defIned benefIt plan net lIabIlItIes
characteristics of defined benefit plans a) group pension plans
Group pension plans are plans for which the risks are shared by entities subject to common control. the company participates in the pension plans of desjardins Group, which offers to a majority of its employees group pension plans and group supplemental pension plans. these supplemental group pension plans provide pension benefits in excess of statutory limits. the main group pension plan offered, namely the desjardins Group Pension Plan (dGPP), is a funded defined benefit group plan for which the risks are shared among participating desjardins Group employers. the plan participants and the employers share the risks and costs related to the dGPP, including any deficit (35% and 65%, respectively).
for the dGPP, benefits are calculated on the basis of the number of years of participation in the pension plans and take into consideration the average salary of the employee’s five most highly paid years for years of service accrued prior to 2013 and the employee’s eight most highly paid years for any subsequent years of service. Benefits are indexed annually based on the consumer Price index up to a maximum of 3% for years of service accrued prior to 2013 and up to a maximum of 1% for a 10-year period as of age 65 for years of service accrued after 2013.
the dGPP is governed by the supplemental Pension Plans act (sPPa). according to the sPPa, a retirement committee must be formed to assume the role of plan administrator and trustee. through its Board of directors, the federation assumes the responsibilities of the dGPP plan sponsor and ensures that the plan is administered properly and in compliance with the laws and regulations in effect. the federation also stands surety for the obligations resulting from the participation of all desjardins Group employers in the dGPP. as the representative of all desjardins Group employers, the federation’s Board of directors is the sole decision-maker able to amend or terminate the plan.
b) other group plans
the company also participates in the health, dental and life insurance plan offered by desjardins Group to retiring employees and their dependants through unfunded group defined benefit plans.
c) other plans
the other defined benefit plans offered are unfunded defined benefit supplemental pension plans, which provide pension benefits in excess of statutory limits. the risks are not shared by entities subject to common control.
d) Pension plan and other plan risks
defined benefit pension plans are plans for which desjardins Group has formally committed to a level of benefits and therefore assumes actuarial and, when the plans are funded, investment risks. since the terms of the pension plans are such that future changes in salary levels will have an impact on the amount of future benefits, the cost of benefits and the value of the defined benefit plan obligation are generally determined using actuarial calculations and various assumptions. while management considers the assumptions used in the actuarial valuation process to be reasonable, there remains some degree of risk and uncertainty that could result in the future actual returns differing significantly from these assumptions, which could lead to actuarial gains or losses.
the actuarial calculations are made based on management’s best estimate assumptions primarily concerning the plan obligation discount rate, and also, but to a lesser extent, salary increases, the retirement age of employees, the mortality rate, the rate of increase in pension benefits and participants’ future contributions that will be used to finance the deficit. a complete actuarial valuation is performed each year by a qualified actuary. the discount rates have been determined by reference to high-quality corporate bonds with terms and conditions corresponding to those of the plans’ cash flows.
the terms of the other group plans and other plans are such that future changes in salary levels or health costs will have an impact on the amount of future benefits. the cost of these benefits is accrued over the service lives of employees according to accounting policies similar to those used for defined benefit pension plans.
e) asset-liability matching strategy
several years ago, the retirement committee adopted a liability-driven investment policy to suitably manage the risks of the dGPP. this approach provides more control over the plan’s funding status by investing in assets that are correlated with liabilities and it allows for reduced contribution volatility. the liability-driven investment policy addresses the issues of increasing the coverage over the term of the solvency liability and generating sufficient returns to ensure the long-term funding of the plan.
note 17
defIned benefIt plan net lIabIlItIes (cOntInued)
characteristics of defined benefit plans (continued) f) Funding requirements
the dGPP is funded by both employee and employer contributions, which are determined based on the financial position and the funding policy of the plan. the employer contributions must be equal to an amount which, when added to employee contributions, is sufficient to cover the value of the commitments currently accruing under the plan, including expenses and fees paid by the plan, and any special contributions needed to amortize any deficit. employer contributions are determined based on a percentage of the taxable payroll for employees participating in the plan. the annual plan costs are made up of contributions for current service, administrative management fees and any special contributions required, if applicable.
according to sPPa requirements, deficits must be funded over a maximum period of 15 years for funding deficits and 10 years for solvency deficits.
recognized amounts a) group plan
pension plan
the company recognizes its share of the group pension plan net liabilities in the consolidated Balance sheet and its share of the pension expense in the consolidated statement of net income as follows:
2013 2012
% %
share of group pension plan liabilities
desjardins Group Pension Plan $ 98.3 9.57 $ 157.0 9.42 desjardins Group supplemental Pension Plan 6.0 7.63 5.3 7.34
$ 104.3 $ 162.3
share of group pension plan expense
desjardins Group Pension Plan $ 28.0 9.57 $ 35.1 9.42 desjardins Group supplemental Pension Plan 0.4 7.63 0.5 7.34
$ 28.4 $ 35.6 Other plan
the company recognizes its share of the other group plan net liabilities in the consolidated Balance sheet and its share of the expense for this plan in the consolidated statement of net income as follows:
2013 2012
% %
share of desjardins Group other group plan liabilities $ 57.4 9.69 $ 61.9 9.36 share of desjardins Group other group plan expense $ 4.4 9.69 $ 4.2 9.36
b) Pension plan specific to the company
in addition, the company offers some of its active and retired executives unfunded defined benefit supplemental pension plans, which also offer pension benefits in excess of statutory limits. these plans are recognized in the consolidated Balance sheet and in the consolidated statement of net income as follows:
2013 2012
net liabilities for pension plans specific to the company $ 18.0 $ 17.6 expense for the pension plans specific to the company $ 1.1 $ 1.8
nOtes tO tHe cOnsOlidated financial statements 53 2013 financial review desjardins financial security
nOtes tO tHe cOnsOlidated financial statements 52 2013 financial review desjardins financial security
information regarding the plans as a whole a) changes in defined benefit plan liabilities
group pension plan
other
group plan other plans
Defined benefit plan obligation Fair value of assets total Defined benefit plan obligation Defined benefit plan obligation Fair value of assets total Defined benefit plan liabilities
as at january 1, 2012 – restated (note 4) $ 7,725.0 $ 5,879.0 $ 1,846.0 $ 604.0 $ 161.0 $ 33.0 $ 128.0 $ 2,578.0
amounts recognized in the consolidated statement of net income
current service costs 258.0 — 258.0 13.0 7.0 — 7.0 278.0 net interest expense/income 400.0 306.0 94.0 31.0 8.0 2.0 6.0 131.0 Past service costs 24.0 — 24.0 — 1.0 — 1.0 25.0 682.0 306.0 376.0 44.0 16.0 2.0 14.0 434.0 amounts recognized in the consolidated statement of
comprehensive income
difference between the actual return on assets and
interest income — 294.0 (294.0) — — 1.0 (1.0) (295.0) actuarial losses (gains) from demographic assumptions — — — 1.0 — — — 1.0 actuarial losses (gains) arising from revised financial
assumptions 573.0 — 573.0 24.0 14.0 — 14.0 611.0 experience losses (gains) (160.0) — (160.0) 3.0 3.0 — 3.0 (154.0)
413.0 294.0 119.0 28.0 17.0 1.0 16.0 163.0 Other changes Participants’ contributions 181.0 181.0 — — — — — — employers’ contributions1 — 604.0 (604.0) — — 6.0 (6.0) (610.0) Benefits paid (300.0) (299.0) (1.0) (22.0) (7.0) (1.0) (6.0) (29.0) Other changes (6.0) 5.0 (11.0) 1.0 (2.0) — (2.0) (12.0) (125.0) 491.0 (616.0) (21.0) (9.0) 5.0 (14.0) (651.0)
as at December 31, 2012 – restated (note 4) 8,695.0 6,970.0 1,725.0 655.0 185.0 41.0 144.0 2,524.0
amounts recognized in the consolidated statement of net income
current service costs 214.0 — 214.0 15.0 8.0 — 8.0 237.0 net interest expense/income 396.0 315.0 81.0 30.0 9.0 2.0 7.0 118.0 610.0 315.0 295.0 45.0 17.0 2.0 15.0 355.0 amounts recognized in the consolidated statement of
comprehensive income
difference between the actual return on assets and
interest income — 472.0 (472.0) — — 5.0 (5.0) (477.0) actuarial losses (gains) from demographic assumptions 688.0 — 688.0 (8.0) 13.0 — 13.0 693.0 actuarial losses (gains) arising from revised financial
assumptions (683.0) — (683.0) (98.0) (17.0) — (17.0) (798.0) experience losses (gains) 187.0 — 187.0 6.0 5.0 — 5.0 198.0
192.0 472.0 (280.0) (100.0) 1.0 5.0 (4.0) (384.0) Other changes Participants’ contributions 190.0 190.0 — — — — — — employers’ contributions1 — 641.0 (641.0) — — 8.0 (8.0) (649.0) Benefits paid (335.0) (333.0) (2.0) (14.0) (7.0) (1.0) (6.0) (22.0) Other changes 1.0 3.0 (2.0) 2.0 1.0 — 1.0 1.0 as at December 31, 2013 $ 9,353.0 $ 8,258.0 $ 1,095.0 $ 588.0 $ 197.0 $ 55.0 $ 142.0 $ 1,825.0
note 17
defIned benefIt plan net lIabIlItIes (cOntInued)
information regarding the plans as a whole (continued) b) Funding status as at December 31, 2013 as at december 31, 2012 group pension plans other group plans other plans total Group pension plans Other group
plans Other plans total
Funded plans
defined benefit plan obligation $ 9,276.0 $ — $ 71.0 $ 9,347.0 $ 8,623.0 $ — $ 64.0 $ 8,687.0 fair value of plan assets 8,258.0 — 55.0 8,313.0 6,970.0 — 41.0 7,011.0 $ 1,018.0 $ — $ 16.0 $ 1,034.0 $ 1,653.0 $ — $ 23.0 $ 1,676.0
unfunded plans
defined benefit plan obligation 77.0 588.0 126.0 791.0 72.0 655.0 121.0 848.0 $ 77.0 $ 588.0 $ 126.0 $ 791.0 $ 72.0 $ 655.0 $ 121.0 $ 848.0
c) allocation of main group pension plan assets
the fair value of the main group pension plan assets is allocated as follows:
as at December 31, 2013 as at december 31, 2012
not quoted in an
active market active marketquoted in an not quoted in an active market
Quoted in an active market
Bonds
Government of canada $ — $ 125.0 $ — $ 474.0
Provinces, municipalities and other public administrations 80.0 1,885.0 860.0 —
Other issuers 1,042.0 37.0 1,133.0 —
shares 223.0 2,454.0 160.0 2,210.0
real estate investments 925.0 101.0 773.0 98.0 infrastructure investments 772.0 34.0 692.0 31.0 cash and money market securities 272.0 178.0 165.0 136.0
Other 341.0 440.0 469.0 288.0
total $ 3,655.0 $ 5,254.0 $ 4,252.0 $ 3,237.0
as at december 31, 2013, the dGPP held eligible investments in money market securities and segregated funds issued by desjardins Group entities, whose fair value totalled $122.0m ($105.0m as at december 31, 2012).
impact on cash flows
a) Principal actuarial assumptions
the principal actuarial assumptions used in measuring the defined benefit plan obligation and the defined benefit plan cost recognized are as follows:
December 31, 2013 december 31, 2012 group pension plans other group plan Group pension plans Other group plan discount rate for obligation 5.00% 5.00% 4.45% 4.45% expected rate of salary increases 3.00% 3.00% 3.00% 3.00% rate used to calculate interest expense 4.45% 4.45% 5.00% 5.00% estimated rate of annual increase in covered healthcare costs — 4.28% — 4.99%
nOtes tO tHe cOnsOlidated financial statements 55 2013 financial review desjardins financial security
nOtes tO tHe cOnsOlidated financial statements 54 2013 financial review desjardins financial security
b) sensitivity of key assumptions in 2013
Because of the long-term nature of employee benefits, there are significant uncertainties (regarding the recognition of balances) surrounding the assumptions used. the following table shows the impact of a one percentage point change in key assumptions on the defined benefit plan obligation and the defined benefit plan cost recognized, with all other assumptions remaining constant. in reality, there may be correlations between these assumptions. However, in order to show the impact due to changes in the assumptions, they must be modified individually:
as at December 31, 2013 change in defined benefit plan obligation change in defined benefit plan cost recognized group pension plan
discount rate
1% increase $ (1,454.0) $ (76.0)
1% decrease 1,890.0 102.0
expected rate of salary increases
1% increase 403.0 36.0
1% decrease (351.0) (27.0)
other group plan
discount rate
1% increase (88.0) (3.0)
1% decrease 114.0 4.0
expected rate of salary increases
1% increase 6.0 1.0
1% decrease (6.0) (1.0)
Healthcare costs
1% increase 67.0 7.0
1% decrease (53.0) (5.0)
c) expected contributions for 2014
desjardins Group expects to contribute $439.0m to its defined benefit pension plans over the next year. if necessary, the employer will pay supplemental contributions to the main group pension plan.
d) Profile of pension plan obligation maturities
for 2013, the weighted average duration of the main group plans is approximately 17 years (17 years in 2012).