Bank of Montreal 1999 Annual Report Download - page 95

Bank of Montreal Group of Companies 1999 Annual Report 89
Note 17 Pensions
We have a number of pension plans which provide benefits to our retired
employees. The principal pension plan covers Canadian employees. Our
plans generally provide retirement benefits based on the employees’
years of service and average 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 carried
at market value and are set aside to satisfy our pension obligations.
The pension expense is recorded in our Consolidated Statement of
Incomeasacomponentofsalariesandemployeebenefits.Itisdetermined
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 return, 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.
The following tables provide summaries of our pension plans’ estimated financial positions:
1999 1998 1997
Accumulated pension benefit obligation, including vested
benefits of $1,783 in 1999, $1,826 in 1998 and $1,631 in 1997 $ 1,821 $ 1,864 $ 1,670
Projected pension benefit obligation for employee service, beginning of year $ 2,125 $ 1,877 $ 1,746
Pension benefits earned by employees 73 66 59
Interest cost accrued on our projected benefit obligation 154 148 137
Benefits paid to pensioners (169) (151) (116)
Voluntary employee contributions 455
Changes in actuarial assumptions and experience (gains) losses (153) 128 27
Plan amendments 13 86
Other, primarily foreign exchange (24) 44 13
Projected pension benefit obligation for employee service, end of year $ 2,023 $ 2,125 $ 1,877
Fair value of plan assets, beginning of year $ 2,678 $ 2,581 $ 2,207
Actual return on plan assets 305 184 452
Bank contributions 27 19 14
Voluntary employee contributions 455
Benefits paid to pensioners (169) (151) (116)
Other, primarily foreign exchange (20) 40 19
Fair value of plan assets, end of year 2,825 2,678 2,581
Funded status 802 553 704
Unrecognized net (gain) from past experience different from
that assumed and effects of changes in actuarial assumptions (451) (226) (397)
Prior period employee service costs not yet recorded 53 52 56
Unrecognized transition amount (1) (1) (2)
Prepaid pension expense $ 403 $ 378 $ 361
As at October 31, 1999, the pension plan assets consisted of equities (70%)
and fixed income investments (30%).
Our annual pension expense is set out in the following table:
We also provide certain life insurance, health and dental care benefits
for retired employees. The cost of these benefits is recorded in salaries
and employee benefits expense as incurred.
Change in Accounting Policy
The Canadian Institute of Chartered Accountants has approved a new
standard for recording and disclosing pension and other future employee
benefits which we must adopt beginning in fiscal 2001. The most signifi-
cant changes are:
■our pension benefit obligation will be calculated using a current mar-
ket rate rather than management’s best estimate of the long-term
discount rate;
■
we will record an actuarially determined liability and expense for certain
other benefits we provide for current and retired employees rather
than recognizing the expense as it is incurred.
The overall impact of the new standard is not determinable at this
time; however, it could be significant. The impact is dependent on the
interest rate environment at the time and the accounting option chosen
for implementation.
Our net income applicable to common shares and the average number of common shares outstanding for the year used to calculate our
basic and fully diluted net income per common share before and after goodwill amortization are as follows:
1999 1998 1997
Net income before goodwill attributable to common shares
– basic $ 1,308 $ 1,280 $ 1,263
Net income attributable to common shares
– basic $ 1,265 $ 1,238 $ 1,222
Average number of common shares outstanding
– basic 265,861,729 262,510,741 260,409,736
Average number of common shares outstanding – fully diluted 272,573,469 269,047,747 268,699,928