Bank of Montreal 2004 Annual Report Download - page 116

BMO Financial Group Annual Report 2004112
Notes to Consolidated Financial Statements
Notes
The benefit liability and the fair value of plan assets in respect of plans that are not fully funded are as follows:
(Canadian $ in millions) Pension benefit plans Other employee future benefit plans
2004 2003 2002 2004 2003 2002
Accrued benefit liability $ 865 $ 883 $ 926 $ 741 $ 711 $ 595
Fair value of plan assets 607 544 572 58 55 55
Unfunded benefit liability $ 258 $ 339 $ 354 $ 683 $ 656 $ 540
Asset Allocations
Plan assets are rebalanced within ranges around target allocations. Allocations as at the end of each year and the target allocations for
October 31 are as follows:
Funded pension benefit plans(1) Funded other employee future benefit plans
Target Actual Actual Actual Target Actual Actual Actual
2004 2004 2003 2002 2004 2004 2003 2002
Equities 45% 47% 45% 53% 65% 70% 61% 65%
Fixed income investments 35% 40% 42% 39% 35% 30% 30% 30%
Other 20% 13% 13% 8% – – 9% 5%
(1) Excludes the Canadian supplementary plan whose assets are fully invested in fixed income investments.
Pension and Other Employee Future Benefit Expenses
Pension and other employee future benefit expenses are determined as follows:
(Canadian $ in millions, except as noted) Pension benefit plans Other employee future benefit plans
2004 2003 2002 2004 2003 2002
Annual Benefits Expense
Benefits earned by employees $ 120 $ 111 $ 105 $ 16 $ 17 $ 13
Interest cost on accrued benefit liability 201 196 191 44 38 35
Actuarial loss recognized in expense 77 62 27 10
– 3
Amortization of plan amendment costs 2 32 (7)
– –
Loss realized on settlement of a portion of the benefit liability – 4 –– ––
Expected return on plan assets (213) (217) (235) (4) (4) (5)
Annual benefit expense 187 159 90 59 51 46
Canada and Quebec pension plan expense 45 44 36 – ––
Defined contribution expense 11 10 9 – ––
Total annual pension and other employee future benefit expenses
recognized in the Consolidated Statement of Income $ 243 $ 213 $ 135 $ 59 $ 51 $ 46
The impact on annual benefits expense if we had recognized
all costs and expenses as they arose
Total annual pension and other employee future benefit expenses
recognized in the Consolidated Statement of Income $ 243 $ 213 $ 135 $ 59 $ 51 $ 46
(Excess)/shortfall of actual returns over expected return on plan assets (118) (6) 423 (4) (6) 8
(Excess)/shortfall of actuarial (gains) losses amortized
over actuarial (gains) losses arising 197 92 (10) 170 31
(Excess)/shortfall of plan amendment costs amortized
and plan amendment costs arising 17 (3) (2) 7 – –
Total pro forma annual pension and other employee future benefit costs
if we had recognized all costs and benefits during the year $ 143 $ 301 $ 648 $52 $ 215 $ 85
Weighted-average assumptions used to determine benefit expenses
Estimated average service period of active employees (in years) 10 11 12 13 14 14
Discount rate at beginning of year 6.2% 6.5% 6.7% 6.4% 6.7% 6.6%
Expected long-term rate of return on plan assets 6.7% 6.9% 7.5% 8.0% 8.0% 8.0%
Rate of compensation increase 4.0% 4.2% 4.1% 4.1% 3.7% 3.7%
Assumed overall health care cost trend rate na na na 8.4%(1) 5.3%(2) 5.6%(3)
(1) Trending to 4.5% in 2013 and remaining at that level thereafter.
(2) Trending to 4.4% in 2013 and remaining at that level thereafter.
(3) Trending to 4.3% in 2005 and remaining at that level thereafter.
na – not applicable
In addition to actuarial valuations for accounting purposes, we
are required to prepare additional 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, 2004. We are required to file funding valuations
for that plan with the Office of the Superintendent of Financial
Institutions Canada at least every three years. An annual funding
valuation is required for our U.S. statutory plan. The last valuation
was performed as at January 1, 2004.