Pension Plans and Other Post-Retirement Benefit Plans | 12 Months Ended |
Dec. 31, 2014 |
Compensation and Retirement Disclosure [Abstract] | |
Pension Plans and Other Post-Retirement Benefit Plans | NOTE 7. |
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PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS |
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DEFINED CONTRIBUTION PLANS |
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The Company has several defined contribution plans and multiemployer plans. The pension expense under these plans is equal to the Company’s contribution. For the year ended December 31, 2014, the related pension expense was $28 million (2013 – $29 million; 2012 – $24 million). |
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DEFINED BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS |
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The Company sponsors both contributory and non-contributory U.S. and non-U.S. defined benefit pension plans. Non-unionized employees in Canada joining the Company after June 1, 2000 participate in a defined contribution pension plan. Salaried employees in the U.S. joining the Company after January 1, 2008 participate in a defined contribution pension plan. Most unionized employees in the U.S. and all U.S. non-hourly employees that are not grandfathered under the existing defined benefit pension plans, participate in a defined contribution pension plan for future service. The Company also sponsors a number of other post-retirement benefit plans for eligible U.S. and non-U.S. employees; the plans are unfunded and include life insurance programs and medical and dental benefits. The Company also provides supplemental unfunded defined benefit pension plans and supplemental unfunded defined contribution pension plans to certain senior management employees. |
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Related pension and other post-retirement plan expenses and the corresponding obligations are actuarially determined using management’s most probable assumptions. |
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The Company’s pension plan funding policy is to contribute annually the amount required to provide for benefits earned in the year, and to fund solvency deficiencies, funding shortfalls and past service obligations over periods not exceeding those permitted by the applicable regulatory authorities. Past service obligations primarily arise from improvements to plan benefits. The other post-retirement benefit plans are not funded and contributions are made annually to cover benefits payments. |
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The Company expects to contribute a minimum total amount of $14 million in 2015 compared to $29 million in 2014 (2013 – $35 million; 2012 – $86 million) to the pension plans. The Company expects to contribute a minimum total amount of $5 million in 2015 compared to $5 million in 2014 to the other post-retirement benefit plans (2013 – $10 million; 2012 – $7 million). |
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CHANGE IN ACCRUED BENEFIT OBLIGATION |
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The following table represents the change in the accrued benefit obligation as of December 31, 2014 and December 31, 2013, the measurement date for each year: |
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| | December 31, 2014 | | | December 31, 2013 | | | | | | | | | | | | | | | | | | | |
| | Pension | | | Other | | | Pension | | | Other | | | | | | | | | | | | | | | | | | | |
plans | post-retirement | plans | post-retirement | | | | | | | | | | | | | | | | | | |
| benefit plans | | benefit plans | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | $ | | | | | | | | | | | | | | | | | | | |
Accrued benefit obligation at beginning of year | | | 1,715 | | | | 103 | | | | 1,914 | | | | 124 | | | | | | | | | | | | | | | | | | | |
Service cost for the year | | | 35 | | | | 2 | | | | 42 | | | | 3 | | | | | | | | | | | | | | | | | | | |
Interest expense | | | 77 | | | | 5 | | | | 75 | | | | 4 | | | | | | | | | | | | | | | | | | | |
Plan participants’ contributions | | | 6 | | | | — | | | | 7 | | | | — | | | | | | | | | | | | | | | | | | | |
Actuarial loss (gain) | | | 158 | | | | 9 | | | | (78 | ) | | | (11 | ) | | | | | | | | | | | | | | | | | | |
Plan amendments | | | 1 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
Benefits paid | | | (87 | ) | | | — | | | | (91 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | |
Direct benefit payments | | | (5 | ) | | | (5 | ) | | | (4 | ) | | | (5 | ) | | | | | | | | | | | | | | | | | | |
Settlement | | | (60 | ) | | | — | | | | (52 | ) | | | (4 | ) | | | | | | | | | | | | | | | | | | |
Effect of foreign currency exchange rate change | | | (117 | ) | | | (9 | ) | | | (98 | ) | | | (7 | ) | | | | | | | | | | | | | | | | | | |
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Accrued benefit obligation at end of year | | | 1,723 | | | | 105 | | | | 1,715 | | | | 103 | | | | | | | | | | | | | | | | | | | |
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CHANGE IN FAIR VALUE OF ASSETS |
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The following table represents the change in the fair value of assets reflecting the actual return on plan assets, the contributions and the benefits paid during the year: |
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| | December 31, 2014 | | | December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension plans | | | Pension plans | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of assets at beginning of year | | | 1,709 | | | | 1,767 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Actual return on plan assets | | | 253 | | | | 144 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Employer contributions | | | 29 | | | | 35 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Plan participants’ contributions | | | 6 | | | | 7 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Benefits paid | | | (92 | ) | | | (95 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Settlement | | | (60 | ) | | | (52 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Effect of foreign currency exchange rate change | | | (124 | ) | | | (97 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Fair value of assets at end of year | | | 1,721 | | | | 1,709 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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INVESTMENT POLICIES AND STRATEGIES OF THE PLAN ASSETS |
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The assets of the pension plans are held by a number of independent trustees and are accounted for separately in the Company’s pension funds. The investment strategy for the assets in the pension plans is to maintain a diversified portfolio of assets, invested in a prudent manner to maintain the security of funds while maximizing returns within the guidelines provided in the investment policy. Diversification of the pension plans’ holdings is maintained in order to reduce the pension plans’ annual return variability, reduce market and credit exposure to any single issuer and to any single component of the capital markets, reduce exposure to unexpected inflation, enhance the long-term risk-adjusted return potential of the pension plans and reduce funding risk. |
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Over the long-term, the performance of the pension plans is primarily determined by the long-term asset mix decisions. To manage the long-term risk of not having sufficient funds to match the obligations of the pension plans, the Company conducts asset/liability studies. These studies lead to the recommendation and adoption of a long-term asset mix target that sets the expected rate of return and reduces the risk of adverse consequences to the plans from increases in liabilities and decreases in assets. In identifying the asset mix target that would best meet the investment objectives, consideration is given to various factors, including (a) each plan’s characteristics, (b) the duration of each plan’s liabilities, (c) the solvency and going concern financial position of each plan and their sensitivity to changes in interest rates and inflation, and (d) the long-term return and risk expectations for key asset classes. |
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The investments of each plan can be done directly through cash investments in equities or bonds or indirectly through derivatives or pooled funds. The use of derivatives must be in accordance with an approved mandate and cannot be used for speculative purposes. |
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The Company’s pension funds are not permitted to directly own any of the Company’s shares or debt instruments. |
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The following table shows the allocation of the plan assets, based on the fair value of the assets held and the target allocation for 2014: |
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| | Target | | | Percentage of | | | Percentage of | | | | | | | | | | | | | | | | | | | | | | | |
allocation | plan assets at | plan assets at | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | December 31, | | | | | | | | | | | | | | | | | | | | | | |
| 2014 | 2013 | | | | | | | | | | | | | | | | | | | | | | |
Fixed income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | 0% - 9% | | | | 3 | % | | | 3 | % | | | | | | | | | | | | | | | | | | | | | | |
Bonds | | | 52% - 62% | | | | 57 | % | | | 55 | % | | | | | | | | | | | | | | | | | | | | | | |
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Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Canadian Equity | | | 3% - 11% | | | | 6 | % | | | 7 | % | | | | | | | | | | | | | | | | | | | | | | |
US Equity | | | 9% - 19% | | | | 15 | % | | | 14 | % | | | | | | | | | | | | | | | | | | | | | | |
International Equity | | | 16% - 26% | | | | 19 | % | | | 21 | % | | | | | | | | | | | | | | | | | | | | | | |
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Total (1) | | | | | | | 100 | % | | | 100 | % | | | | | | | | | | | | | | | | | | | | | | |
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(1) | Approximately 82% of the pension plans’ assets relate to Canadian plans and 18% relate to U.S. plans. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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RECONCILIATION OF FUNDED STATUS TO AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS |
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The following table presents the difference between the fair value of assets and the actuarially determined accrued benefit obligation. This difference is also referred to as either the deficit or surplus, as the case may be, or the funded status of the plans. The table further reconciles the amount of the surplus or deficit (funded status) to the net amount recognized in the Consolidated Balance Sheets. |
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| | December 31, 2014 | | | December 31, 2013 | | | | | | | | | | | | | | | | | | | |
| | Pension | | | Other | | | Pension | | | Other | | | | | | | | | | | | | | | | | | | |
plans | post-retirement | plans | post-retirement | | | | | | | | | | | | | | | | | | |
| benefit plans | | benefit plans | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | $ | | | | | | | | | | | | | | | | | | | |
Accrued benefit obligation at end of year | | | (1,723 | ) | | | (105 | ) | | | (1,715 | ) | | | (103 | ) | | | | | | | | | | | | | | | | | | |
Fair value of assets at end of year | | | 1,721 | | | | — | | | | 1,709 | | | | — | | | | | | | | | | | | | | | | | | | |
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Funded status | | | (2 | ) | | | (105 | ) | | | (6 | ) | | | (103 | ) | | | | | | | | | | | | | | | | | | |
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The funded status includes $53 million of accrued benefit obligation ($53 million at December 31, 2013) related to supplemental unfunded defined benefit and defined contribution plans. |
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| | December 31, 2014 | | | December 31, 2013 | | | | | | | | | | | | | | | | | | | |
| | Pension | | | Other | | | Pension | | | Other | | | | | | | | | | | | | | | | | | | |
plans | post-retirement | plans | post-retirement | | | | | | | | | | | | | | | | | | |
| benefit plans | | benefit plans | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | $ | | | | | | | | | | | | | | | | | | | |
Trade and other payables (Note 17) | | | — | | | | (5 | ) | | | — | | | | (5 | ) | | | | | | | | | | | | | | | | | | |
Other liabilities and deferred credits (Note 20) | | | (123 | ) | | | (100 | ) | | | (102 | ) | | | (98 | ) | | | | | | | | | | | | | | | | | | |
Other assets (Note 15) | | | 121 | | | | — | | | | 96 | | | | — | | | | | | | | | | | | | | | | | | | |
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Net amount recognized in the Consolidated Balance Sheets | | | (2 | ) | | | (105 | ) | | | (6 | ) | | | (103 | ) | | | | | | | | | | | | | | | | | | |
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The following table presents the pre-tax amounts included in Other comprehensive (loss) income: |
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| | Year ended | | | Year ended | | | Year ended | | | | | | | | | | | |
December 31, 2014 | December 31, 2013 | December 31, 2012 | | | | | | | | | | |
| | Pension | | | Other | | | Pension | | | Other | | | Pension | | | Other | | | | | | | | | | | |
plans | post-retirement | plans | post-retirement | plans | post-retirement | | | | | | | | | | |
| benefit plans | | benefit plans | | benefit plans | | | | | | | | | | |
| | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | | | | | | | | | |
Prior service credit | | | (1 | ) | | | — | | | | — | | | | — | | | | 3 | | | | — | | | | | | | | | | | |
Amortization of prior year service cost (credit) | | | 3 | | | | — | | | | 3 | | | | (1 | ) | | | 4 | | | | (9 | ) | | | | | | | | | | |
Net (loss) gain | | | (8 | ) | | | (8 | ) | | | 126 | | | | 10 | | | | (122 | ) | | | (11 | ) | | | | | | | | | | |
Amortization of net actuarial loss | | | 28 | | | | — | | | | 38 | | | | 1 | | | | 19 | | | | 1 | | | | | | | | | | | |
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Net amount recognized in other comprehensive income (loss) (pre-tax) | | | 22 | | | | (8 | ) | | | 167 | | | | 10 | | | | (96 | ) | | | (19 | ) | | | | | | | | | | |
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An estimated amount of $10 million for pension plans and nil for other post-retirement benefit plans will be amortized from Accumulated other comprehensive loss into net periodic benefit cost in 2015. |
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At December 31, 2014, the accrued benefit obligation and the fair value of defined benefit plan assets with an accrued benefit obligation in excess of fair value of plan assets were $412 million and $290 million, respectively (2013 – $1,075 million and $973 million, respectively). |
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Components of net periodic benefit cost for pension plans | | Year ended | | | Year ended | | | Year ended | | | | | | | | | | | | | | | | | | | | | | | |
December 31, | December 31, | December 31, | | | | | | | | | | | | | | | | | | | | | | |
2014 | 2013 | 2012 | | | | | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | | | | | | | | | | | | | | | | | | | | | |
Service cost for the year | | | 35 | | | | 42 | | | | 40 | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | 77 | | | | 75 | | | | 85 | | | | | | | | | | | | | | | | | | | | | | | |
Expected return on plan assets | | | (101 | ) | | | (96 | ) | | | (97 | ) | | | | | | | | | | | | | | | | | | | | | | |
Amortization of net actuarial loss | | | 9 | | | | 25 | | | | 18 | | | | | | | | | | | | | | | | | | | | | | | |
Curtailment loss (a) | | | — | | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | |
Settlement loss (b) | | | 19 | | | | 13 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of prior year service costs | | | 3 | | | | 3 | | | | 3 | | | | | | | | | | | | | | | | | | | | | | | |
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Net periodic benefit cost | | | 42 | | | | 63 | | | | 51 | | | | | | | | | | | | | | | | | | | | | | | |
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Components of net periodic benefit cost for other post-retirement benefit plans | | Year ended | | | Year ended | | | Year ended | | | | | | | | | | | | | | | | | | | | | | | |
December 31, | December 31, | December 31, | | | | | | | | | | | | | | | | | | | | | | |
2014 | 2013 | 2012 | | | | | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | | | | | | | | | | | | | | | | | | | | | |
Service cost for the year | | | 3 | | | | 3 | | | | 3 | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | 5 | | | | 5 | | | | 6 | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of net actuarial loss | | | — | | | | — | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | |
Curtailment gain (c) | | | — | | | | — | | | | (12 | ) | | | | | | | | | | | | | | | | | | | | | | |
Amortization of prior year service costs | | | — | | | | — | | | | (1 | ) | | | | | | | | | | | | | | | | | | | | | | |
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Net periodic benefit cost | | | 8 | | | | 8 | | | | (3 | ) | | | | | | | | | | | | | | | | | | | | | | |
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(a) | The curtailment loss for the year ended December 31, 2013 of $1 million is related to a U.S. hourly plan. The curtailment loss for the year ended December 31, 2012 of $1 million is related to certain U.S. employees who elected to convert from defined benefit to defined contribution plans. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(b) | The settlement loss of $19 million in the pension plans for the year ended December 31, 2014 is related to the previously closed Ottawa, Ontario paper mill. The settlement loss of $13 million in the pension plans for the year ended December 31, 2013 is related to the previously closed Big River and Dryden mills for $6 million and $7 million, respectively (see Note 16 “Closure and restructuring costs and liability”). The settlement loss for the year ended December 31, 2012 of $1 million is related to the sale of hydro assets in Ottawa, Ontario and Gatineau, Quebec. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(c) | The curtailment gain of $12 million for the year ended December 31, 2012 is a result of the curtailment of benefits related to the majority of employees covered by the plan. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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WEIGHTED-AVERAGE ASSUMPTIONS |
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The Company used the following key assumptions to measure the accrued benefit obligation and the net periodic benefit cost. These assumptions are long-term, which is consistent with the nature of employee future benefits. |
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Pension plans | | December 31, | | | December 31, | | | December 31, | | | | | | | | | | | | | | | | | | | | | | | |
2014 | 2013 | 2012 | | | | | | | | | | | | | | | | | | | | | | |
Accrued benefit obligation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 3.9 | % | | | 4.1 | % | | | 4.1 | % | | | | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | | | 2.7 | % | | | 2.7 | % | | | 2.7 | % | | | | | | | | | | | | | | | | | | | | | | |
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Net periodic benefit cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 4.7 | % | | | 4.2 | % | | | 4.8 | % | | | | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | | | 2.7 | % | | | 2.8 | % | | | 2.8 | % | | | | | | | | | | | | | | | | | | | | | | |
Expected long-term rate of return on plan assets | | | 6.4 | % | | | 5.8 | % | | | 6 | % | | | | | | | | | | | | | | | | | | | | | | |
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Discount rate for Canadian plans: 3.9% based on a model whereby cash flows are projected for hypothetical plans and are discounted using a spot rate yield curve developed from bond yield data for AA corporate bonds. Specifically, short-term yields to maturity are derived from actual AA rated corporate bond yield data. For longer terms, extrapolated data is used. The extrapolated data are created by adding a term-based spread over long provincial bond yields. The spread is based on the observed spreads between AA rated corporate bonds and AA rated provincial bonds in three sections of the yield curve. |
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Discount rate for U.S. plans: 3.85% obtained by incorporating the Company’s qualified plans’ expected cash flows in the Mercer Yield Curve which is based on bonds rated AA or better by Moody’s or Standard & Poor’s, excluding callable bonds, bonds of less than a minimum issue size, and certain other bonds. Effective December 2012, the universe of bonds also includes private placement (traded in reliance on Rule 144A and with at least two years to maturity), make whole, and foreign corporation (denominated in US dollars) bonds. |
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Effective January 1, 2015, the Company will use 5.6% (2014 – 6.4%; 2013 – 5.8%) as the expected return on plan assets, which reflects the current view of long-term investment returns. The overall expected long-term rate of return on plan assets is based on management’s best estimate of the long-term returns of the major asset classes (cash and cash equivalents, equities, and bonds) weighted by the actual allocation of assets at the measurement date, net of expenses. This rate includes an equity risk premium over government bond returns for equity investments and a value-added premium for the contribution to returns from active management. The sources used to determine management’s best estimate of long-term returns are numerous and include country specific bond yields, which may be derived from the market using local bond indices or by analysis of the local bond market, and country-specific inflation and investment market expectations derived from market data and analysts’ or governments’ expectations as applicable. |
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Other post-retirement benefit plans | | December 31, | | | December 31, | | | December 31, | | | | | | | | | | | | | | | | | | | | | | | |
2014 | 2013 | 2012 | | | | | | | | | | | | | | | | | | | | | | |
Accrued benefit obligation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 3.9 | % | | | 4.8 | % | | | 4.2 | % | | | | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | | | 2.8 | % | | | 2.8 | % | | | 2.8 | % | | | | | | | | | | | | | | | | | | | | | | |
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Net periodic benefit cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 4.8 | % | | | 4.2 | % | | | 2.9 | % | | | | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | | | 2.7 | % | | | 2.8 | % | | | 2.8 | % | | | | | | | | | | | | | | | | | | | | | | |
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For measurement purposes, a 5.2% weighted average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2014. The rate was assumed to decrease gradually to 4.1% by 2033 and remain at that level thereafter. An increase or decrease of 1% of this rate would have the following impact: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Increase of 1% | | Decrease of 1% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Impact on net periodic benefit cost for other post-retirement benefit plans | | 1 | | -1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Impact on accrued benefit obligation | | 9 | | -8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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FAIR VALUE MEASUREMENT |
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Fair Value Measurements and Disclosures Topic of FASB ASC 820 establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Level 1 | | Quoted prices in active markets for identical assets or liabilities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Level 2 | | Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Level 3 | | Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the assets or liabilities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table presents the fair value of the plan assets at December 31, 2014, by asset category: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at | | | | | | | | | | | | | | | | | | | |
December 31, 2014 | | | | | | | | | | | | | | | | | | |
Asset Category | | Total | | | Quoted Prices | | | Significant | | | Significant | | | | | | | | | | | | | | | | | | | |
in Active | Observable Inputs | Unobservable | | | | | | | | | | | | | | | | | | |
Markets for | (Level 2) | Inputs | | | | | | | | | | | | | | | | | | |
Identical Assets | | (Level 3) | | | | | | | | | | | | | | | | | | |
(Level 1) | | | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | $ | | | | | | | | | | | | | | | | | | | |
Cash and short-term investments | | | 72 | | | | 72 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
Asset backed notes (1) | | | 180 | | | | — | | | | 165 | | | | 15 | | | | | | | | | | | | | | | | | | | |
Canadian government bonds | | | 93 | | | | 93 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
Canadian corporate debt securities | | | 4 | | | | — | | | | 4 | | | | — | | | | | | | | | | | | | | | | | | | |
Bond index funds (2 & 3) | | | 691 | | | | — | | | | 691 | | | | — | | | | | | | | | | | | | | | | | | | |
Canadian equities (4) | | | 116 | | | | 116 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
U.S. equities (5) | | | 42 | | | | 42 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
International equities (6) | | | 255 | | | | 255 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
U.S. stock index funds (3 & 7) | | | 256 | | | | — | | | | 256 | | | | — | | | | | | | | | | | | | | | | | | | |
Insurance contracts (8) | | | 8 | | | | — | | | | — | | | | 8 | | | | | | | | | | | | | | | | | | | |
Derivative contracts (9) | | | 4 | | | | — | | | | 4 | | | | — | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 1,721 | | | | 578 | | | | 1,120 | | | | 23 | | | | | | | | | | | | | | | | | | | |
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(1) | This category is described in the section “Asset Backed Notes.” | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(2) | This category represents two Canadian bond index fund not actively managed that tracks the FTSE TMX Long-term bond index, and the FTSE TMX Universe bond index and a U.S. actively managed bond fund that is benchmarked to the Barclays Capital Long-term Government/Credit index. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(3) | The fair value of these plan assets are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured based on quoted prices in active markets and can be redeemed at the measurement date or in the near term. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(4) | This category represents an active segregated, large capitalization Canadian equity portfolios with the ability to purchase small and medium capitalized companies and $6 million of Canadian equities held within an active segregated global equity portfolio. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(5) | This category represents U.S. equities held within an active segregated global equity portfolio. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(6) | This category represents an active segregated non-North American multi-capitalization equity portfolio and the non-North American portion of an active segregated global equity portfolio. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(7) | This category represents equity index funds, not actively managed, that track the Standard & Poor’s 500 (“S&P 500”). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(8) | This category represents insurance contracts with a minimum guarantee rate. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(9) | The fair value of the derivative contracts are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured using long-term bond indices. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table presents the fair value of the plan assets at December 31, 2013, by asset category: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at | | | | | | | | | | | | | | | | | | | |
December 31, 2013 | | | | | | | | | | | | | | | | | | |
Asset Category | | Total | | | Quoted Prices in | | | Significant | | | Significant | | | | | | | | | | | | | | | | | | | |
Active Markets for | Observable | Unobservable | | | | | | | | | | | | | | | | | | |
Identical Assets | Inputs | Inputs | | | | | | | | | | | | | | | | | | |
(Level 1) | (Level 2) | (Level 3) | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | $ | | | | | | | | | | | | | | | | | | | |
Cash and short-term investments | | | 74 | | | | 74 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
Asset backed notes (1) | | | 203 | | | | — | | | | 186 | | | | 17 | | | | | | | | | | | | | | | | | | | |
Canadian government bonds | | | 273 | | | | 273 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
Canadian corporate debt securities | | | 4 | | | | — | | | | 4 | | | | — | | | | | | | | | | | | | | | | | | | |
Bond index funds (2 & 3) | | | 445 | | | | — | | | | 445 | | | | — | | | | | | | | | | | | | | | | | | | |
Canadian equities (4) | | | 126 | | | | 126 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
U.S. equities (5) | | | 37 | | | | 37 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
International equities (6) | | | 295 | | | | 295 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
U.S. stock index funds (3 & 7) | | | 243 | | | | — | | | | 243 | | | | — | | | | | | | | | | | | | | | | | | | |
Insurance contracts (8) | | | 8 | | | | — | | | | — | | | | 8 | | | | | | | | | | | | | | | | | | | |
Derivative contracts (9) | | | 1 | | | | — | | | | 1 | | | | — | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 1,709 | | | | 805 | | | | 879 | | | | 25 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(1) | This category is described in the section “Asset Backed Notes”. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(2) | This category represents a Canadian bond index fund not actively managed that tracks the DEX Long-term bond index and a U.S. actively managed bond fund that is benchmarked to the Barclays Capital Long-term Government/Credit index. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(3) | The fair value of these plan assets are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured based on quoted prices in active markets and can be redeemed at the measurement date or in the near term. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(4) | This category represents active segregated, large capitalization Canadian equity portfolios with the ability to purchase small and medium capitalized companies and $5 million of Canadian equities held within an active segregated global equity portfolio. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(5) | This category represents U.S. equities held within an active segregated global equity portfolio. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(6) | This category represents an active segregated non-North American multi-capitalization equity portfolio and the non-North American portion of an active segregated global equity portfolio. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(7) | This category represents equity index funds, not actively managed, that track the Standard & Poor’s 500 (“S&P 500”). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(8) | This category represents insurance contracts with a minimum guarantee rate. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(9) | The fair value of the derivative contracts are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured using long-term bond indices. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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ASSET BACKED NOTES |
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At December 31, 2014, Domtar Corporation’s Canadian defined benefit pension funds held restructured asset backed notes (“ABN”) (formerly asset backed commercial paper) valued at $180 million (CDN $209 million). At December 31, 2013, the plans held ABN valued at $203 million (CDN $216 million). During 2014, the total value of the ABN benefited from an increase in value of $18 million (CDN $20 million). For the same period, the total value of ABN was reduced by repayments and sales totalling $24 million (CDN $27 million), and by a $17 million impact of a decrease in the value of the Canadian dollar. |
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Most of these ABN, with a current value of $171 million (2012 and 2013, respectively – $193 million), were subject to restructuring under the court order governing the Montreal Accord that was completed in January 2009. About $165 million of these notes are expected to mature in two years. These notes are valued based upon current market quotes and auction results. The market values are supported by the value of the underlying investments held by the issuing conduit. The values for the $6 million of remaining ABN, that also were subject to the Montreal Accord, were sourced either from the asset manager of the ABN, or from trading values for similar securities of similar credit quality. |
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An additional $9 million of ABN were restructured separately from the Montreal Accord. They are valued based upon the value of the collateral investments held in the conduit issuer, reduced by the negative value of credit default derivatives, with an additional discount (equivalent 1.75% per annum) applied for illiquidity. They are expected to mature in two years. |
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Possible changes that could impact the future value of ABN include: (1) changes in the value of the underlying assets and the related derivative transactions, (2) developments related to the liquidity of the ABN market, (3) a severe and prolonged economic slowdown in North America and the bankruptcy of referenced corporate credits, and (4) the passage of time, as most of the notes will mature in approximately two years. |
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The following table presents changes during the period for Level 3 fair value measurements of plan assets: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements Using | | | | | | | | | | | | | | | | | | | | | | | |
Significant Unobservable Inputs | | | | | | | | | | | | | | | | | | | | | | |
(Level 3) | | | | | | | | | | | | | | | | | | | | | | |
| | ABN 1 | | | Insurance | | | TOTAL | | | | | | | | | | | | | | | | | | | | | | | |
contracts | | | | | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2012 | | | 36 | | | | 7 | | | | 43 | | | | | | | | | | | | | | | | | | | | | | | |
Purchases/(Settlements) | | | (19 | ) | | | — | | | | (19 | ) | | | | | | | | | | | | | | | | | | | | | | |
Return on plan assets | | | 2 | | | | 1 | | | | 3 | | | | | | | | | | | | | | | | | | | | | | | |
Effect of foreign currency exchange rate change | | | (2 | ) | | | — | | | | (2 | ) | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2013 | | | 17 | | | | 8 | | | | 25 | | | | | | | | | | | | | | | | | | | | | | | |
Purchases/(Settlements) | | | (14 | ) | | | 1 | | | | (13 | ) | | | | | | | | | | | | | | | | | | | | | | |
Return on plan assets | | | 13 | | | | 1 | | | | 14 | | | | | | | | | | | | | | | | | | | | | | | |
Effect of foreign currency exchange rate change | | | (1 | ) | | | (2 | ) | | | (3 | ) | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2014 | | | 15 | | | | 8 | | | | 23 | | | | | | | | | | | | | | | | | | | | | | | |
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1 | Includes $6 million of Montreal Accord in 2014 (2013 – $7 million) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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ESTIMATED FUTURE BENEFIT PAYMENTS FROM THE PLANS |
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Estimated future benefit payments from the plans for the next 10 years at December 31, 2014 are as follows: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | | Other | | | | | | | | | | | | | | | | | | | | | | | | | | | |
plans | post-retirement | | | | | | | | | | | | | | | | | | | | | | | | | | |
| benefit plans | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | 90 | | | | 5 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | 93 | | | | 5 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | | 97 | | | | 5 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | | 100 | | | | 5 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2019 | | | 104 | | | | 5 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2020 – 2024 | | | 548 | | | | 26 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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MULTIEMPLOYER PLANS |
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Domtar contributed to seven multiemployer defined benefit pension plans under the terms of collective agreements that cover certain Canadian and U.S. unionized employees. As of December 31, 2014, the Company had withdrawn from all five U.S. multiemployer plans, and continued to participate in the two Canadian plans. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects: |
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| (a) | assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| (b) | for the U.S. multiemployer plans, if a participating employer stops contributing to the plan, the unfunded obligations of the plan are borne by the remaining participating employers; and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| (c) | for the U.S. multiemployer plans, if Domtar chooses to stop participating in some of its multiemployer plans, Domtar may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Domtar’s participation in these plans for the annual periods ended December 31 is outlined in the table below. The plan’s 2014, 2013 and 2012 actuarial status certification was completed as of January 1, 2014, January 1, 2013 and January 1, 2012, respectively, and is based on the plan’s actuarial valuation as of December 31, 2013, December 31, 2012 and December 31, 2011, respectively. This represents the most recent Pension Protection Act zone status available. The zone status is based on information received from the plan and is certified by the plan’s actuary. |
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| | EIN / Pension | | | Pension | | | FIP / RP | | | Contributions | | | Surcharge | | Expiration date | |
Plan Number | Protection | Status Pending / | from Domtar | imposed | of collective |
| Act Zone | Implemented | to Multiemployer | | bargaining |
| Status | | (c) | | agreement |
Pension Fund | | | | 2014 | | | 2013 | | | | | 2014 | | | 2013 | | | 2012 | | | | | |
| | | | | | | | | | | | | | $ | | | $ | | | $ | | | | | | |
U.S. Multiemployer Plans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PACE Industry Union- | | | 11-6166763-001 | | | | Red | | | | Red | | | | Yes—Implemented | | | | — | | | | — | | | | 3 | | | Yes | | | January 27, 2015 | |
Management Pension Fund (a) |
Canadian Multiemployer Plans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pulp and Paper Industry | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | 2 | | | | 2 | | | | 2 | | | N/A | | | April 30, 2017 | |
Pension Plan (b) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Total | | | | 2 | | | | 2 | | | | 5 | | | | | | | |
| | | Total contributions made to all plans that are not | | | | — | | | | 1 | | | | 1 | | | | | | | |
individually significant (d) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total contributions made to all plans | | | | 2 | | | | 3 | | | | 6 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | Domtar withdrew from PACE Industry Union-Management Pension Fund effective December 31, 2012. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(b) | In the event that the Canadian multiemployer plan is underfunded, the monthly benefit amount can be reduced by the trustees of the plan. Moreover, Domtar is not responsible for the underfunded status of the plan because the Canadian multiemployer plans do not require participating employers to pay a withdrawal liability or penalty upon withdrawal. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(c) | For each of the three years presented, Domtar’s contributions to each multiemployer plan do not represent more than 5% of total contributions to each plan as indicated in the plan’s most recently available annual report. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(d) | On July 31, 2013, Domtar withdrew from all remaining U.S. multiemployer plans. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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In relation to the withdrawal from one of the Company’s multiemployer pension plans in 2011, the Company recorded an additional charge to earnings of $1 million due to a change in the estimated withdrawal liability during the first quarter of 2013. During the second and third quarter of 2013, the Company withdrew from its remaining U.S. multiemployer pension plans and recorded a withdrawal liability and a charge to earnings of $14 million, of which $3 million is recorded in Closure and restructuring costs and $11 million related to the sale of its Ariva U.S. business included in Other operating (income) loss, net on the Consolidated Statement of Earnings and Comprehensive Income. At December 31, 2014, the total provision for the withdrawal liabilities is $60 million. While this is the Company’s best estimate of the ultimate cost of the withdrawal from these plans at December 31, 2014, additional withdrawal liabilities may be incurred based on the final fund assessment and in the event of a mass withdrawal, as defined by statute, occurring anytime within the next two years (See Note 16 “Closure and Restructuring Costs and Liability”). |