v3.22.2.2
Employee benefits - Pension and other post-employment benefits
 12 Months Ended
Oct. 31, 2022
Text Block [Abstract]  
Employee benefits - Pension and other post-employment benefits
Note 17    Employee benefits – Pension and other post-employment benefits
Plan characteristics
We sponsor a number of programs that provide pension and post-employment benefits to eligible employees. The majority of beneficiaries of the pension plans are located in Canada and other beneficiaries of the pension plans are primarily located in the U.S., the U.K. and the Caribbean. The pension arrangements including investment, plan benefits and funding decisions are governed by local pension committees or trustees, who are legally segregated from the Bank, or management. Significant plan changes require the approval of the Board of Directors.
Our defined benefit pension plans provide pension benefits based on years of service, contributions and average earnings at retirement. Our primary defined benefit pension plans are closed to new members. New employees are generally eligible to join defined contribution pension plans. The specific features of these plans vary by location. We also provide supplemental
non-registered
(non-qualified)
pension plans for certain executives and senior management that are typically unfunded or partially funded.
Our defined contribution pension plans provide pension benefits based on accumulated employee and Bank contributions. The Bank contributions are based on a percentage of an employee’s annual earnings and a portion of the Bank contribution may be dependent on the amount being contributed by the employee and their years of service.
Our primary other post-employment benefit plans provide health, dental, disability and life insurance coverage and cover a number of current and retired employees who are mainly located in Canada. These plans are unfunded unless required by legislation.
We measure our benefit obligations and pension assets as at October 31 each year. All plans are valued using the projected unit-credit method. We fund our registered defined benefit pension plans in accordance with actuarially determined amounts required to satisfy employee benefit obligations under current pension regulations. For our principal pension plan, the most recent funding actuarial valuation was completed on January 1, 2022, and the next valuation will be completed on January 1, 2023.
For the year ended October 31, 2022, total contributions to our pension plans (defined benefit and defined contribution plans) and other post-employment benefit plans were $427 million and $79 million (October 31, 2021 – $456 million and $75 million), respectively. For 2023, total contributions to our pension plans and other post-employment benefit plans are expected to be $341 million and $84 million, respectively.
Risks
By their design, the defined benefit pension and other post-employment benefit plans expose the Bank to various risks such as investment performance, reductions in discount rates used to value the obligations, increased longevity of plan members, future inflation levels impacting future salary increases as well as future increases in healthcare costs. These risks will reduce over time due to the membership closure of our primary defined benefit pension plans and migration to defined contribution pension plans.
The following table presents the financial position related to all of our material pension and other post-employment benefit plans worldwide, including executive retirement arrangements.
 
   
    As at    
       
   
October 31, 2022
         October 31, 2021  
           
(Millions of Canadian dollars)
  
Defined benefit
pension plans
    
Other post-
employment
benefit plans
          Defined benefit
pension plans		     Other post-
employment
benefit plans		  
Canada
                                    
Fair value of plan assets
  
$
14,310
 
  
$
–
 
  
 
   $ 16,698     $ –  
Present value of defined benefit obligation
  
 
11,271
 
  
 
1,387
 
  
 
     14,403       1,703  
Net surplus (deficit)
  
$
3,039
 
  
$
(1,387
) 
  
 
   $ 2,295     $ (1,703 ) 
International
                  
 
                
Fair value of plan assets
  
$
716
 
  
$
–
 
  
 
   $ 1,005     $ –  
Present value of defined benefit obligation
  
 
622
 
  
 
75
 
  
 
     912       77  
Net surplus (deficit)
  
$
94
 
  
$
(75
) 
  
 
   $ 93     $ (77 ) 
Total
                  
 
                
Fair value of plan assets
  
$
15,026
 
  
$
–
 
  
  $ 17,703     $ –  
Present value of defined benefit obligation
  
 
11,893
 
  
 
1,462
 
  
 
     15,315       1,780  
Total net surplus (deficit)
  
$
3,133
 
  
$
(1,462
) 
  
 
   $ 2,388     $ (1,780 ) 
Effect of asset ceiling
  
 
(8
) 
  
 
–
 
  
 
     (6 )      –  
Total net surplus (deficit), net of effect of asset ceiling
  
$
3,125
 
  
$
(1,462
) 
  
 
   $ 2,382     $ (1,780 ) 
Amounts recognized in our Consolidated Balance Sheets
                  
 
                
Employee benefit assets
  
$
3,331
 
  
$
–
 
  
 
   $ 2,640     $ –  
Employee benefit liabilities
  
 
(206
) 
  
 
(1,462
) 
  
 
     (258 )      (1,780 ) 
Total net surplus (deficit), net of effect of asset ceiling
  
$
3,125
 
  
$
(1,462
) 
  
 
   $ 2,382     $ (1,780 ) 
The following table presents an analysis of the movement in the financial position related to all of our material pension and other post-employment benefit plans worldwide, including executive retirement arrangements.
 
   
    As at or for the year ended  
       
   
October 31, 2022
         October 31, 2021  
           
(Millions of Canadian dollars)
  
Defined benefit
pension plans 
(1)
    
Other post-
employment
benefit plans
          Defined benefit
pension plans 
(1)
     Other post-
employment
benefit plans		  
Fair value of plan assets at beginning of period
  
$
17,703
 
  
$
–
 
       $ 16,024     $ –  
Interest income
  
 
580
 
  
 
–
 
         432       –  
Remeasurements
                                    
Return on plan assets (excluding interest income)
  
 
(2,931
) 
  
 
–
 
         1,614       –  
Change in foreign currency exchange rate
  
 
(62
) 
  
 
–
 
         (21 )      –  
Contributions – Employer
  
 
177
 
  
 
79
 
         221       75  
Contributions – Plan participant
  
 
45
 
  
 
20
 
         46       19  
Payments
  
 
(610
) 
  
 
(99
) 
         (594 )      (94 ) 
Payments – amount paid in respect of settlements
  
 
3
 
  
 
–
 
         (2 )      –  
Business combinations/Disposals
  
 
135
      
–
  
      (4 )     
–
Other
  
 
(14
) 
  
 
–
 
  
 
     (13 )      –  
Fair value of plan assets at end of period
  
$
15,026
 
  
$
–
 
  
 
   $ 17,703     $ –  
Benefit obligation at beginning of period
  
$
15,315
 
  
$
1,780
 
       $ 16,351     $ 1,953  
Current service costs
  
 
308
 
  
 
42
 
         359       46  
Past service costs
  
 
(1
) 
  
 
2
 
         –       (1 ) 
Gains and losses on settlements
  
 
(3
) 
  
 
–
 
         2       –  
Interest expense
  
 
496
 
  
 
63
 
         439       57  
Remeasurements
                                    
Actuarial losses (gains) from demographic assumptions
  
 
(2
) 
  
 
(1
) 
         –       (6 ) 
Actuarial losses (gains) from financial assumptions
  
 
(3,797
) 
  
 
(341
) 
         (1,253 )      (184 ) 
Actuarial losses (gains) from experience adjustments
  
 
83
 
  
 
(9
) 
         (5 )      (2 ) 
Change in foreign currency exchange rate
  
 
(47
) 
  
 
6
 
         (24 )      (7 ) 
Contributions – Plan participant
  
 
45
 
  
 
20
 
         46       19  
Payments
  
 
(610
) 
  
 
(99
) 
         (594 )      (94 ) 
Payments – amount paid in respect of settlements
  
 
3
 
  
 
–
 
         (2 )      –  
Business combinations/Disposals
  
 
103
 
  
 
(1
) 
  
 
     (4 )      (1 ) 
Benefit obligation at end of period
  
$
11,893
 
  
$
1,462
 
  
 
   $ 15,315     $ 1,780  
Unfunded obligation
  
$
23
 
  
$
1,462
 
  
  $ 26     $ 1,633  
Wholly or partly funded obligation
  
 
11,870
 
  
 
–
 
  
 
     15,289       147  
Total benefit obligation
  
$
11,893
 
  
$
1,462
 
  
 
   $ 15,315     $ 1,780  
 
(1)   For pension plans with funding deficits, the benefit obligations and fair value of plan assets as at October 31, 2022 were $323 million and $117 million, respectively (October 31, 2021 – $413 million and $155 million, respectively).
Pension and other post-employment benefit expense
The following table presents the composition of our pension and other post-employment benefit expense related to our material pension and other post-employment benefit plans worldwide.
 
      For the year ended  
     Pension plans          Other post-employment
benefit plans		  
           
(Millions of Canadian dollars)
   
October 31
2022
     
October 31
2021
          
October 31
2022
     
October 31
2021
  
Current service costs
   
$
308
 
    $ 359         
$
42
 
    $ 46  
Past service costs
   
 
(1
) 
      –         
 
2
 
      (1 ) 
Gains and losses on settlements
   
 
(3
) 
      2         
 
–
 
      –  
Net interest expense (income)
   
 
(84
) 
      7         
 
63
 
      57  
Remeasurements of other long term benefits
   
 
–
 
      –         
 
(26
) 
      (12 ) 
Administrative expense
   
 
14
 
      13    
 
   
 
–
 
      –  
Defined benefit pension expense
   
$
234
 
    $ 381         
$
81
 
    $ 90  
Defined contribution pension expense
   
 
250
 
      235    
 
   
 
–
 
      –  
 
   
$
484
 
    $ 616    
 
   
$
81
 
    $ 90  
Service costs for the year ended October 31, 2022 totalled $305 million (October 31, 2021 – $356 million) for pension plans in Canada and $2 million (October 31, 2021 – $3 million) for International plans. Net interest expense (income) for the year ended October 31, 2022 totalled $(83
)
 million (October 31, 2021 – $7 million) for pension plans in Canada and $
(
1
)
million (October 31, 2021 – $nil) for International plans.
Pension and other post-employment benefit remeasurements
The following table presents the composition of our remeasurements recorded in OCI related to our material pension and other post-employment benefit plans worldwide.
 
      For the year ended  
     Defined benefit pension
plans		           
Other post-employment

benefit plans		  
           
(Millions of Canadian dollars)
   
October 31
2022
     
October 31
2021
            
October 31
2022
     
October 31
2021
  
Actuarial (gains) losses:
                                            
Changes in demographic assumptions
   
$
(2
) 
    $ –             
$
(1
) 
    $ (6 ) 
Changes in financial assumptions
   
 
(3,797
) 
      (1,253 )            
 
(319
) 
      (177 ) 
Experience adjustments
   
 
83
 
      (5 )            
 
(5
) 
      3  
Return on plan assets (excluding interest based on discount rate)
   
 
2,931
 
      (1,614 )            
 
–
 
      –  
Change in asset ceiling (excluding interest income)
   
 
2
 
      5    
 
 
 
   
 
–
 
      –  
 
   
$
(783
) 
    $ (2,867 )   
 
 
 
   
$
(325
) 
    $ (180 ) 
Remeasurements recorded in OCI for the year ended October 31, 2022 were gains of $798 million (October 31, 2021 – gains of $2,819 million) for pension plans in Canada and losses of $15 million (October 31, 2021 – gains of $48 million) for International plans.
Investment policy and strategies
Defined benefit pension plan assets are invested prudently in order to meet our longer-term pension obligations. The pension plans’ investment strategy is to hold a diversified mix of investments by asset class and geographic location in order to reduce investment-specific risk to the funded status while maximizing the expected returns to meet pension obligations. Investment of the plan’s assets follows an asset/liability framework as investment is conducted with careful consideration of the pension obligation’s sensitivity to interest rates and credit spreads which are key risk factors impacting the obligation’s value. Factors taken into consideration in developing our asset mix include but are not limited to the following:
  •  
the nature of the underlying benefit obligations, including the duration and term profile of the liabilities;
  •  
the member demographics, including expectations for normal retirements, terminations, and deaths;
  •  
the financial position of the pension plans;
  •  
the diversification benefits obtained by the inclusion of multiple asset classes; and
  •  
expected asset returns, including asset and liability correlations, along with liquidity requirements of the plan.
To implement our asset mix policy, we may invest in debt securities, equity securities, and alternative investments. Our holdings in certain investments, including common shares, debt securities rated lower than BBB and residential and commercial mortgages, cannot exceed a defined percentage of the market value of our defined benefit pension plan assets. We may use derivative instruments as either a synthetic investment to more efficiently replicate the performance of an underlying security, or as a hedge against financial risks within the plan. To manage our credit risk exposure, where derivative instruments are not centrally cleared, counterparties are required to meet minimum credit ratings and enter into collateral agreements.
Our defined benefit pension plan assets are primarily comprised of debt and equity securities and alternative investments. Our equity securities generally have unadjusted quoted market prices in an active market (Level 1) and our debt securities generally have quoted market prices for similar assets in an active market (Level 2). Alternative investments and other includes cash, hedge funds, and private fund investments including infrastructure equity, real estate leases and private debt and equity. In
the case of private fund investments, no quoted market prices are usually available (Level 2 or Level 3). These fund assets are either valued by an independent valuator or priced using observable market inputs.
During the year ended October 31, 2022, the management of defined benefit pension investments focused on increased allocation to risk reducing investments and strategies, improving diversification, while striving to maintain expected investment return. Over time, an increasing allocation to debt securities is being used to reduce asset/liability duration mismatch and hence variability of the plan’s funded status due to interest rate movement. Longer maturity debt securities, given their price sensitivity to movements in interest rates, are considered to be a good economic hedge to risk associated with the plan’s liabilities, which are discounted using predominantly long maturity bond interest rates as inputs.
Asset allocation of defined benefit pension plans
(1)
,
(2)
 
    
As at  
  
   
October 31, 2022
           
October 31, 2021
  
               
(Millions of Canadian dollars, except percentages)
  
Fair value
     
Percentage
of total
plan assets
    
Quoted
in active
market 
(3)
             Fair value      Percentage
of total
plan assets		     Quoted
in active
market 
(3)
  
Equity securities
                                                           
Domestic
  
$
1,469
 
   
 
10
% 
  
 
100
% 
            $ 1,879        11 %      100 % 
Foreign
  
 
2,799
 
   
 
19
 
  
 
100
 
              4,202        24       100  
Debt securities
                                                           
Domestic government bonds
(4)
  
 
3,489
 
   
 
23
 
  
 
–
 
              3,766        21       –  
Foreign government bonds
  
 
114
 
   
 
1
 
  
 
–
 
              71        –       –  
Corporate and other bonds
  
 
3,171
 
   
 
21
 
  
 
–
 
              3,844        22       –  
Alternative investments and other
  
 
3,984
 
   
 
26
 
  
 
8
 
  
 
 
 
      3,941        22       12  
               
 
  
$
15,026
 
   
 
100
% 
  
 
30
% 
  
 
 
 
    $ 17,703        100 %      37 % 
 
(1)   The asset allocation is based on the underlying investments held directly and indirectly through the funds as this is how we manage our investment policy and strategies.
(2)   Represents the total plan assets held in our Canadian and International pension plans.
(3)   If our assessment of whether or not an asset was quoted in an active market was based on direct investments, 34% of our total plan assets would be classified as quoted in an active market (October 31, 2021 – 41%).
(4)   Amounts are net of securities sold under repurchase agreements.
As at October 31, 2022, the plan assets include 0.7 million (October 31, 2021 – 1.0 million) of our common shares with a fair value of $
89
 million (October 31, 2021 – $
128
million) and $48 million (October 31, 2021 – $29 million) of our debt securities. For the year ended October 31, 2022, dividends received on our common shares held in the plan assets were $4 million (October 31, 2021 – $4 million).
Maturity profile
The following table presents the maturity profile of our defined benefit pension plan obligation.
 
(Millions of Canadian dollars, except participants and years)  
As at October 31, 2022
  
 
Canada
    
International
    
Total
  
Number of plan participants
  
 
66,616
 
  
 
6,043
 
  
 
72,659
 
Actual benefit payments 2022
  
$
585
 
  
$
22
 
  
$
607
 
Benefits expected to be paid 2023
  
 
643
 
  
 
35
 
  
 
678
 
Benefits expected to be paid 2024
  
 
668
 
  
 
34
 
  
 
702
 
Benefits expected to be paid 2025
  
 
691
 
  
 
33
 
  
 
724
 
Benefits expected to be paid 2026
  
 
713
 
  
 
35
 
  
 
748
 
Benefits expected to be paid 2027
  
 
733
 
  
 
34
 
  
 
767
 
Benefits expected to be paid 2028-2032
  
 
3,907
 
  
 
189
 
  
 
4,096
 
Weighted average duration of defined benefit payments
  
 
12.4 years
    
 
15.1 years
    
 
12.5 years
  
Significant assumptions
Our methodologies to determine significant assumptions used in calculating the defined benefit pension and other post-employment benefit expense are as follows:
Discount rate
For the Canadian pension and other post-employment benefit plans, all future expected benefit payments at each measurement date are discounted at spot rates from a derived Canadian AA corporate bond yield curve. The derived curve is based on actual short and
mid-maturity
corporate AA rates and extrapolated longer term rates. The extrapolated corporate AA rates are derived from observed corporate A, corporate AA and provincial AA yields. For the International pension and other post-employment benefit plans, all future expected benefit payments at each measurement date are discounted at spot rates from a local AA corporate bond yield curve. Spot rates beyond 30 years are set to equal the
30-year
spot rate. The discount rate is the equivalent single rate that produces the same discounted value as that determined using the entire discount curve. This valuation methodology does not rely on assumptions regarding reinvestment returns.
Rate of increase in future compensation
The assumptions for increases in future compensation are developed separately for each plan, where relevant. Each assumption is set based on the price inflation assumption and compensation policies in each market, as well as relevant local statutory and plan-specific requirements.
Healthcare cost trend rates
Healthcare cost calculations are based on both short and long term trend assumptions established using the plan’s recent experience as well as market expectations.
Weighted average assumptions to determine benefit obligation
 
      As at      
     Defined benefit pension
plans		            Other post-employment
benefit plans		  
           
     
October 31
2022
     
October 31
2021
            
October 31
2022
     
October 31
2021
  
Discount rate
   
 
5.4%
 
      3.3%             
 
5.5%
 
      3.6%  
Rate of increase in future compensation
   
 
3.0%
 
      3.0%             
 
n.a.
 
      n.a.  
Healthcare cost trend rates
(1)
                                            
– Medical
   
 
n.a.
 
      n.a.             
 
3.5%
 
      3.4%  
– Dental
   
 
n.a.
 
      n.a.    
 
 
 
   
 
3.1%
 
      3.1%  
 
(1)   For our other post-employment benefit plans, the assumed trend rates used to measure the expected benefit costs of the defined benefit obligations are also the ultimate trend rates.
n.a.   not applicable
Mortality assumptions
Mortality assumptions are significant in measuring our obligations under the defined benefit pension plans. These assumptions have been set based on country specific statistics. Future longevity improvements have been considered and included where appropriate. The following table summarizes the mortality assumptions used for material plans.
 
     As at    
   
October 31, 2022
           October 31, 2021  
   
Life expectancy at 65 for a member currently at
           Life expectancy at 65 for a member currently at  
   
Age 65
          
Age 45
           Age 65           Age 45  
                       
(In years)
  
Male
    
Female
           
Male
    
Female
            Male     Female            Male     Female  
Country
                                                                                        
Canada
  
 
23.9
 
  
 
24.2
 
          
 
24.8
 
  
 
25.1
 
             23.8       24.2               24.8       25.1  
United Kingdom
  
 
23.4
 
  
 
25.4
 
  
 
 
 
  
 
24.7
 
  
 
26.8
 
  
 
 
 
     23.6       25.4    
 
 
 
     25.3       27.2  
Sensitivity analysis
Assumptions adopted can have a significant effect on the value of the obligations for defined benefit pension and other post-employment benefit plans and are based on historical experience and market inputs. The increase (decrease) in obligation in the following table has been determined for key assumptions assuming all other assumptions are held constant. In practice, this is unlikely to occur, as changes in some of the assumptions may be correlated. The following table presents the sensitivity analysis of key assumptions for 2022.
 
    
Increase (decrease)
in obligation
  
     
(Millions of Canadian dollars)
  
Defined benefit
pension plans
    
Other post-
employment
benefit plans
  
Discount rate
                
Impact of 100 bps increase in discount rate
  
$
(1,348
) 
  
$
(160
) 
Impact of 100 bps decrease in discount rate
  
 
1,649
 
  
 
198
 
Rate of increase in future compensation
                
Impact of 50 bps increase in rate of increase in future compensation
  
 
29
 
  
 
–
 
Impact of 50 bps decrease in rate of increase in future compensation
  
 
(31
) 
  
 
–
 
Mortality rate
                
Impact of an increase in longevity by one additional year
  
 
287
 
  
 
20
 
Healthcare cost trend rate
                
Impact of 100 bps increase in healthcare cost trend rate
  
 
n.a.
 
  
 
57
 
Impact of 100 bps decrease in healthcare cost trend rate
  
 
n.a.
 
  
 
(48
) 
 
n.a.    not   applicable