TD Bank 2011 Annual Report Download - page 133

TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS 131
The Bank also offers deferred share unit plans to eligible employees
and non-employee directors. Under these plans, a portion of the
participant’s annual incentive award and/or maturing share units may
be deferred as share units equivalent to the Bank’s common shares.
The deferred share units are not redeemable by the participant until
termination of employment or directorship. Once these conditions are
met, the deferred share unit must be redeemed for cash no later than
the end of the next calendar year. Dividend equivalents accrue to the
participants in the form of additional units. As at October 31, 2011,
3.0 million deferred share units were outstanding (2010 – 2.9 million;
2009 – 2.5 million).
Compensation expense for these plans is recorded in the year the
incentive award is earned by the plan participant. Changes in the value
of these plans are recorded, net of the effects of related hedges, in the
Consolidated Statement of Income. For the year ended October 31,
2011, the Bank recognized compensation expense, net of the effects
of hedges, for these plans of $279 million (2010 – $245 million;
2009 – $235 million). The compensation expense recognized before
the effects of hedges was $349 million (2010 – $418 million; 2009 –
$309 million).
EMPLOYEE OWNERSHIP PLAN
The Bank also operates a share purchase plan available to employees.
Employees can contribute any amount of their eligible earnings (net
of source deductions) to the Employee Ownership Plan. The Bank
matches 100% of the first $250 of employee contributions each year
and the remainder of employee contributions at 50% to an overall
maximum of 3.5% of the employee’s eligible earnings or $2,250,
whichever comes first. The Bank’s contributions vest once an employee
has completed two years of continuous service with the Bank. For
the year ended October 31, 2011, the Bank’s contributions totalled
$59 million (2010 – $55 million; 2009 – $52 million) and were expensed
as salaries and employee benefits. As at October 31, 2011, an aggre-
gate of 9.0 million common shares were held under the Employee
Ownership Plan (2010 – 8.8 million; 2009 – 8.7 million). The shares in
the Employee Ownership Plan are purchased in the open market and
are considered outstanding for computing the Bank’s basic and diluted
earnings per share. Dividends earned on Bank common shares held by
the Employee Ownership Plan are used to purchase additional common
shares for the Employee Ownership Plan in the open market.
EMPLOYEE FUTURE BENEFITS
NOTE 23
DEFINED BENEFIT PENSION AND OTHER POST EMPLOYMENT
BENEFIT (OPEB) PLANS
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 TDPP), are defined benefit plans. 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 Society was closed to new members on January 30,
2009 and the TDPP 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 consec-
utive five years in the last 10 years of combined plan membership.
Funding for the Bank’s principal pension plans is provided by contri-
butions from the Bank and members of the plans as applicable. In
accordance with legislation, the Bank contributes amounts determined
on an actuarial basis to the plans 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
2011 were $187 million (2010 – $168 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 TDPP, respectively. The next valuation date for funding purposes
is as at October 31, 2011 for both of the principal pension plans.
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 bene-
fits. 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 child-care 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
lia bility. 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
benefit plan amendments and actuarial gains or losses. Plan amend-
ments are amortized on a straight-line basis over the expected average
remaining service life of the active members for the principal pension
plans (9 years for the Society and 11 years for the TDPP) and the
expected average remaining period to full eligibility for the principal
non-pension post-retirement benefit plan (6 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 (9 years for the Society, 11 years for the TDPP, 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.
PLAN ASSUMPTIONS
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 rate of return on plan assets of 6.50% (2010 – 6.75%) for the
Society and 4.00% (2010 – 4.25%) for the TDPP.
The rate of increase for health care costs for the next year used to
measure the expected cost of benefits covered for the principal non-
pension post-retirement benefit plan is 6.30%. The rate is assumed
to decrease gradually to 3.70% by the year 2028 and remain at that
level thereafter. For 2011, the effect of a one percentage point
increase or decrease in the health care cost trend rate on the benefit
expense is an $8 million increase and a $6 million decrease, respec-
tively, and on the benefit obligation, a $73 million increase and a
$58 million decrease, respectively.