TD Bank 2009 Annual Report Download - page 129

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 FINANCIAL RESULTS 125
The Bank’s principal pension plans, consisting of The Pension Fund
Society of The Toronto-Dominion Bank (the Society) and the TD
Pension Plan (Canada) (the Plan), are defined benefit plans. The Soci-
ety was closed to new members on January 30, 2009 and the Plan
commenced on March 1, 2009. Benefits under the principal pension
plans are determined based upon the period of plan participation
and the average salary of the member in the best consecutive five
years in the last 10 years of combined plan membership. Funding for
the Bank’s principal pension plans is provided by contributions from
the Bank and members of the plans as applicable. In addition, the
Bank maintains other partially funded and non-funded pension plans
for eligible employees, for which pension benefits are paid by the Bank.
The Bank also provides certain post-retirement benefits and post-
employment benefits (non-pension employee benefits), which are
generally non-funded. Non-pension employee benefit plans, where
offered, generally include health care, life insurance and dental benefits.
Employees must meet certain age and service requirements to be
eligible for post-retirement benefits and are generally required to pay
a portion of the cost of the benefits. Employees eligible for post-
employment benefits are those on disability and maternity leave.
For the principal pension plans and the principal non-pension post-
retirement benefit plan, actuarial valuations are prepared at least every
three years to determine the present value of the accrued benefit
liability. Pension and non-pension post-retirement benefit expenses
are determined based upon separate actuarial valuations using the
projected benefit method pro-rated on service and management’s best
estimates of expected long-term return on plan assets, compensation
increases, health care cost trend rate and discount rate, which are
reviewed annually by the Bank’s actuaries. The discount rate used to
value liabilities is based on long-term corporate AA bond yields as
of the measurement date. The expense includes the cost of benefits
for the current year’s service, interest expense on liabilities, expected
income on plan assets based on fair values and the amortization
of plan amendments and actuarial gains or losses. Plan amendments
are amortized on a straight-line basis over the expected average
remaining service life of the active members for the principal pension
plans (10 years for the Society and 11 years for the Plan) and the
expected average remaining period to full eligibility for the principal
non-pension post-retirement benefit plan (8 years). The excess, if
any, of the net actuarial gain or loss over 10% of the greater of the
projected benefit obligation and the fair value of plan assets is also
amortized over the expected average remaining service life of the
active members (10 years for the Society, 11 years for the Plan, and
15 years for the principal non-pension post-retirement benefit plan).
The cumulative difference between expense and contributions is
reported in other assets or other liabilities.
For the defined contribution plans, annual pension expense is equal
to the Bank’s contributions to the plans.
PENSION PLANS
The Bank’s principal pension plans are mainly funded by contributions
from the Bank and from members. In accordance with legislation, the
Bank contributes amounts determined on an actuarial basis to the plan
and has the ultimate responsibility for ensuring that the liabilities of
the plan are adequately funded over time.
The Bank’s contributions to the principal pension plans during 2009
were $626 million. These contributions were made in accordance with
the actuarial valuation reports for funding purposes as at October 31,
2008 and March 1, 2009 for the Society and the Plan, respectively. The
next valuation dates for funding purposes are as at October 31, 2011
for both of the principal pension plans.
To develop the assumption for the expected long-term return on
plan assets for the Bank’s principal pension plans, the Bank considered
the historical returns and the future expectations for returns for each
asset class, as well as the investment policies of the principal pension
plans. This resulted in the selection of the assumption for the expected
long-term return on plan assets of 6.75% for the Society and 4.25%
for the Plan.
The primary objective of the Society and the Plan is to achieve an
annualized real rate of return of 3.00% and 2.50%, respectively,
over rolling 10-year periods. The investment policies for the principal
pension plans are detailed below and exclude Pension Enhancement
Account (PEA) assets which are invested at the member’s discretion in
certain mutual funds.
Investment Policy
Acceptable range
Security Society Plan
Debt 30%–48% 95%–100%
Equity 35%–65% 0%
Alternative investments 0%–15% 0%
Cash equivalents 0%–4% 0%–5%
The investment policy of the Society is a balanced portfolio. Debt
instruments of a non-government entity must not exceed 10% of the
total debt portfolio. Non-government debt instruments generally must
meet or exceed a credit rating of BBB at the time of purchase and during
the holding period except that up to 20% of the fair value of the bond
mandate managed to the Scotia Capital Universe Bond Index may be
invested in bonds with a credit rating below BBB. There are no limita-
tions on the maximum amount allocated to each credit rating within
the debt portfolio. The equity portfolio will generally be fully invested
and broadly diversified primarily across medium to large capitalization
quality companies and income trusts with no individual holding exceeding
10% of the equity portfolio at any time. Foreign equities and American
Depository Receipts of similar high quality may also be included
to further diversify the portfolio. Alternative investments include
hedge funds and private equities. Futures contracts and options can
be utilized provided they do not create additional financial leverage.
However, the Society invests in hedge funds, which normally will
employ leverage when executing their investment strategy. Substan-
tially all assets must have readily determinable fair values. The Society
was in compliance with its investment policy throughout the year.
The investment policy of the Plan, which commenced on March 1,
2009, is a high-quality, long-term fixed income portfolio. Debt instru-
ments of a non-government entity must not exceed 80% of the total
fund. Non-government debt instruments must meet or exceed a credit
rating of BBB- (or equivalent) at the time of purchase and during the
holding period. In addition, any debt instruments that are rated from
BBB+ to BBB- (or equivalent) must not exceed 35% of the total fund.
Asset backed securities must have a minimum credit rating of AAA
and must not exceed 25% of the total fund. Substantially all assets
must have readily determinable fair values.
The asset allocation as at July 31 by asset category for the Society
(excluding PEA) is as follows:
Asset Allocation
Society
Security 2009 2008 2007
Debt 33% 33% 35%
Equity 55 57 56
Alternative investments 887
Cash equivalents 422
Total 100% 100% 100%
The assets of the Plan were $1 million as at July 31, 2009.
For 2009, the Society’s net assets included funded investments in
the Bank and its affiliates which had a fair value of $4 million (2008 –
$9 million; 2007 – $8 million).
EMPLOYEE FUTURE BENEFITS
NOTE 25