Air Canada 2007 Annual Report Download - page 111

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Consolidated Financial Statements and Notes
111
Other Benefi ts — Sensitivity Analysis
Assumed health care cost trend rates have a signifi cant effect on the amounts reported for the health care plans. A 9.25%
annual rate of increase in the per capita cost of covered health care benefi ts was assumed for 2007 (2006 - 9.75%). The rate
is assumed to decrease gradually to 5% by 2013. A one percentage point increase in assumed health care trend rates would
have increased the service and interest costs by $1 and the obligation by $16. 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, 2007 and based on the January 1, 2007 solvency valuation, the table below provides projections for
the Corporation’s cash pension plan funding obligations for 2008. The fi nal funding obligation for 2008 will be determined
based on the January 1, 2008 valuation.
2008
Past service domestic registered plans $ 91
Current service domestic registered plans 166
Other pension arrangements 86
$ 343
The most recent actuarial valuation is as at January 1, 2007 and the effective date of the next required actuarial valuation
is January 1, 2008. For domestic registered pension plans, the funding requirements are based on the minimum past service
contributions disclosed in the January 1, 2007 actuarial valuations plus a projection of the current service contributions
based upon the January 1, 2007 actuarial valuation used for the purpose. Based on a funding outlook, employer contributions
determined in accordance with regulations are expected to increase by approximately $90 in 2008.
On August 9, 2004, the Government of Canada adopted the Air Canada Pension Plan Solvency Defi ciency Funding Regulations
(the “Pension Regulations”). The Pension Regulations allow Air Canada to fund the solvency defi ciencies in its Domestic
Registered Plans as of January 1, 2004 over ten years, rather than the fi ve years required under the ordinary rules, and to pay
down such defi ciencies 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 defi ciencies is paid down, and will only be called on the occurrence of certain specifi ed
events of default. The amount of secured promissory Notes outstanding as at December 31, 2007 is $89 (2006 - $219).
The effect of the issuance of the subordinated security promissory Notes is included within the value of the obligation for
pension benefi ts as refl ected in the Corporation’s balance sheet. The funding of the notes is included, on a discounted basis,
in all future expected cash fl ows required to fund the benefi t obligation.
The composition of the Domestic Registered Plan assets and the target allocation consist of the following:
2007 2006
Target
Allocation
Equity securities 58.9 % 59.1 % 59.0 %
Bonds and mortgages 36.1 % 34.7 % 41.0 %
Cash and temporary investments 5.0 % 6.2 % 0.0 %
100.0 % 100.0 % 100.0 %