued based on the most recent transaction price and are categorized as Level 2. Investments in oil and gas categorized as Level 3 consist of operating oil and gas properties and the fair value is based on estimated future net cash flows that are discounted using prevailing market rates for transactions in similar assets. Estimated future net cash flows are based on forecasted oil and gas prices and projected annual production and costs.
(10)
The fair value of infrastructure investments categorized as Level 2 is based on the present value of future cash flows using current market yields for comparable instruments. The fair value of infrastructure funds categorized as NAV is based on the net asset value as reported by each fund's manager, generally using a discounted cash flow analysis or earnings multiples.
(11)
Absolute return investments are valued using the net asset value as reported by each fund's independent administrator. All absolute return investments have contractual redemption frequencies, ranging from monthly to annually, and redemption notice periods varying from 5 to 90 days.
(12)
Risk-factor allocation investments are valued using the net asset value as reported by each fund's independent administrator or fund manager. All funds have contractual redemption frequencies ranging from daily to annually, and redemption notice periods varying from 5 to 60 days.
(13)
Derivative financial instruments, which are included in gross investments, are valued using quoted market prices when available and are categorized as Level 1, or based on valuation techniques using market data, when quoted market prices are not available and are categorized as Level 2. Derivatives are included in the investment asset categories based on their underlying exposure.
(14)
Investment-related liabilities include securities sold under repurchase agreements. The securities sold under repurchase agreement do not meet the conditions to remove from the assets and are therefore maintained on the books with an offsetting liability recorded to represent the financing nature of this transaction. These agreements are recorded at cost, which together with accrued interest approximates fair value due to their short-term nature.
(15)
Other consists of operating assets of $108 million (2018 - $120 million) and liabilities of $107 million (2018 - $13 million) required to administer the Trusts' investment assets and the plans' benefit and funding activities. Such assets are valued at cost and have not been assigned to a fair value category.
Schedule of obligations and funded status
Obligations and funded status for defined benefit pension and other postretirement benefit plans
 
 
Pensions
 
Other postretirement benefits
In millions
Year ended December 31,
2019

 
2018

 
2019

 
2018

Change in benefit obligation
 


 


 


 


Projected benefit obligation at beginning of year
$
17,275

 
$
18,025

 
$
247

 
$
261

Amendments
 
—

 
—

 
$
—

 
(6
)
Interest cost
 
596

 
568

 
8

 
9

Actuarial loss (gain) on projected benefit obligation (1)
1,611

 
(538
)
 
(9
)
 
(10
)
Current service cost
 
143

 
170

 
2

 
2

Plan participants' contributions
 
64

 
63

 
—

 
—

Foreign currency changes
 
(15
)
 
25

 
(3
)
 
8

Benefit payments, settlements and transfers
(1,065
)
 
(1,038
)
 
(18
)
 
(17
)
Projected benefit obligation at the end of the year (2)
$
18,609

 
$
17,275

 
$
227

 
$
247

Component representing future salary increases
(253
)
 
(266
)
 
—

 
—

Accumulated benefit obligation at end of year
$
18,356

 
$
17,009

 
$
227

 
$
247

Change in plan assets
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
17,244

 
$
18,564

 
$
—

 
$
—

Employer contributions
 
105

 
70

 
—

 
—

Plan participants' contributions
 
64

 
63

 
—

 
—

Foreign currency changes
 
(11
)
 
19

 
—

 
—

Actual return on plan assets
 
2,087

 
(434
)
 
—

 
—

Benefit payments, settlements and transfers
(1,065
)
 
(1,038
)
 
—

 
—

Fair value of plan assets at end of year (2)
$
18,424

 
$
17,244

 
$
—

 
$
—

Funded status - Deficiency of fair value of plan assets
over projected benefit obligation at end of year
$
(185
)
 
$
(31
)
 
$
(227
)
 
$
(247
)
(1)
Substantially all of the pensions' actuarial loss for the year ended December 31, 2019 and actuarial gain for the year ended December 31, 2018 is the result of the change in the end of year discount rate of the current year versus the prior year (67 basis points decrease for 2019 and 26 basis points increase for 2018).
(2)
For the CN Pension Plan, as at December 31, 2019, the projected benefit obligation was $17,252 million (2018 - $16,004 million) and the fair value of plan assets was $17,523 million (2018 - $16,393 million). The measurement date of all plans is December 31.
Amounts recognized in the consolidated balance sheet
Amounts recognized in the Consolidated Balance Sheets
 
 
 
Pensions
 
Other postretirement benefits
In millions
December 31,
2019

 
2018

 
2019

 
2018

Noncurrent assets - Pension asset
$
336

 
$
446

 
$
—

 
$
—

Current liabilities (Note 12)
—

 
—

 
(15
)
 
(17
)
Noncurrent liabilities - Pension and other postretirement benefits
(521
)
 
(477
)
 
(212
)
 
(230
)
Total amount recognized
$
(185
)
 
$
(31
)
 
$
(227
)
 
$
(247
)
Amounts recognized in accumulated other comprehensive loss
Amounts recognized in Accumulated other comprehensive loss (Note 18)
 
 
 
Pensions
 
Other postretirement benefits
In millions
December 31,
2019

 
2018

 
2019

 
2018

Net actuarial gain (loss)
$
(4,336
)
 
$
(3,887
)
 
$
14

 
$
8

Prior service credit (cost)
$
(3
)
 
$
(6
)
 
$
4

 
$
4
Information for the pension plans with an accumulated benefit obligation in excess of plan assets
Information for defined benefit pension plans with an accumulated benefit obligation in excess of plan assets
 
 
Pensions
In millions
December 31,
2019

 
2018

Accumulated benefit obligation (1)
 
$
676

 
$
714

Fair value of plan assets (1)
 
$
225

 
$
303

(1)
All of the Company's other postretirement benefit pension plans have an accumulated benefit obligation in excess of plan assets.
Information for the pension plans with a projected benefit obligation in excess of plan assets
Information for defined benefit pension plans with a projected benefit obligation in excess of plan assets
 
 
Pensions
In millions
December 31,
2019

 
2018

Projected benefit obligation
 
$
843

 
$
780

Fair value of plan assets
 
$
322

 
$
303
Components of net periodic benefit cost (income)
Components of net periodic benefit cost (income) for defined benefit pension and other postretirement benefit plans
 
 
Pensions
 
Other postretirement benefits
In millions
Year ended December 31,
2019

 
2018

 
2017

 
2019

 
2018

 
2017

Current service cost
$
143

 
$
170

 
$
130

 
$
2

 
$
2

 
$
2

Other components of net periodic benefit cost (income)


 


 


 


 


 


Interest cost
596

 
568

 
540

 
8

 
9

 
8

Settlement loss
5

 
3

 
—

 
—

 
—

 
—

Expected return on plan assets
(1,085
)
 
(1,083
)
 
(1,047
)
 
—

 
—

 
—

Amortization of prior service cost
3

 
3

 
5

 
—

 
—

 
—

Amortization of net actuarial loss (gain)
155

 
200

 
182

 
(3
)
 
(2
)
 
(3
)
Total Other components of net periodic benefit cost (income)
$
(326
)
 
$
(309
)
 
$
(320
)
 
$
5

 
$
7

 
$
5

Net periodic benefit cost (income)
$
(183
)
 
$
(139
)
 
$
(190
)
 
$
7

 
$
9

 
$
7
Weighted-average assumptions used in accounting for pensions and other postretirement benefits
Weighted-average assumptions used in accounting for defined benefit pension and other postretirement benefit plans
 
 
 
Pensions
Other postretirement benefits
 
December 31,
2019

2018

2017

2019

2018

2017

To determine projected benefit obligation












Discount rate (1)
3.10
%
3.77
%
3.51
%
3.14
%
4.00
%
3.59
%
Rate of compensation increase (2)
2.75
%
2.75
%
2.75
%
2.75
%
2.75
%
2.75
%
To determine net periodic benefit cost (income)












Rate to determine current service cost (3)
3.93
%
3.68
%
4.11
%
4.25
%
3.83
%
4.43
%
Rate to determine interest cost (3)
3.47
%
3.15
%
3.15
%
3.68
%
3.23
%
3.29
%
Rate of compensation increase (2)
2.75
%
2.75
%
2.75
%
2.75
%
2.75
%
2.75
%
Expected return on plan assets (4)
7.00
%
7.00
%
7.00
%
N/A

N/A

N/A

(1)
The Company's discount rate assumption, which is set annually at the end of each year, is determined by management with the aid of third-party actuaries. The discount rate is used to measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments with a rating of AA or better, would provide the necessary cash flows to pay for pension benefits as they become due. For the Canadian pension and other postretirement benefit plans, future expected benefit payments are discounted using spot rates based on a derived AA corporate bond yield curve for each maturity year.
(2)
The rate of compensation increase is determined by the Company based upon its long-term plans for such increases.
(3)
The Company uses the spot rate approach to measure current service cost and interest cost for all defined benefit pension and other postretirement benefit plans. Under the spot rate approach, individual spot discount rates along the same yield curve used in the determination of the projected benefit obligation are applied to the relevant projected cash flows at the relevant maturity.
(4)
The expected long-term rate of return is determined based on expected future performance for each asset class and is weighted based on the investment policy. For 2019, the Company used a long-term rate of return assumption of 7.00% on the market-related value of plan assets to compute net periodic benefit cost (income). The Company has elected to use a market-related value of assets, whereby realized and unrealized gains/losses and appreciation/depreciation in the value of the investments are recognized over a period of five years, while investment income is recognized immediately. In 2020, the Company will maintain the expected long-term rate of return on plan assets at 7.00% to reflect management's current view of long-term investment returns.
Estimated future benefit payments
Expected future benefit payments
The following table provides the expected benefit payments for pensions and other postretirement benefits for the next five years and the subsequent five-year period:
In millions
Pensions

Other postretirement
benefits
 
2020
$
1,056

 
$
16

2021
$
1,060

 
$
15

2022
$
1,058

 
$
14

2023
$
1,053

 
$
14

2024
$
1,046

 
$
13

Years 2025 to 2029
$
5,119

 
$
60