Bank of Montreal 2008 Annual Report Download - page 146

Sensitivity of Assumptions
Key weighted-average economic assumptions used in measuring
the pension benefit liability, the other employee future benefit liability
and related expenses are outlined in the adjoining table. The sensitivity
analysis provided in the table should be used with caution as it is
hypothetical and changes in each key assumption may not be linear.
The sensitivities in each key variable have been calculated indepen-
dently of changes in other key variables.
Actual experience may result in changes in a number of
key assumptions simultaneously. Changes in one factor may result
in changes in another, which could amplify or reduce certain
sensitivities.
Cash Flows
Cash payments made by the Bank during the year in connection with our employee future benefit plans are as follows:
(Canadian $ in millions) Pension benefit plans Other employee future benefit plans
2008 2007 2006 2008 2007 2006
Contributions to defined benefit plans $90 $ 37 $ 179 $– $– $ –
Contributions to defined contribution plans 913 10 –––
Benefits paid directly to pensioners 15 21 15 26 32 18
Total $114 $ 71 $ 204 $26 $ 32 $ 18
Our best estimate of the amounts we expect to contribute for the year ended October 31, 2009 Certain comparative figures have been reclassified to conform with the current year’s presentation.
is $307 million to our pension benefit plans and $35 million to our other employee future
benefit plans.
Other employee
Pension future benefits
Benefit Benefit Benefit Benefit
(Canadian $ in millions, except as noted) liability expense liability expense
Discount rate (%) 7.3 5.6 7.3 5.5
Impact of: 1% increase ($) (379) (14) (82) (3)
1% decrease ($) 461 16 97 4
Rate of compensation increase (%) 3.7 3.9 3.7 3.9
Impact of: 0.25% increase ($) 2851–
0.25% decrease ($) (22) (5) (1) –
Expected rate of return on assets (%) n/a 6.6 n/a 8.0
Impact of: 1% increase ($) n/a (45) n/a (1)
1% decrease ($) n/a 45 n/a 1
Assumed overall health care cost
trend rate (%) n/a n/a 7.4(1) 7.1(2)
Impact of: 1% increase ($) n/a n/a 86 12
1% decrease ($) n/a n/a (70) (9)
(1) Trending to 4.4% in 2018 and remaining at that level thereafter.
(2) Trending to 4.5% in 2013 and remaining at that level thereafter.
n/a –not applicable
Estimated Future Benefit Payments
Estimated future benefit payments in the next five years and thereafter are as follows:
Pension Other employee
(Canadian $ in millions) benefit plans future benefit plans
2009 $ 223 $ 35
2010 234 38
2011 248 41
2012 263 43
2013 275 45
2014–2018 1,586 279
Note 25: Income Taxes
We report our provision for income taxes in our Consolidated Statement
of Income based upon transactions recorded in our consolidated financial
statements regardless of when they are recognized for income tax
purposes, with the exception of repatriation of retained earnings from
our foreign subsidiaries, as noted below.
In addition, we record income tax expense or benefit directly
in
shareholders’ equity when the taxes relate to amounts recorded in
shareholders’ equity. For example, income tax expense (recovery) on
hedging gains (losses) related to our net investment in foreign opera-
tions
is recorded in shareholders’ equity as part of accumulated other
comprehensive income (loss) on translation of net foreign operations.
The future income tax balances included in other assets of
$405 million and other liabilities of $nil as at October 31, 2008
($235 million and $nil, respectively, in 2007) are the cumulative amount
of tax applicable to temporary differences between the accounting
and tax values of our assets and liabilities. Future income tax assets and
liabilities are measured at the tax rates expected to apply when these
differences reverse. Changes in future income tax assets and liabilities
related to a change in tax rates are recorded in income in the period
the tax rate change is substantively enacted. A valuation allowance is
established to reduce future income tax assets to the amount more
likelythannottoberealized.
Components of Future Income Tax Balances
(Canadian $ in millions) 2008 2007
Future Income Tax Assets
Allowance for credit losses $ 537 $ 374
Employee future benefits 215 233
Deferred compensation benefits 182 176
Other Comprehensive Income 22 67
Tax loss carryforwards 159 –
Other 413
Total future income tax assets $ 1,119 $ 863
Future Income Tax Liabilities
Premises and equipment $ (206) $ (168)
Pension benefits (335) (356)
Intangible assets (122) (81)
Other (51) (23)
Total future income tax liabilities $ (714) $ (628)
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
142 | BMO Financial Group 191st Annual Report 2008