For the years ended December 31, 2007 and 2006
($Cdn thousands except per share amounts and as noted)
Cameco maintains both defined benefit and defined contribution plans providing pension and post-retirement benefits to substantially all of its employees.
Under the defined pension benefit plans, Cameco provides benefits to retirees based on their length of service and final average earnings. The non-pension post-retirement plan covers such benefits as group life and supplemental health insurance, to eligible employees and their dependents. The costs related to the non-pension post-retirement plans are charged to earnings in the period during which the employment services are rendered. However, these future obligations are not funded.
The effective date for the most recent valuations for funding purposes on the pension benefit plans is January 1, 2006. The next planned effective date for valuation for funding purposes of the pension benefit plans is set to be January 1, 2009. The status of the defined plans is as follows:
| Pension Benefit Plans | Other Benefit Plans | |||||||
| 2007 | 2006 | 2007 | 2006 | |||||
| Balance at beginning of year | $ | 23,272 | $ | 15,926 | $ | 12,166 | $ | 7,403 |
| Current service cost | 1,027 | 1,028 | 510 | 487 | ||||
| Interest cost | 1,259 | 872 | 606 | 544 | ||||
| Actuarial (gain) loss | 3,536 | 6,056 | (370) | 395 | ||||
| Plan amendments | – | – | 3,838 | 588 | ||||
| Plan curtailments | – | – | (2,990) | – | ||||
| Acquisition of Zircatec interest [note 23] | – | – | – | 3,116 | ||||
| Benefits paid | (619) | (611) | (617) | (367) | ||||
| Foreign exchange rate changes | (34) | 1 | – | – | ||||
| $ | 28,441 | $ | 23,272 | $ | 13,143 | $ | 12,166 | |
| Pension Benefit Plans | ||||
| 2007 | 2006 | |||
| Fair value at beginning of year | $ | 24,412 | $ | 23,403 |
| Actual return on plan assets | (8) | 1,569 | ||
| Employer contributions | 55 | 51 | ||
| Benefits paid | (595) | (611) | ||
| Fair value at end of year | $ | 23,864 | $ | 24,412 |
Plan assets consist of:
| Pension Benefit Plans | ||
| 2007 | 2006 | |
| Asset Category (i) | ||
Equity securities |
44% | 34% |
Fixed income |
11% | 23% |
Other (ii) |
45% | 43% |
| Total | 100% | 100% |
| (i) | The defined benefit plan assets contain no material amounts of related party assets at December 31, 2007 and 2006 respectively. |
| (ii) | Relates to the value of the refundable tax account held by the Canada Revenue Agency. The refundable total is approximately equal to half of the sum of the realized investment income plus employer contributions less half of the benefits paid by the plan. |
| Pension Benefit Plans | Other Benefit Plans | |||||||
| 2007 | 2006 | 2007 | 2006 | |||||
| Fair value of plan assets | $ | 23,864 | $ | 24,412 | $ | – | $ | – |
| Accrued benefit obligation | 28,441 | 23,272 | 13,143 | 12,166 | ||||
| Funded status of plans – surplus (deficit) | (4,577) | 1,140 | (13,143) | (12,166) | ||||
| Unamortized net actuarial loss | 10,451 | 6,509 | – | – | ||||
| Unamortized transitional obligation | – | 240 | – | – | ||||
| Accrued benefit asset (liability) [notes 7, 10] | $ | 5,874 | $ | 7,889 | $ | (13,143) | $ | (12,166) |
| 2007 | 2006 | |||
| Current service cost | $ | 1,027 | $ | 1,028 |
| Interest cost | 1,259 | 872 | ||
| Actual return on plan assets | 8 | (1,569) | ||
| Actuarial loss | 3,536 | 6,056 | ||
| Balance prior to adjustments to recognize the long-term nature of employee future benefit costs | 5,830 | 6,387 | ||
| Difference between actual and expected return on plan assets | (820) | 796 | ||
| Difference between actuarial loss recognized for year and actual actuarial loss on accrued benefit obligation for year | (3,122) | (6,056) | ||
| Amortization of transitional obligation | 240 | 723 | ||
| Defined benefit pension expense | 2,128 | 1,850 | ||
| Defined contribution pension expense | 10,905 | 8,973 | ||
| Net pension expense | $ | 13,033 | $ | 10,823 |
| 2007 | 2006 | |||
| Significant assumptions at December 31 | ||||
Discount rate |
5.5% | 5.3% | ||
Rate of compensation increase |
5.5% | 4.5% | ||
Long-term rate of return on assets |
6.5% | 6.3% |
| 2007 | 2006 | |||
| Current service cost | $ | 510 | $ | 487 |
| Interest cost | 606 | 544 | ||
| Actuarial (gain) loss | (370) | 395 | ||
| Plan amendment costs | 3,838 | 588 | ||
| Plan curtailment gain | (2,990) | – | ||
| Other post-retirement benefit expense | $ | 1,594 | $ | 2,014 |
| 2007 | 2006 | |||
| Significant assumptions at December 31 | ||||
Discount rate |
5.5% | 5.1% | ||
Initial health care cost trend rate | 9% | 10% | ||
Cost trend rate declines to |
6% | 6% | ||
Year the rate reaches its final level |
2011 | 2011 |
| 2007 | 2006 | |||
| Employer contributions to funded pension plans | $ | 55 | $ | 51 |
| Benefits paid for unfunded benefit plans | 617 | 367 | ||
| Cash contributions to defined contribution plans | 10,905 | 8,973 | ||
| Total cash payments for employee future benefits | $ | 11,577 | $ | 9,391 |
BPLP has a funded registered pension plan and an unfunded supplemental pension plan. The funded plan is a contributory, defined benefit plan covering all employees up to the limits imposed by the Income Tax Act. The supplemental pension plan is a non-contributory, defined benefit plan covering all employees with respect to benefits that exceed the limits under the Income Tax Act. These plans are based on years of service and final average salary.
BPLP also has other post-retirement benefit and other post-employment benefit plans that provide for group life insurance, health care and long-term disability benefits. These plans are non-contributory.
The effective date for the most recent valuations for funding purposes on the pension benefit plans is January 1, 2007. The next planned effective date for valuation for funding purposes of the pension benefit plans is set to be January 1, 2008. The status of Cameco's proportionate share (31.6%) of the defined plans is as follows:
| Pension Benefit Plans | Other Benefit Plans | |||||||
| 2007 | 2006 | 2007 | 2006 | |||||
| Fair value of plan assets | $ | 618,096 | $ | 605,789 | $ | – | $ | – |
| Accrued benefit obligation | 816,574 | 800,050 | 137,421 | 141,746 | ||||
| Funded status of plans – deficit | (198,478) | (194,261) | (137,421) | (141,746) | ||||
| Unrecognized prior service cost | – | – | 3,331 | 5,856 | ||||
| Unamortized net actuarial loss | 204,342 | 206,253 | 30,044 | 49,034 | ||||
| Accrued benefit asset (liability) [notes 7, 10] | $ | 5,864 | $ | 11,992 | $ | (104,046) | $ | (86,856) |
| Asset Allocation | Target Allocation | |||
| 2007 | 2006 | 2007 | 2006 | |
| Asset Category (i) | ||||
Equity securities |
57% | 71% | 60% | 70% |
Fixed income |
42% | 28% | 40% | 30% |
Cash |
1% | 1% | – | – |
| Total | 100% | 100% | 100% | 100% |
The assets of the pension plan are managed on a going concern basis subject to legislative restrictions. The plan's investment policy is to maximize returns within an acceptable risk tolerance. Pension assets are invested in a diversified manner with consideration given to the demographics of the plan participants. Rebalancing will take place on a monthly basis if outside of 3% of the target asset allocation.
(i) The defined benefit plan assets contain no material amounts of related party assets at December 31, 2007.
| 2007 | 2006 | |||
| Current service cost | $ | 29,093 | $ | 24,229 |
| Interest cost | 40,658 | 35,406 | ||
| Actual return on plan assets | 2,215 | (64,194) | ||
| Actuarial (gain) loss | (34,978) | 89,119 | ||
| Balance prior to adjustments to recognize the long-term nature of employee future benefit costs | 36,988 | 84,560 | ||
| Difference between actual and expected return on plan assets | (44,632) | 25,679 | ||
| Difference between actuarial loss recognized and actual actuarial loss on accrued benefit obligation for year | 46,544 | (81,322) | ||
| Net pension expense | $ | 38,900 | $ | 28,917 |
| 2007 | 2006 | |||
| Significant assumptions at December 31 | ||||
Discount rate |
5.3% | 5.0% | ||
Rate of compensation increase |
3.5% | 3.5% | ||
Long-term rate of return on assets |
7.0% | 7.0% | ||
| 2007 | 2006 | |||
| Current service cost | $ | 8,423 | $ | 6,304 |
| Interest cost | 7,272 | 4,394 | ||
| Past service cost | (1,829) | 5,856 | ||
| Actuarial (gain) loss | (15,939) | 59,563 | ||
| Balance prior to adjustments to recognize the long-term nature of employee future benefit costs | (2,073) | 76,117 | ||
| Difference between actual and recognized past service costs for year | 2,526 | (5,856) | ||
| Difference between actuarial gain recognized and actual actuarial loss on accrued benefit obligation for year | 18,991 | (59,931) | ||
| Other benefit plans expense | $ | 19,444 | $ | 10,330 |
| 2007 | 2006 | |||
| Significant assumptions at December 31 | ||||
Discount rate |
5.1% | 5.0% | ||
Rate of compensation increase |
3.5% | 3.5% | ||
Initial health care cost trend rate |
10.0% | 10.0% | ||
Cost trend rate declines to |
5.0% | 5.0% | ||
Year the rate reaches its final level |
2019 | 2018 | ||
A one percentage point increase or decrease in assumed health care cost trend rate would have the following effect:
| Increase | Decrease | |
| Effect on December 31, 2007, obligation | $23,430 | $(19,647) |
| Aggregate of 2007 current service cost and interest cost | 2,575 | (2,101) |
| 2007 | 2006 | |||
| Employer contributions to funded pension plans | $ | 31,284 | $ | 21,665 |
| Benefits paid for unfunded benefit plans | 2,458 | 1,705 | ||
| Total cash payments for employee future benefits | $ | 33,742 | $ | 23,370 |
Benefits paid by the funded pension plan were $22,600,000 for 2007 (2006 – $12,500,000). BPLP's expected contributions for the year ended December 31, 2008 are approximately $30,673,000 for the pension benefit plans.
The following are estimated future benefit payments, which reflect expected future service:
| Pension Benefit Plans | Other Benefit Plans | |||
| 2008 | $ | 26,100 | $ | 3,300 |
| 2009 | 29,700 | 3,700 | ||
| 2010 | 33,500 | 4,100 | ||
| 2011 | 37,300 | 4,600 | ||
| 2012 | 41,500 | 5,100 | ||
| 2013 to 2017 | 267,600 | 32,900 | ||