Air Canada 2012 Annual Report Download - page 45

2012 Management’s Discussion and Analysis
45
Pension funding obligations are generally dependent on a number of factors, including the assumptions used in the most
recently filed actuarial valuation reports for current service (including the applicable discount rate used or assumed in the
actuarial valuation), the plan demographics at the valuation date, the existing plan provisions, existing pension legislation and
changes in economic conditions (mainly the return on fund assets and changes in interest rates). Actual contributions that are
determined on the basis of future valuation reports filed annually may vary significantly from projections. In addition to
changes in plan demographics and experience, actuarial assumptions and methods may be changed from one valuation to the
next, including due to changes in plan experience, financial markets, future expectations, and changes in legislation and other
factors. Until the end of 2013, Air Canada’s past service pension funding obligations are limited by the Air Canada 2009
Pension Regulations.
As of 2014, the Air Canada 2009 Pension Regulations will cease to have effect. Air Canada has, with the support of its five
main Canadian labour groups, entered into discussions with the federal government with the purpose of requesting an
extension of pension funding relief which would cap annual pension funding contributions at acceptable levels. There can be
no assurances that extended or new pension funding relief will be available and any such relief would be subject to the passing
of regulations by the federal government.
Absent the adoption and implementation of new rules establishing funding requirements within defined parameters applicable
specifically to Air Canada, under generally applicable regulations, Air Canada's pension funding obligations may vary
significantly based on a wide variety of factors, including those described above as well as the application of normal past
service contribution rules which would generally require one fifth of any solvency deficit, determined on the basis of an
average over the previous three years, to be funded each year in addition to required current service contributions.
Air Canada's projected pension funding obligations, on a cash basis, for 2013, are provided in the table below.
(Canadian dollars in millions) 2013
Past service domestic registered plans $ 221
Current service domestic registered plans 170
Other pension arrangements(1) 80
Projected pension funding obligations $ 471
(1) Includes retirement compensation arrangements, supplemental plans and international plans.
Amendments to the Defined Benefit Pension Plans
In 2011, collective agreements were concluded and ratified and/or conclusively settled through arbitration with the CAW and
with CUPE. The agreements include amendments to the defined benefit pension plans for CAW and CUPE represented plan
members, which are subject to regulatory approval and will be accounted for at the time this approval is received. In addition,
a hybrid pension regime consisting of defined contribution and defined benefit components applies to new employees
represented by the CAW and CUPE, hired after the date of ratification, for CAW, and the coming into force, for CUPE, of the
new agreements.
As described below, collective agreements obtained through arbitration with the International Association of Machinists and
Aerospace Workers (“IAMAW”) and ACPA, and collective agreements concluded with the CAW in respect of crew schedulers
and with the Canadian Airline Dispatchers Association (“CALDA”) in 2012 also include amendments to the defined benefit
pension plans for represented plan members. Similar amendments will also be made to the defined benefit pension plans
applicable to management and other non-unionized employees, which are also subject to regulatory approval. Based on the
actuarial valuations of January 1, 2012, Air Canada has estimated that these changes in the aggregate would result in a decline
of approximately $1.1 billion to the solvency deficit in its domestic registered pension plans, had these amendments been
implemented on January 1, 2012. Such amendments, which remain subject to regulatory approval by OSFI, would take effect
on January 1, 2014. The reduction to the solvency deficit will reduce the pension benefit obligation recorded on Air Canada’s
consolidated statement of financial position and will be accounted for at the time these approvals are received. However, the
final accounting impact has not yet been determined. The accounting impact of such benefit reductions would be in addition
to the operating expense reduction of $124 million recorded in 2012 in Benefit plan amendments on Air Canada’s
consolidated statement of operations.