Bank of Montreal 2007 Annual Report Download - page 130

126 BMO Financial Group 190th Annual Report 2007
Notes to Consolidated Financial Statements
Notes
Funded pension benefit plans (1) Funded other employee future benefit plans
Target Actual Actual Actual Target Actual Actual Actual
2007 2007 2006 2005 2007 2007 2006 2005
Equities 53% 45% 43% 50% 65% 73% 65% 67%
Fixed income investments 35% 38% 41% 38% 35% 27% 33% 33%
Other 12% 17% 16% 12% –– 2% –
(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
2007 2006 2005 2007 2006 2005
Annual Benefits Expense
Benefits earned by employees $149 $ 137 $ 127 $22 $ 18 $ 17
Interest cost on accrued benefit liability 217 208 205 49 46 46
Actuarial loss recognized in expense 59 82 69 18 14 10
Amortization of plan amendment costs 11 64(7) (7) (7)
Expected return on plan assets (277) (253) (230) (5) (5) (5)
Annual benefits expense 159 180 175 77 66 61
Canada and Quebec pension plan expense 52 49 45 –––
Defined contribution expense 13 10 11 –––
Total annual pension and other employee future benefit expenses
recognized in the Consolidated Statement of Income $224 $ 239 $ 231 $77 $ 66 $ 61
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 $224 $ 239 $ 231 $77 $ 66 $ 61
(Excess) of actual returns over expected returns on plan assets (157) (231) (141) (6) (1) (5)
(Excess) shortfall of actuarial (gains) losses amortized
over actuarial (gains) losses arising (328) 37 320 (78) 44 59
(Excess) shortfall of plan amendment costs amortized
over plan amendment costs arising 44 (6) 11 (1) 77
Total pro forma annual pension and other employee future benefit expenses
if we had recognized all costs and benefits during the year $(217) $ 39 $ 421 $ (8) $ 116 $ 122
Weighted-average assumptions used to determine benefit expenses
Estimated average service period of active employees (in years) 11 10 10 12 12 12
Discount rate at beginning of year 5.1% 5.3% 6.0% 5.3% 5.5% 6.2%
Expected long-term rate of return on plan assets 6.6% 6.6% 6.7% 8.0% 8.0% 8.0%
Rate of compensation increase 3.8% 3.8% 3.9% 3.8% 3.8% 3.9%
Assumed overall health care cost trend rate n/a n/a n/a 7.5%(1) 7.7%(1) 8.0%(1)
(1) Trending to 4.5% in 2013 and remaining at that level thereafter.
n/a –not applicable
Asset Allocations
The investment policy for the main Canadian pension plan assets
is to have a diversified mix of quality investments that is expected
to provide a superior real 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 each
year and the target allocations for October 31 are as follows: