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Pensions and other benefits
 12 Months Ended
Dec. 31, 2023
Retirement Benefits [Abstract]  
Pensions and other benefits Pensions and other benefits
The Company has both defined benefit (“DB”) and defined contribution (“DC”) pension plans. At December 31, 2023, the Canadian pension plans represent nearly all of total combined pension plan assets and nearly all of total combined pension plan obligations.

The DB plans provide for pensions based principally on years of service and compensation rates near retirement. Pensions for Canadian pensioners are partially indexed to inflation. Annual employer contributions to the DB plans, which are actuarially determined, are made on the basis of being not less than the minimum amounts required by federal pension supervisory authorities.

The Company has other benefit plans including post-retirement health benefits and life insurance, post-employment long-term disability and workers’ compensation benefits based on Company-specific claims, and certain other non-pension post-employment benefits. At December 31, 2023, the Canadian other benefits plans represent nearly all of total combined other plan obligations.

The Audit and Finance Committee of the Board of Directors has approved an investment policy that establishes long-term asset mix targets, which take into account the Company’s expected risk tolerances. Pension plan assets are managed by a suite of independent investment managers, with the allocation by manager reflecting these asset mix targets. Most of the assets are actively managed with the objective of outperforming applicable benchmarks. In accordance with the investment policy, derivative instruments may be used by investment managers to hedge or adjust existing or anticipated exposures.

To develop the expected long-term rate of return assumption used in the calculation of net periodic benefit cost applicable to the market-related value of plan assets, the Company considers the expected composition of the plans’ assets, past experience, and future estimates of long-term investment returns. Future estimates of investment returns reflect the long-term return expectation for fixed income, public equity, real estate, infrastructure, private debt, and absolute return investments, and the expected added value (relative to applicable benchmark indices) from active management of pension plan assets.

The Company has elected to use a market-related value of assets for the purpose of calculating net periodic benefit cost, developed from a five-year average of market values for the plans’ public equity and absolute return investments (with each prior year’s market value adjusted to the current date for assumed investment income during the intervening period) plus the market value of the plans’ fixed income, real estate, infrastructure, and private debt securities.

The benefit obligation is discounted using a discount rate that is a blended yield to maturity for a hypothetical portfolio of high-quality debt instruments with cash flows matching projected benefit payments. The discount rate is determined by management.
Net periodic benefit (recovery) cost
The elements of net periodic benefit (recovery) cost for DB pension plans and other benefits recognized in the year include the following components:

 PensionsOther benefitsTotal
For the year ended December 31 (in millions of Canadian dollars)202320222021202320222021202320222021
Current service cost$71 $148 $171 $10 $11 $13 $81 $159 $184 
Other components of net periodic benefit (recovery) cost:
Interest cost on benefit obligation486 383 351 22 16 16 508 399 367 
Expected return on plan assets(882)(959)(959)— — — (882)(959)(959)
Recognized net actuarial loss (gain)32 153 206 13 (5)(1)45 148 205 
Amortization of prior service costs2 1 — — — — 2 1 — 
Total other components of net periodic benefit (recovery) cost(362)(422)(402)35 11 15 (327)(411)(387)
Net periodic benefit (recovery) cost$(291)$(274)$(231)$45 $22 $28 $(246)$(252)$(203)

Projected benefit obligation, plan assets, and funded status
Information about the Company’s DB pension plans and other benefits, in aggregate, is as follows:

 PensionsOther benefitsTotal
(in millions of Canadian dollars)202320222023202220232022
Change in projected benefit obligation:
Projected benefit obligation at January 1$9,936 $12,884 $411 $503 $10,347 $13,387 
Current service cost71 148 10 11 81 159 
Interest cost486 383 22 16 508 399 
Employee contributions48 42 — — 48 42 
Benefits paid(656)(680)(37)(22)(693)(702)
Foreign currency changes(4)16 6 — 2 16 
Addition of KCS plans— — 31 — 31 — 
Plan amendments and other18 27 (1)— 17 27 
Net actuarial loss (gain)407 (2,884)21 (97)428 (2,981)
Projected benefit obligation at December 31$10,306 $9,936 $463 $411 $10,769 $10,347 

The net actuarial losses for Pensions and Other benefits in 2023 were primarily due to the decrease in discount rate from 5.01% to 4.64%. The net actuarial gains for Pensions and Other benefits in 2022 were primarily due to the increase in discount rate from 3.01% to 5.01%.
 PensionsOther benefitsTotal
(in millions of Canadian dollars)202320222023202220232022
Change in plan assets:
Fair value of plan assets at January 1$12,862 $14,938 $5 $5 $12,867 $14,943 
Actual return on plan assets1,207 (1,464)1 — 1,208 (1,464)
Employer contributions15 14 37 22 52 36 
Employee contributions48 42 — — 48 42 
Benefits paid(656)(680)(37)(22)(693)(702)
Foreign currency changes(4)12 — — (4)12 
Fair value of plan assets at December 31$13,472 $12,862 $6 $5 $13,478 $12,867 
Funded status – plan surplus (deficit)$3,166 $2,926 $(457)$(406)$2,709 $2,520 

The table below shows the aggregate pension projected benefit obligation and aggregate fair value of plan assets for pension plans with fair value of plan assets in excess of projected benefit obligations (i.e. surplus), and for pension plans with projected benefit obligations in excess of fair value of plan assets (i.e. deficit):

 20232022
(in millions of Canadian dollars)Pension
plans in
surplus		Pension
plans in
deficit		Pension
plans in
surplus		Pension
plans in
deficit
Projected benefit obligation at December 31$(9,872)$(434)$(9,512)$(424)
Fair value of plan assets at December 3113,210 262 12,613 249 
Funded status$3,338 $(172)$3,101 $(175)

The DB pension plans’ accumulated benefit obligation as at December 31, 2023 was $10,155 million (2022 – $9,747 million). The accumulated benefit obligation is calculated on a basis similar to the projected benefit obligation, except no future salary increases are assumed in the projection of future benefits. For pension plans with accumulated benefit obligations in excess of fair value of plan assets (i.e. deficit), the aggregate pension accumulated benefit obligation as at December 31, 2023 was $327 million (2022 – $332 million) and the aggregate fair value of plan assets as at December 31, 2023 was $189 million (2022 – $186 million).

All Other benefits plans were in a deficit position as at December 31, 2023 and 2022.

Pension asset and liabilities in the Company’s Consolidated Balance Sheets
Amounts recognized in the Company’s Consolidated Balance Sheets are as follows:

 PensionsOther benefitsTotal
As at December 31 (in millions of Canadian dollars)202320222023202220232022
Pension asset$3,338 $3,101 $— $— $3,338 $3,101 
Accounts payable and accrued liabilities(11)(10)(37)(33)(48)(43)
Pension and other benefit liabilities(161)(165)(420)(373)(581)(538)
Total amount recognized$3,166 $2,926 $(457)$(406)$2,709 $2,520 

The measurement date used to determine the plan assets and the benefit obligation is December 31. The most recent actuarial valuation for pension funding purposes for the Company’s main Canadian pension plan was performed as at January 1, 2023. During 2024, the Company expects to file with the pension regulator a new valuation performed as at January 1, 2024.
Accumulated other comprehensive (loss) income
Amounts recognized in AOCI are as follows:

 PensionsOther benefitsTotal
As at December 31 (in millions of Canadian dollars)202320222023202220232022
Net actuarial (loss) gain:
Other than deferred investment (losses) gains$(1,871)$(1,711)$28 $35 $(1,843)$(1,676)
Deferred investment (losses) gains(191)(301)— — (191)(301)
Prior service cost(47)(31)(1)(1)(48)(32)
Deferred income tax626 608 (7)(9)619 599 
Total (Note 8)
$(1,483)$(1,435)$20 $25 $(1,463)$(1,410)

Actuarial assumptions
Weighted-average actuarial assumptions used were approximately:

(percentages)202320222021
Benefit obligation at December 31:
Discount rate4.64 5.01 3.01 
Projected future salary increases2.75 2.75 2.75 
Health care cost trend rate5.00 5.00 5.00 
Benefit cost for year ended December 31:
Discount rate5.01 3.01 2.58 
Expected rate of return on plan assets (1)
6.90 6.90 6.90 
Projected future salary increases2.75 2.75 2.75 
Health care cost trend rate5.00 5.00 5.00 
(1) The expected rate of return on plan assets that will be used to compute the 2024 net periodic benefit recovery is 6.70%.

Plan assets
Plan assets are recorded at fair value. The major asset categories are public equity securities, fixed income securities, real estate, infrastructure, absolute return investments, and private debt. The fair values of the public equity and fixed income securities are primarily based on quoted market prices. Real estate and infrastructure values are based on the value of each fund’s assets as calculated by the fund manager, generally using third party appraisals or discounted cash flow analysis and taking into account current market conditions and recent sales transactions where practical and appropriate. Private debt values are based on the value of each fund’s assets as calculated by the fund manager taking into account current market conditions and reviewed annually by external parties. Absolute return investments are a portfolio of units of externally managed hedge funds and are valued by the fund administrators.
The Company’s pension plan asset allocation, the weighted-average asset allocation targets, and the weighted-average policy range for each major asset class at year-end were as follows:

 Percentage of plan assets
 at December 31
Asset allocation (percentage)Asset allocation targetPolicy range20232022
Cash and cash equivalents2.7 
0 – 10
2.2 1.1 
Fixed income38.1 
20 – 43
31.2 20.5 
Public equity29.7 
24 – 55
35.8 46.4 
Real estate and infrastructure14.7 
6 – 20
11.3 11.4 
Private debt7.4 
3 – 13
8.4 7.7 
Absolute return7.4 
3 – 13
11.1 12.9 
Total100.0 100.0 100.0 

In April 2023, the Audit and Finance Committee approved changes to the asset allocation for the Company's main Canadian DB pension plan. The changes began in 2023 and will continue to be implemented on a measured basis in 2024. All asset allocations are within their policy ranges at December 31, 2023.
Summary of the assets of the Company’s DB pension plans
The following is a summary of the assets of the Company’s DB pension plans at December 31, 2023 and 2022. As at December 31, 2023 and 2022, there were no plan assets classified as Level 3 valued investments.

Assets Measured at Fair Value
Investments
measured at NAV(1)
Total Plan
Assets
(in millions of Canadian dollars)Quoted prices in
active markets
for identical assets (Level 1)		Significant other observable inputs (Level 2)
December 31, 2023
Cash and cash equivalents$297 $— $— $297 
Fixed income
Government bonds(2)
211 1,900 — 2,111 
Corporate bonds(2)
644 998 — 1,642 
Mortgages(3)
206 — — 206 
Mortgage-backed and asset-backed securities(4)
— 123 — 123 
Public equities
Canada534 — — 534 
U.S. and international4,293 — — 4,293 
Real estate(5)
— — 563 563 
Infrastructure(6)
— — 961 961 
Private debt(7)
— — 1,128 1,128 
Derivative instruments(8)
— 116 — 116 
Absolute return(9)
Funds of hedge funds— — 1,498 1,498 
$6,185 $3,137 $4,150 $13,472 
December 31, 2022
Cash and cash equivalents$218 $— $— $218 
Fixed income
Government bonds(2)
180 1,125 — 1,305 
Corporate bonds(2)
432 724 — 1,156 
Mortgages(3)
182 2 — 184 
Public equities
Canada769 — — 769 
U.S. and international5,195 — — 5,195 
Real estate(5)
— — 722 722 
Infrastructure(6)
— — 744 744 
Private debt(7)
— — 992 992 
Derivative instruments(8)
— (81)— (81)
Absolute return(9)
Funds of hedge funds— — 1,658 1,658 
$6,976 $1,770 $4,116 $12,862 
(1) Investments measured at net asset value ("NAV"):
Amounts are comprised of certain investments measured using NAV (or its equivalent) as a practical expedient. These investments have not been classified in the fair value hierarchy.
(2) Government & Corporate Bonds:
Fair values for bonds are based on market prices supplied by independent sources as of the last trading day.
(3) Mortgages:
The fair values of mortgages are based on current market yields of financial instruments of similar maturity, coupon and risk factors.
(4) Mortgage-backed and asset-backed securities:
The fair values of mortgage-backed and asset-backed securities are determined based on valuations from pricing sources that incorporate broker-dealer quotations, reported trades or valuation estimates from their internal pricing models which consider tranche-level attributes, current market data, estimated cash flows and market-based yield spreads and incorporate deal collateral performance, as available.
(5) Real estate:
Real estate fund values are based on the NAV of the funds that invest directly in real estate investments. The values of the investments have been estimated using the capital accounts representing the plans' ownership interest in the funds. Of the total, $480 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2022 – $595 million). The remaining $83 million is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying real estate investments (2022 – $127 million). As at December 31, 2023, there are $166 million of unfunded commitments for real estate investments (December 31, 2022 – $40 million).
(6) Infrastructure:
Infrastructure fund values are based on the NAV of the funds that invest directly in infrastructure investments. The values of the investments have been estimated using the capital accounts representing the plans' ownership interest in the funds. Of the total, $493 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2022 – $356 million). The remaining $468 million is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying infrastructure investments (2022 – $388 million). As at December 31, 2023, there are $220 million of unfunded commitments for infrastructure investments (December 31, 2022 – $356 million).
(7) Private debt:
Private debt fund values are based on the NAV of the funds that invest directly in private debt investments. The values of the investments have been estimated using the capital accounts representing the plans' ownership interest in the funds. Of the total, $124 million is subject to redemption frequencies ranging from monthly to annually and a redemption notice period of 90 days (2022 – $160 million). The remaining $1,004 million is not subject to redemption and is normally returned through distributions as a result of the repayment of the underlying loans (2022 - $832 million). As at December 31, 2023, there are $540 million of unfunded commitments for private debt investments (December 31, 2022 – $747 million).
(8) Derivatives:
The investment managers may utilize the following derivative instruments: equity futures to replicate equity index returns (Level 2); currency forwards to partially hedge foreign currency exposures (Level 2); bond futures and forwards to manage duration and interest rate risk (Level 2); interest rate swaps to manage duration and interest rate risk (Level 2); credit default swaps to manage credit risk (Level 2); and options to manage interest rate risk and volatility (Level 2). The Company may utilize derivatives directly, but only for the purpose of hedging foreign currency exposures. One of the fixed income investment managers utilizes a portfolio of bond forwards for the purpose of reducing asset/liability interest rate exposure. As at December 31, 2023, there are bond forwards with a notional value of $1,396 million (December 31, 2022 – $1,745 million) and a fair value of $116 million (December 31, 2022 – $(81) million).
(9) Absolute return:
The value of absolute return fund investments is based on the NAV reported by the fund administrators. The funds have different redemption policies with redemption notice periods varying from 30 to 120 days and frequencies ranging from monthly to triennially.

Additional plan assets information
The Company's primary investment objective for pension plan assets is to achieve a long-term return, net of all fees and expenses, that is sufficient for the plan's assets to satisfy the current and future obligations to plan beneficiaries, while minimizing the financial impact on the Company. In identifying the asset allocation ranges, consideration was given to the long-term nature of the underlying plan liabilities, the solvency and going-concern financial position of the plan, long-term return expectations, and the risks associated with key asset classes as well as the relationships of returns on key asset classes with each other, inflation, and interest rates. When advantageous and with due consideration, derivative instruments may be utilized by investment managers, provided the total value of the underlying assets represented by financial derivatives (excluding currency forwards, liability hedging derivatives in fixed income portfolios, and derivatives held by absolute return funds) is limited to 30% of the market value of the fund.

The funded status of the plans is exposed to fluctuations in interest rates, which affects the relative values of the plans' liabilities and assets. In order to mitigate interest rate risk, the Company's main Canadian DB pension plan utilizes a liability driven investment strategy in its fixed income portfolio, which uses a combination of long duration bonds and derivatives to hedge interest rate risk, managed by the investment manager. As at December 31, 2023, the plan's solvency funded position was 50% hedged against interest rate risk (2022 – 45%).

When investing in foreign securities, the plans are exposed to foreign currency risk; the effect of which is included in the valuation of the foreign securities. At December 31, 2023, the plans were 41% exposed to the U.S. dollar, 7% exposed to the Euro, and 9% exposed to various other currencies. At December 31, 2022, the plans were 50% exposed to the U.S. dollar, 6% exposed to the Euro, and 10% exposed to various other currencies.

At December 31, 2023, plan assets included 354,530 of the Common Shares of the Company (2022 – 570,074) at a market value of $37 million (2022 – $58 million) and Fixed Income securities of the Company at a market value of $2 million (2022 – $5 million).
Estimated future benefit payments
The estimated future DB pension and other benefit payments to be paid by the plans for each of the next five years and the subsequent five-year period are as follows:

(in millions of Canadian dollars)PensionsOther benefits
2024$668 $37 
2025663 35 
2026662 34 
2027661 33 
2028663 38 
2029-20333,265 159 

The benefit payments from the Canadian registered and U.S. qualified DB pension plans are payable from their respective pension funds. Benefit payments from the supplemental pension plans and from the other benefits plans are payable directly by the Company.

Defined contribution plan
Canadian non-unionized employees hired prior to July 1, 2010 had the option to participate in the Canadian DC plan. All Canadian non-unionized employees hired after such date must participate in this plan. Employee contributions are based on a percentage of salary. The Company matches employee contributions to a maximum percentage each year.

Effective July 1, 2010, a new U.S. DC plan was established. Non-unionized employees of Soo Line Railroad Company; Dakota, Minnesota & Eastern Railroad; and Delaware & Hudson Railway Company, Inc. hired after such date must participate in this plan. Employees do not contribute to the plan. The Company annually contributes a percentage of salary.

The DC plans provide a pension based on total employee and employer contributions plus investment income earned on those contributions.

In 2023, the net cost of the DC plans, which generally equals the employer’s required contribution, was $14 million (2022 – $12 million; 2021 – $13 million).

Contributions to multi-employer plans
Some of the Company’s unionized employees in the U.S. are members of a U.S. national multi-employer benefit plan. Contributions made by the Company to this plan in 2023 in respect of post-retirement medical benefits were $4 million (2022 – $2 million; 2021 – $3 million).