Telus 2010 Annual Report Download - page 152

148 . TELUS 2010 annual report
(f) Accumulated pension benefit obligations
Accumulated benefit obligations differ from accrued benefit obligations in that accumulated benefit obligations do not include assumptions about
future compensation levels. The Company’s disaggregation of defined pension benefit plans accumulated benefit obligations and plan assets at
year-end are as follows:
As at December 31 2010 2009
Accumulated Accumulated
benefit benefit
(millions) obligation Plan assets Difference obligation Plan assets Difference
Pension plans that have plan assets
in excess of accumulated benefit obligations $ß5,857 $ß6,209 $ß352 $ß5,353 $ß5,794 $ß441
Pension plans that have accumulated benefit
obligations in excess of plan assets
Funded 599 556 (43) 545 522 (23)
Unfunded 210 – (210) 189 – (189)
809 556 (253) 734 522 (212)
$ß6,666 $ß6,765 $ß 99 $ß6,087 $ß6,316 $ß229
of BC TELECOM Inc. and TELUS Corporation, the Company’s prede-
cessors. Externally managed funds are permitted to invest in securities
of the Company, provided that the investments are consistent with the
funds’ mandate and are in compliance with the relevant SIP&P.
Diversification: The Company’s strategy for equity security invest-
ments is to be broadly diversified across individual securities, industry
sectors and geographical regions. A meaningful portion (15–25%
of total plans’ assets) of the investment in equity securities is allocated
to foreign equity securities with the intent of further increasing the
diversification of the plans’ assets. Debt securities may include a mean-
ingful allocation to mortgages with the objective of enhancing cash
flow and providing greater scope for the management of the bond
component of the plans’ assets. Debt securities also may include real
return bonds to provide inflation protection, consistent with the indexed
nature of some defined benefit obligations. Real estate investments
are used to provide diversification of plans’ assets, potential long-term
inflation hedging and comparatively stable investment income.
Relationship between plan assets and benefit obligations: With the
objective of lowering its long-term costs of defined benefit plans, the
Company purposely mismatches plan assets and benefit obligations.
This mismatching is implemented by including equity investments in the
long-term asset mix as well as fixed income securities and mortgages
with durations that differ from the benefit obligations. Compensation
for liquidity issues that may have otherwise arisen from mismatching of
plan assets and benefit obligations comes from broadly diversified
investment holdings (including cash and short-term investment holdings)
and cash flows from dividends, interest and rents from diversified
investment holdings.
(g) Plan investment strategies and policies
The Company’s primary goal for the defined benefit plans is to ensure
the security of the retirement income and other benefits of the plan
members and their beneficiaries. A secondary goal of the Company is
to maximize the long-term rate of return of the defined benefit plans’
assets within a level of risk acceptable to the Company.
Risk management: The Company considers absolute risk (the risk
of contribution increases, inadequate plan surplus and unfunded obli-
gations) to be more important than relative return risk. Accordingly, the
defined benefit plans’ designs, the nature and maturity of defined benefit
obligations and characteristics of the plans’ memberships significantly
influence investment strategies and policies. The Company manages risk
through specifying allowable and prohibited investment types, setting
diversification strategies and determining target asset allocations.
Allowable and prohibited investment types: Allowable and prohibited
investment types, along with associated guidelines and limits, are
set out in each fund’s Pension Benefits Standards Act, 1985, required
Statement of Investment Policies and Procedures (SIP&P), which is
reviewed and approved annually by the designated governing fiduciary.
The SIP&P guidelines and limits are further governed by the Pension
Benefits Standards Regulations, 1985’s permitted investments and
lending limits. As well as conventional investments, each fund’s SIP&P
may provide for the use of derivative products to facilitate investment
operations and to manage risk provided that no short position is
taken, no use of leverage is made and there is no violation of guidelines
and limits established in the SIP&P. Internally managed funds are pro-
hibited from increasing grandfathered investments in securities of the
Company; grandfathered investments were made prior to the merger
Asset allocations: Information concerning the Company’s defined benefit plans’ target asset allocation and actual asset allocation is as follows:
Pension benefit plans Other benefit plans
Target Percentage of plan assets Target Percentage of plan assets
allocation at end of year allocation at end of year
2 011 2010 2009 2 011 2010 2009
Equity securities 45–60% 56% 53% – – –
Debt securities 35–45% 38% 41% – – –
Real estate 4–8% 6% 6% – – –
Other 0–2% – – 100% 100% 100%
100% 100% 100% 100% 100%