Air Canada 2009 Annual Report Download - page 113

Consolidated Financial Statements and Notes
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In July 2009, the Government of Canada adopted the Air Canada 2009 Pension Regulations. The Air Canada 2009 Pension
Regulations relieve Air Canada from making any past service contributions (i.e. special payments to amortize the plan
defi cits) to its ten domestic defi ned benefi t registered pension plans in respect of the period beginning April 1, 2009 and
ending December 31, 2010. Thereafter, in respect of the period from January 1, 2011 to December 31, 2013, the aggregate
annual past service contribution shall equal the lesser of (i) $150, $175, and $225 in respect of 2011, 2012, and 2013,
respectively, on an accrued basis, and (ii) the maximum past service contribution permitted under the Tax Act.
The Air Canada 2009 Pension Regulations were adopted in coordination with the Pension MOUs identifi ed in Note 1C.
Pursuant to the Pension MOUs, on October 26, 2009, Air Canada issued to a trust, 17,647,059 Class B Voting Shares. This
number of shares represented 15% of the shares of Air Canada issued and outstanding as at the date of the Pension MOUs
and the date of issuance (in both cases after taking into account such issuance). All net proceeds of sale of such shares by
the trust are to be contributed to the pension plans. On October 26, 2009, upon the issuance of the shares to the trust,
the Corporation recorded a decrease to its Pension and other benefi t liabilities in the amount of $28 and an increase to
Share capital in the amount of $28. For so long as the trust continues to hold at least 2% of the issued and outstanding
shares of Air Canada, the trustee will have the right to designate one nominee (who shall not be a member or offi cer of
any of Air Canada’s Canadian-based unions) to Air Canada’s board of directors, subject to completion of Air Canada’s usual
governance process for selection and confi rmation of director nominees. Current service contributions will continue to be
made in the normal course while the Air Canada 2009 Pension Regulations are in effect.
After consideration of the effect of the Air Canada 2009 Pension Regulations as outlined above, employer pension funding
contributions during 2009 amounted to $389.
Discount Rate
The discount rate used to determine the pension obligation was determined by reference to market interest rates on
corporate bonds rated “AA” or better with cash fl ows that approximately match the timing and amount of expected benefi t
payments. An increase in the discount rate of 0.25% results in a decrease of $346 to the pension obligation and $28 to the
pension expense. A decrease in the discount rate of 0.25% results in an increase of $346 to the pension obligation and $25
to the pension expense.
Expected Return on Assets Assumption
The 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 specifi c portfolio mix of plan assets. Air Canada’s management, in conjunction with
its actuaries, reviews anticipated future long-term performance of individual asset categories and considers the asset
allocation strategy adopted by Air Canada, 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 benefi ts. The determination of the long term rate considers recent fund performance, including the
signifi cant drop in the value of plan assets during 2008 and the partial recovery in 2009, and historical returns, to the extent
that the past is indicative of the expected long-term, prospective rate. There can be no assurance that any of the plans will
earn the expected rate of return.