Bank of Montreal 2012 Annual Report Download - page 164

Notes
into consideration bond yields. Long-term returns are then estimated
for global equity markets. Returns from other asset classes are set to
reflect the relative risks of these classes as compared to fixed income
and equity assets. Differences between expected and actual returns
on assets are included in our actuarial gain or loss balance, as
described above.
Settlements occur when benefit liabilities for plan participants are
settled, usually through lump sum cash payments, and as a result we no
longer have any obligation to provide such participants with benefit
payments in the future.
For pension benefit plans that are in a net benefit asset position,
the recognized asset is limited to the total of any unrecognized actuarial
losses and past service costs plus the present value of economic
benefits available in the form of future refunds from the plan or
reductions in future contributions to the plan (the asset ceiling).
Funding of Pension and Other Employee Future Benefit
Plans
Our statutory pension plans in Canada and the U.S. are funded by us and
the assets in these plans are used to pay benefits to retirees.
Our supplementary pension plans in Canada are funded, while in
the U.S. the plan is unfunded. Our other employee future benefit plans
in the United States and Canada are either partially funded or unfunded.
Pension and benefit payments related to these plans are either paid
through the respective plan or paid directly by us.
We measure the fair value of plan assets as at October 31 for our
Canadian and U.S. plans. In addition to actuarial valuations for accounting
purposes, we are required to prepare valuations for determining our
pension contributions (our “funding valuation”). The most recent funding
valuation for our main Canadian plan was performed as at October 31,
2012. The next funding valuation for this plan will be performed as at
October 31, 2013. An annual funding valuation is required for our U.S.
statutory plan. The most recent valuation was performed as at
January 1, 2012.
Summarized information for the past two years is as follows:
(Canadian $ in millions) Pension benefit plans Other employee future benefit plans
2012 2011 2012 2011
Defined benefit liability 6,012 5,124 1,149 952
Fair value of plan assets 5,802 5,338 81 72
Surplus (deficit) (210) 214 (1,068) (880)
(Gain) loss in the benefit liability arising from changes in assumptions 693 73 154 (66)
(Excess) shortfall of actual returns over expected returns on plan assets (177) 87 (4) (1)
Asset Allocations
The investment policy for plan assets is to have a diversified mix of quality
investments that are expected to provide a superior rate of return over the
long term, while limiting performance volatility. Plan assets are
rebalanced within ranges around target allocations. Allocations as at the
end of 2012 and 2011 and the target allocations for 2012 are as follows:
Pension benefit plans Other employee future benefit plans
Target
2012
Actual
2012
Actual
2011
Target
2012
Actual
2012
Actual
2011
Equities 40% 39% 47% 50% 50% 50%
Fixed income investments 45% 47% 44% 50% 49% 49%
Other 15% 14% 9% –1%1%
Certain comparative figures have been reclassfied to conform with the current year’s presentation.
Pension and Other Employee Future Benefit Expenses
Pension and other employee future benefit expenses are determined as follows:
(Canadian $ in millions) Pension benefit plans
Other employee future
benefit plans
2012 2011 2012 2011
Annual Benefits Expense
Benefits earned by employees 186 163 18 21
Interest cost on accrued benefit liability 266 253 53 53
Actuarial loss recognized in expense 1–1–
Plan amendment costs recognized in expense –25 (3) (3)
Expected return on plan assets (1) (313) (323) (5) (5)
Benefits expense 140 118 64 66
Canada and Quebec pension plan expense 67 64 ––
Defined contribution expense 77––
Total annual pension and other employee future benefit expenses recognized
in the Consolidated Statement of Income 214 189 64 66
(1) The actual return on plan assets for the pension benefit plans and other employee future benefit plans was $490 million and $9 million in 2012, respectively ($236 million and $6 million in 2011,
respectively).
BMO Financial Group 195th Annual Report 2012 161