Bank of Montreal 1998 Annual Report Download - page 91

We have a number of pension plans which provide benefits to our em-
ployees in North America and other parts of the world. The principal
pension plan covers Canadian employees. Our plans generally provide
retirement benefits based on the employees’ years of service and aver-
age earnings at the time of retirement and do not require employees to
make contributions. Voluntary contributions can be made by employees.
Our actuaries perform regular valuations of the accrued obligation for
pension benefits to our employees based on assumptions about salary
growth, retirement age and mortality. The pension plan assets are car-
ried at market value and are set aside to satisfy our pension obligations.
The pension expense is recorded in our Consolidated Statement
of Income as a component of salaries and employee benefits. It is
determined by the cost of the employee pension benefits offset by
the assumed investment return on the pension plan assets. When the
actual return differs from the assumed, the experience gain or loss is
deferred and allocated to future periods.
The cumulative difference between the pension expense and the
actual cash contributions we make into the pension plans on our
employees’ behalf are included in our Consolidated Balance Sheet as
part of other assets or other liabilities, as appropriate.
We also provide certain life insurance, health and dental care ben-
efits for retired employees. The cost of these benefits is recorded in
salaries and employee benefits expense as incurred.
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BANK OF MONTREAL GROUP OF COMPANIES
The following table provides summaries of our pension plans’ estimated financial positions:
1998 19 97 199 6
Accumulated pension benefit obligation, including vested
benefits of $1,826 in 1998, $1,631 in 1997 and $1,312 in 1996 $ 1,864 $ 1,670 $ 1,341
Projected pension benefit obligation for employee service rendered to date $ 2,125 $ 1,877 $ 1,746
Pension plan assets at fair value 2,678 2,581 2,207
553 704 461
Unrecognized net (gain) from past experience different from
that assumed and effects of changes in actuarial assumptions (226) (397) (174)
Prior period employee service costs not yet recorded 52 56 57
Unrecognized transition amount (1) (2) (11)
Prepaid pension expense $ 378 $ 361 $ 333
As at October 31, 1998, the pension plan assets consisted of equities (65%),
fixed income investments (35%) and real estate and other investments (0%).
Annual Pension Expense
Net pension expense includes the following components:
Pension benefits earned by employees $73 $ 61 $ 59
Interest cost accrued on our projected pension benefit obligation 153 140 135
Actual investment return earned on pension plan assets (182) (453) (344)
Net amortization and deferral (45) 283 180
Annual pension expense (1) 31 30
Canada and Quebec pension plan contribution 34 26 22
Total annual pension expense $33 $ 57 $ 52
Actuarial Assumptions
Weighted average discount rate for projected benefit obligation 7.6%7.9% 7.9%
Weighted average rate of compensation increase 3.8 3.9 4.3
Weighted average expected long-term rate of return on pension plan assets 8.1 8.2 8.4
The cost of post-retirement life insurance, health and dental care benefits reported in employee benefits expense was $11 in 1998, $11 in 1997
and $10 in 1996.
NOTE 17 PENSIONS
We provide banking services to our subsidiary companies on the
same terms that we offer to our customers. In addition, we make
loans to current and former directors, officers and employees
at various rates and terms. The interest earned on these loans is
recorded in interest, dividend and fee income in our Consolidated
Statement of Income.
Our business necessitates the management of several categories of
risk including credit, market, liquidity and operational risks. The
nature of the risks of our business and our management of them is
set out in the discussion on page 43 of our Management Analysis of
Operations. Specific measures of risk such as the allowance for credit
losses, trading revenue, derivative financial instruments and fair value
of financial instruments are set out in the consolidated financial
statements. A summary of our interest rate gap position and effective
The amounts outstanding under these loan agreements are:
1998 19 97
Mortgage loans $ 745 $ 835
Personal loans 344 360
To t a l $ 1,089 $ 1,195
interest rates on our financial instrument assets and liabilities is set
out on page 58 of our Management Analysis of Operations.
We periodically use forward exchange contracts to hedge U.S. dollar
revenues to minimize fluctuations in U.S. dollar earnings. These
forward exchange contracts mature monthly as related revenues
are recognized. The unrecognized loss associated with these
forward contracts is $0.3 as at October 31, 1998 and $ nil as at
October 31, 1997.
NOTE 18 RELATED PARTY TRANSACTIONS
NOTE 19 RISK MANAGEMENT