TD Bank 2007 Annual Report Download - page 104

TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Financial Results100
NOTE 16 EMPLOYEE FUTURE BENEFITS
The Bank’s principal pension plan, The Pension Fund Society of
The Toronto-Dominion Bank (the Society), is a defined benefit
plan for which membership is voluntary. Benefits under the plan
are determined based upon the period of plan participation and
the average salary of the member in the best consecutive five
years in the last 10 years of plan membership. As a result of the
acquisition of CT Financial Services Inc. (CT), the Bank sponsors a
pension plan consisting of a defined benefit portion and a defined
contribution portion. Funding for both defined benefit plans is
provided by contributions from the Bank and members of the
plans. In addition, the Bank maintains other partially funded
benefit plans for eligible employees. Related retirement benefits
are paid from the Bank’s assets and contributions.
The Bank also provides certain post-retirement benefits,
post-employment benefits, compensated absence and termination
benefits for its employees (non-pension employee benefits), which
are generally non-funded. These benefits include health care,
life insurance and dental benefits. Employees eligible for the post-
retirement benefits are those who retire from the Bank who meet
minimum age and service requirements. Retirees are required
to pay a portion of the cost of their benefits. Employees eligible
for the post-employment benefits are those on disability and
maternity leave.
For the defined benefit plans and the non-pension employee
benefit plans, actuarial valuations are prepared at least every
three years (and extrapolated in the interim) to determine the
present value of the accrued benefit liability. Pension and non-
pension benefit expenses are determined based upon separate
actuarial valuations using the projected benefit method pro-rated
on service and management’s best estimates of investment
returns on the plan’s assets, compensation increases, retirement
ages of employees and estimated health care costs. The discount
rate used to value liabilities is based on long-term corporate
AA bond yields as of the valuation date. The expense includes
the cost of benefits for the current year’s service, interest expense
on liabilities, expected income on plan assets based on fair market
values and the amortization of plan amendments on a straight-
line basis over the expected average remaining service life of
the active members (10 years for the principal pension plan)
and the expected average remaining period to full eligibility for
non-pension post-retirement benefits (10 years). The excess, if
any, of the net actuarial gain or loss over 10% of the greater
of the projected benefit obligation and the fair market value of
plan assets is also amortized over the expected average remaining
service life of the active members (10 years for the principal
pension plan and 16 years for the non-pension post-retirement
plans). The cumulative difference between expense and funding
contributions is reported on the Consolidated Balance Sheet in
other assets or other liabilities.
For the defined contribution plans, annual pension expense
is equal to the Bank’s contributions to the plan.
PENSION BENEFIT PLAN
The Bank’s principal pension plan is funded by contributions from
the Bank and from members. In accordance with legislation, the
Bank contributes amounts determined on an actuarial basis to
the plan and has the ultimate responsibility for ensuring that the
liabilities of the plan are adequately funded over time.
The table on the following page presents the financial position
of the Bank’s principal pension plan. The pension plan assets and
obligations are measured as at July 31.
The Bank’s contributions to the principal pension plan during
2007 were $84 million. These contributions were made in accor-
dance with the actuarial valuation report for funding purposes as
at October 31, 2004 and the actuarial cost certificates filed March
30, 2007 and June 22, 2007. The next valuation date for funding
purposes is at October 31, 2007.
To develop the expected long term rate of return on assets
assumption for the Bank’s principal pension plan, the Bank
considered the historical returns and the future expectations for
returns for each asset class, as well as the target asset allocation
of the fund. This resulted in the selection of a long term rate of
return on assets assumption of 6.75%.
The effect of a one percent increase or decrease in the
expected return on assets assumption on the 2007 pension
expense would be a $20 million decrease or increase, respectively.
The Bank’s principal pension plan weighted average asset
allocations at July 31 by asset category are as follows:
Asset Allocation
Security 2007 2006 2005
Equity 57 % 56% 57%
Debt 34 35 38
Alternative investments 76 3
Cash equivalents 2 3 2
Total 100% 100% 100%
For 2007 the Bank’s principal pension plan’s net assets included
funded investments in the Bank and its affiliates which had a
market value of $8 million (2006 – $6 million; 2005 – $6 million).
Prior to the TD Banknorth privatization, TD Banknorth recognized
compensation expense in its Consolidated Statement of Income of
$4.1 million (2006 – $8 million; 2005 – $3 million) for the stock
option awards granted.
TD Banknorth Other Stock-based Compensation Plans
TD Banknorth offered restricted share units and performance
share unit plans for certain employees of TD Banknorth. Under
these plans, participants were granted units equivalent to TD
Banknorth common shares that generally vest at the end of three
years. The number of performance share units was adjusted
to reflect the performance of TD Banknorth against an annual
operating earnings per share growth target. At the maturity date,
the participant receives cash representing the value of the share
units. As a result of the TD Banknorth privatization, share units
were converted to the equivalent of the Bank’s common shares
using the exchange ratio set out in the merger agreement.
In addition, for future performance periods, the final number
of performance share units will be adjusted based on the Bank’s
total shareholder return relative to the average of the other
major Canadian banks.
TD Banknorth also offered a performance-based restricted
share unit plan to certain executives that provided for the grant
of share units equivalent to the Bank’s common shares which vest
at the end of three years. The number of performance share units
for the first two years of the performance period was adjusted to
reflect the performance of TD Banknorth against an annual oper-
ating earnings per share growth target. As a result of the TD
Banknorth privatization, the number of performance share units
for the third and final year of the performance period will be
adjusted based on the Bank’s total shareholder return relative to
the average of the other major Canadian banks.
The number of TD Banknorth share units under these plans at
October 31, 2007 was 1.6 million (2006 – 1.8 million).
Compensation expense for these plans is recorded in the year
the incentive award is earned by the plan participant. Changes
in the value of share units are recorded, net of the effects of
related hedges, in its Consolidated Statement of Income. During
the year, TD Banknorth recognized compensation expense, net
of the effects of hedges, for these plans of $37 million (2006 –
$19 million; 2005 – $10 million). The compensation expense
recognized before the effects of hedges was $46 million.
In addition, TD Banknorth and its subsidiaries maintain
401(k) plans covering substantially all regular employees, and
an employee stock purchase plan that is available to employees
with one year of service. Participation in the employee stock
purchase plan ceased on December 31, 2006.