Air Canada 2006 Annual Report Download - page 98

increase in assumed health care trend rates would have increased the service and interest costs by $1 and the
obligation by $17. A one percentage point decrease in assumed health care trend rates would have decreased
the service and interest costs by $1 and the obligation by $16.
Pension Plan Cash Funding Obligations
As at December 31, 2006 and based on the January 1, 2006 solvency valuation, the table below provides
projections for the Corporation's cash pension plan funding obligations for 2007. The final funding obligation for
2007 will be determined based on the January 1, 2007 valuation.
2007
Past service domestic registered plans (a) $ 250
Current service domestic registered plans 162
Other pension arrangements 86
$ 498
(a) Includes $2 for past service and $7 for current service, related to Jazz, which is consolidated under AcG-15.
The most recent actuarial valuation is as at January 1, 2006 and the effective date of the next required actuarial
valuation is January 1, 2007. For domestic registered pension plans, the funding requirements are based on the
minimum past service contributions disclosed in the January 1, 2006 actuarial valuations plus a projection of the
current service contributions based upon the January 1, 2006 actuarial valuation used for the purpose. Based
on a funding outlook, the solvency deficit on the registered pension plans at January 1, 2007 is expected to
decrease significantly compared January 1, 2006 and, as a result, employer contributions determined in
accordance with regulations, are expected to decline by approximately $90 in 2007.
On August 9, 2004, the Government of Canada adopted the Air Canada Pension Plan Solvency Deficiency
Funding Regulations (the "Pension Regulations"). The Pension Regulations allow Air Canada to fund the
solvency deficiencies in its Domestic Registered Plans as of January 1, 2004 over ten years, rather than the five
years required under the ordinary rules, and to pay down such deficiencies by way of an agreed schedule of
variable annual contributions rather than by way of equal annual contributions as required under the ordinary
rules. The Pension Regulations came into force upon Air Canada's emergence from CCAA protection on
September 30, 2004, on which date Air Canada issued subordinated secured promissory Notes in an aggregate
amount of approximately $347 in favour of the pension plan trustee. Such Notes will be reduced as the principal
amount of the solvency deficiencies is paid down, and will only be called on the occurrence of certain specified
events of default. The amount of secured promissory Notes outstanding as at December 31, 2006 is $219 (2005
– $329. The effect of the issuance of the subordinated security promissory Notes is included within the fair value
of the obligation for pension benefits as reflected in the Corporation's balance sheet.
The composition of the Domestic Registered Plan assets and the target allocation consist of the following:
November 30
2006
November 30
2005
Target
Allocation
Equity securities 59.1% 62.3% 59.0%
Bonds and mortgages 34.7% 32.1% 41.0%
Real estate 0.0% 0.1% 0.0%
Short-term and other 6.2% 5.5% 0.0%
100.0% 100.0% 100.0%
Domestic Registered Plans
For the Domestic Registered Plans, the investments conform to the Statement of Investment Policy and
Objectives of the Air Canada Pension Master Trust Fund. The investment return objective of the fund is to
achieve a total annualized rate of return that exceeds inflation by at least 3.75% over the long term.
In addition to the broad asset allocation, as summarized in the asset allocation section above, the following
policies apply to individual asset classes:
- Equity investments can include convertible securities, and are required to be diversified among industries
and economic sectors. Foreign equities can comprise 37% to 43% of the total market value of the trust.
98