Air Canada 2008 Annual Report Download - page 118

2008 Air Canada Annual Report
118
payments of $605 include the estimated impact of funding changes to current service costs as well as other pension
arrangements which amount to a reduction of approximately $10. Management is monitoring the government’s actions
and dialoguing with government officials on this matter. Until the government finalizes this proposal and the funding
valuation is completed during the first half of 2009, uncertainty as to the amount and timing of additional pension funding
continue to exist. Any increase in funding obligations for 2009 would be paid in the second half of the year as the funding
in the first half of the year is based upon the January 1, 2008 actuarial valuation reports.
Air Canada Pension Plan Solvency Deficiency Funding Regulations
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 reduce
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, 2008 is $20 (2007 -
$89). The effect of the issuance of the subordinated secured promissory notes is included within the value of the obligation
for pension benefits as reflected in the Corporation’s Consolidated Statement of Financial Position. The funding of the notes
is included in all future expected cash flows required to fund the benefit obligation.
The composition of the Domestic Registered Plan assets and the target allocation consist of the following:
2008 2007
Target
Allocation
Equity securities 52.9 % 58.9 % 59.0 %
Bonds and mortgages 43.5 % 36.1 % 41.0 %
Cash and temporary investments 3.6 % 5.0 % 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 diversied among industries and
economic sectors. Foreign equities can comprise 37% to 43% of the total market value of the trust. 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.
• BondandMortgage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, these 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.