Bank of Montreal 2008 Annual Report Download - page 144

Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
140 | BMO Financial Group 191st Annual Report 2008
Asset Allocations
The investment policy for the main Canadian pension plan assets is
to have a diversified mix of quality investments that are 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:
Pension benefit plans (1) Other employee future benefit plans
Target Actual Actual Actual Target Actual Actual Actual
2008 2008 2007 2006 2008 2008 2007 2006
Equities 53% 45% 45% 43% 65% 65% 73% 65%
Fixed income investments 35% 44% 38% 41% 35% 35% 27% 33%
Other 12% 11% 17% 16% –––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
2008 2007 2006 2008 2007 2006
Annual Benefits Expense
Benefits earned by employees $141 $ 149 $ 137 $19 $22 $ 18
Interest cost on accrued benefit liability 236 217 208 51 49 46
Actuarial loss recognized in expense 10 59 82 12 18 14
Amortization of plan amendment costs 14 11 6 (8) (7) (7)
Expected return on plan assets (298) (277) (253) (6) (5) (5)
Annual benefits expense 103 159 180 68 77 66
Canada and Quebec pension plan expense 56 52 49 –––
Defined contribution expense 913 10 –––
Total annual pension and other employee future benefit expenses
recognized in the Consolidated Statement of Income $168 $ 224 $ 239 $68 $ 77 $ 66
The impact on annual benefits expense if we had recognized
all costs and benefits as they arose
Total annual pension and other employee future benefit expenses
recognized in the Consolidated Statement of Income $168 $ 224 $ 239 $68 $ 77 $ 66
(Excess) shortfall of actual returns over expected returns on plan assets 1,422 (157) (231) 20 (6) (1)
(Excess) shortfall of actuarial (gains) losses amortized
over actuarial (gains) losses arising (842) (328) 37 (276) (78) 44
(Excess) shortfall of plan amendment costs amortized
over plan amendment costs arising (14) 44 (6) 8(1) 7
Total pro forma annual pension and other employee future benefit expenses
if we had recognized all costs and benefits during the year $734 $(217) $ 39 $(180) $ (8) $ 116
Weighted-average assumptions used to determine benefit expenses
Estimated average service period of active employees (in years) 11 11 10 12 12 12
Discount rate at beginning of year 5.6% 5.1% 5.3% 5.5% 5.3% 5.5%
Expected long-term rate of return on plan assets 6.6% 6.6% 6.6% 8.0% 8.0% 8.0%
Rate of compensation increase 3.9% 3.8% 3.8% 3.9% 3.8% 3.8%
Assumed overall health care cost trend rate n/a n/a n/a 7.1%(1) 7.5%(1) 7.7%(1)
(1) Trending to 4.5% in 2013 and remaining at that level thereafter.
n/a –not applicable