Bank of Montreal 2010 Annual Report Download - page 152

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes
150 BMO Financial Group 193rd Annual Report 2010
Summarized information for the past five years is as follows:
(Canadian $ in millions) Pension benefit plans Other employee future benefit plans
2010 2009 2008 2007 2006 2010 2009 2008 2007 2006
Defined benefit liability 4,839 4,125 3,634 4,082 4,248 975 898 705 908 952
Fair value of plan assets 5,185 4,122 3,476 4,533 4,339 67 63 71 68 68
Surplus (deficit) 346 (3) (158) 451 91 (908) (835) (634) (840) (884)
(Gain) loss in the benefit liability
arising from changes in assumptions 586 436 (832) (269) 121 38 166 (264) (60) 58
(Excess) shortfall of actual returns
over expected returns on plan assets (279) (254) 1,422 (157) (231) (3) 6 20 (6) (1)
Pension benefit plans (1) Other employee future benefit plans
Target Actual Actual Actual Target Actual Actual Actual
2010 2010 2009 2008 2010 2010 2009 2008
Equities 53% 55% 49% 45% 50% 50% 52% 65%
Fixed income investments 35% 35% 39% 44% 50% 49% 33% 35%
Other 12% 10% 12% 11% – 1% 15% –
(1) Excludes the Canadian supplementary plan, whose assets are fully invested in fixed income investments.
Asset Allocations
The investment policy for 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.
Interest cost on benefit liabilities represents the increase in the
liabilities that results from the passage of time.
Actuarial gains or losses may arise in two ways. First, each year
our actuaries recalculate the benefit liabilities and compare them to
those estimated as at the previous year end. Any differences that result
from changes in assumptions or from plan experience being different
from management’s expectations at the previous year end are considered
actuarial gains or losses. Secondly, actuarial gains and losses arise
when there are differences between expected and actual returns on
plan assets.
At the beginning of each year, we determine whether the unrecog-
nized actuarial gain or loss is more than 10% of the greater of our
plan asset or benefit liability balances. Any unrecognized actuarial gain
or loss in excess of this 10% threshold is recognized in expense over
the expected remaining service period of active employees. Amounts
below the 10% threshold are not recognized in income.
Plan amendments are changes in our benefit liabilities as a result
of changes to provisions of the plans. These amounts are recognized
in expense over the remaining service period of active employees for
pension plans and over the expected average remaining period to full
benefit eligibility for other employee future benefit plans.
Expected return on assets represents management’s best
estimate of the long-term rate of return on plan assets applied to
the fair value of plan assets. We establish our estimate of the expected
rate of return on plan assets based on the plan’s target asset allocation
and estimated rates of return for each asset class. Estimated rates
of return are based on expected returns from fixed income securities,
which take into consideration bond yields. An equity risk premium
is then applied to estimate equity returns. Returns from other asset
classes are set to reflect the relative risks of these classes as compared
to fixed income and equity assets. Differences between expected
and actual returns on assets are included in our actuarial gain or loss
balance, as described above.
Settlements occur when benefit liabilities for plan participants
are settled, usually through lump sum cash payments, and as a result
we no longer have any obligation to provide such participants with
benefit payments in the future.
Funding of Pension and Other Employee
Future Benefit Plans
Our statutory pension plans in Canada, the United States and the United
Kingdom are funded by us and the assets in these plans are used to
pay benefits to retirees.
Our supplementary pension plans in Canada are partially funded,
while in the United States the plan is unfunded. Our other employee
future benefit plans in the United States and Canada are either partially
funded or unfunded.
Pension and benefit payments related to these
plans are either paid through the respective plan or paid directly by us.
We measure the fair value of plan assets as at October 31 for
our Canadian plans (September 30 for our U.S. plans). In addition to
actuarial valuations for accounting purposes, we are required to prepare
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, 2010. The next funding valuation will
be performed as at October 31, 2011. An annual funding valuation
is required for our U.S. statutory plan. The most recent valuation was
performed as at January 1, 2010.
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: