Air Canada 2006 Annual Report Download - page 99

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Limitations are placed on the overall allocation to any individual security at both cost and market value.
Derivatives are permitted to the extent they are not used for speculative purposes or to create leverage.
- Fixed income investments are oriented toward risk averse, long term, investment grade securities rated "A"
or higher. With the exception of Government of Canada securities or a province thereof, in which the plan
may invest the entire fixed income allocation, fixed income investments are required to be diversified
among individual securities and sectors. The target return is comprised of 40% of the total return of the
Scotia Capital Universe Bond Index and 60% of the total return of the Scotia Capital Long Term Bond
Index.
Similar investment policies are established for the other pension plans sponsored by the Corporation.
The Corporation's expected long-term rate of return on assets assumption is selected based on the facts and
circumstances that exist as of the measurement date, and the specific portfolio mix of plan assets. Management
reviewed anticipated future long-term performance of individual asset categories and considered the asset
allocation strategy adopted by the Corporation, including the longer duration in its bond portfolio in comparison
to other pension plans. These factors are used to determine the average rate of expected return on the funds
invested to provide for the pension plan benefits. While the review considers recent fund performance and
historical returns, the assumption is primarily a long-term, prospective rate.
Defined Contribution Plans
The Corporation's management, administrative and certain unionized employees may participate in defined
contribution plans. The employees' contributions range from 3% to 6% of earnings with the Corporation
contributing an equal amount. The Corporation’s expense for defined contribution plans amounted to $7 for the
year ended December 31, 2006 (2005 – $6).
99
Combined Consolidated Financial Statements 2006