TD Bank 2014 Annual Report Download - page 138

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS136
EMPLOYEE BENEFITS
Defined Benefit Plans
Actuarial valuations are prepared at least every three years to deter-
mine the present value of the projected benefit obligation related to
the Bank’s principal pension and non-pension post-retirement benefit
plans. In periods between actuarial valuations, an extrapolation is
performed based on the most recent valuation completed. All actuarial
gains and losses are recognized immediately in other comprehensive
income, with cumulative gains and losses reclassified to retained
earnings. 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 discount rate, compensation increases, health care cost
trend rate, and mortality rates, which are reviewed annually with 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 recognized includes the cost of benefits for employee service
provided in the current year, net interest expense or income on the net
defined benefit liability or asset, past service costs related to plan
amendments, curtailments or settlements, and administrative costs.
Plan amendment costs are recognized in the period of a plan amend-
ment, irrespective of its vested status. Curtailments and settlements
are recognized by the Bank when the curtailment or settlement occurs.
A curtailment occurs when there is a significant reduction in the
number of employees covered by the plan. A settlement occurs when
the Bank enters into a transaction that eliminates all further legal or
constructive obligation for part or all of the benefits provided under a
defined benefit plan.
The fair value of plan assets and the present value of the projected
benefit obligation are measured as at October 31. The net defined
benefit asset or liability represents the difference between the cumula-
tive actuarial gains and losses, expenses, and recognized contributions
and is reported in other assets or other liabilities.
Net defined benefit assets recognized by the Bank are subject to a
ceiling which limits the asset recognized on the Consolidated Balance
Sheet to the amount that is recoverable through refunds of contribu-
tions or future contribution holidays. In addition, where a regulatory
funding deficit exists related to a defined benefit plan, the Bank is
required to record a liability equal to the present value of all future
cash payments required to eliminate that deficit.
Defined Contribution Plans
For defined contribution plans, annual pension expense is equal to the
Bank’s contributions to those plans.
INSURANCE
Premiums for short-duration insurance contracts, net of reinsurance,
primarily property and casualty, are deferred as unearned premiums
and reported in non-interest income on a pro rata basis over the
terms of the policies, except for contracts where the period of risk
differs significantly from the contract period. Unearned premiums
are reported in other liabilities, gross of premiums attributable to
reinsurers. The reinsurers’ share is recognized as an asset in other
assets. Premiums from life and health insurance policies are
recognized as income when earned.
For property and casualty insurance, insurance claims and policy
benefit liabilities represent current claims and estimates for future
insurance policy claims related to insurable events occurring at or
before the balance sheet date. These are determined by the appointed
actuary in accordance with accepted actuarial practices and are
reported as other liabilities. Expected claims and policy benefit liabili-
ties are determined on a case-by-case basis and consider such variables
as past loss experience, current claims trends and changes in the
prevailing social, economic and legal environment. These liabilities are
continually reviewed and, as experience develops and new information
Depreciation is recognized on a straight-line basis over the useful
lives of the assets estimated by asset category, as follows:
Asset Useful Life
Buildings 15 to 40 years
Computer equipment 3 to 8 years
Furniture and fixtures 3 to 15 years
Other equipment 5 to 15 years
Leasehold improvements Lesser of the remaining lease term and
the remaining useful life of the asset
The Bank assesses its depreciable assets for impairment on a quarterly
basis. When impairment indicators are present, the recoverable
amount of the asset, which is the higher of its estimated fair value less
costs to sell and its value-in-use, is determined. If the carrying value of
the asset is higher than its recoverable amount, the asset is written
down to its recoverable amount. An impairment loss is recognized on
the Consolidated Statement of Income in the period in which the
impairment is identified. Impairment losses recognized previously are
assessed and reversed if the circumstances leading to their impairment
are no longer present. Reversal of any impairment loss will not exceed
the carrying amount of the depreciable asset that would have been
determined had no impairment loss been recognized for the asset in
prior periods.
NON-CURRENT ASSETS HELD FOR SALE
Individual non-current assets (and disposal groups) are classified as
held for sale if they are available for immediate sale in their present
condition subject only to terms that are usual and customary for
sales of such assets (or disposal groups), and their sale must be highly
probable to occur within one year. For a sale to be highly probable,
management must be committed to a sales plan and initiate an active
program to market for the sale of the non-current assets (and disposal
groups). Non-current assets (and disposal groups) classified as held for
sale are measured at the lower of their carrying amount and fair value
less costs to sell on the Consolidated Balance Sheet. Subsequent to its
initial classification as held for sale, a non-current asset (and disposal
group) is no longer depreciated or amortized, and any subsequent
write-downs in fair value less costs to sell or such increases not in
excess of cumulative write-downs, are recognized on the Consolidated
Statement of Income.
SHARE-BASED COMPENSATION
The Bank grants share options to certain employees as compensation
for services provided to the Bank. The Bank uses a binomial tree-based
valuation option pricing model to estimate fair value for all share
option compensation awards. The cost of the share options is based
on the fair value estimated at the grant date and is recognized as
compensation expense and contributed surplus over the service period
required for employees to become fully entitled to the awards. This
period is generally equal to the vesting period in addition to a period
prior to the grant date. For the Bank’s share options, this period is
generally equal to five years. When options are exercised, the amount
initially recognized in the contributed surplus balance is reduced, with
a corresponding increase in common shares.
The Bank has various other share-based compensation plans where
certain employees are awarded share units equivalent to the Bank’s
common shares as compensation for services provided to the Bank.
The obligation related to share units is included in other liabilities.
Compensation expense is recognized based on the fair value of the
share units at the grant date adjusted for changes in fair value
between the grant date and the vesting date, net of the effects of
hedges, over the service period required for employees to become fully
entitled to the awards. This period is generally equal to the vesting
period, in addition to a period prior to the grant date. For the Bank’s
share units, this period is generally equal to four years.