Air Canada 2009 Annual Report Download - page 116

2009 Air Canada Annual Report
116
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. An 8.25% annual
rate of increase in the per capita cost of covered health care benefi ts was assumed for 2009 (2008 - 8.25%). The rate is assumed
to decrease gradually to 5% by 2015. 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 $18. A one percentage point decrease in assumed health care trend rates
would have decreased the service and interest costs by $2 and the obligation by $23.
Composition of Pension Plan Assets
The composition of the Domestic Registered Plan assets and the target allocation are the following:
2009 2008
Target
Allocation (1)
Non-matched assets (mainly equities) 55.9 % 52.9 % 54.4 %
Matched assets (mainly Canadian bonds) 43.4 % 43.5 % 45.6 %
Cash and temporary investments 0.7 % 3.6 % 0.0 %
100.0 % 100.0 % 100.0 %
(1) Weighted average of the Master Trust Fund target allocation (99% of Domestic Registered Plan assets) and the Bond Fund target allocation. The Bond Fund serves the
purpose of altering the asset mix of some of the participating plans. These plans exhibit characteristics that differ from the majority of the participating plans, which are
solely invested in the Master Trust.
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, as amended during 2009. The investment return objective is to achieve a total
annualized rate of return that exceeds by a minimum of 1.0% before investment fees on average over the long term
(i.e., Mμ 10 years) the total annualized return that could have been earned by passively managing the Liability Benchmark.
The Liability Benchmark, which is referenced to widely used Canadian fi xed income performance benchmarks (DEX), is
composed of a mix of the DEX Universe Provincial Bond Index, DEX Long Term Provincial Bond Index and DEX Real Return
Bond Index that closely matches the characteristics of the pension liabilities.
In addition to the broad asset allocation, as summarized in the asset allocation section above, the following policies apply
to individual asset classes:
• Non-matched assets are mainly equities, and are required to be diversifi ed among industries and economic sectors.
Foreign equities can comprise 31% to 37% of the total market value of the Master Trust Fund. Limitations are placed
on the overall allocation to any individual security at both cost and market value. Investments in non-publicly
traded securities and in non-traditional asset classes are allowed up to 10% of the total market value of the Master
Trust Fund.
• Matched assets are mainly Canadian bonds, oriented toward long term investment grade securities rated “BBB”
or higher. With the exception of Government of Canada securities or a province thereof, in which the plan may
invest the entire fi xed income allocation, these investments are required to be diversifi ed among individual securities
and sectors.
Derivatives are permitted provided that they are used for hedging a particular risk (including interest rate risk related to
pension liabilities) or to create exposures to given markets and currencies and that counterparties have a minimum credit
rating of A. As of December 31, 2009, an additional 5% derivatives exposure to matched assets is in place to hedge interest
rate risk related to pension liabilities.