Air Canada 2008 Annual Report Download - page 114

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2008 Air Canada Annual Report
114
8. PENSION AND OTHER BENEFIT LIABILITIES
The Corporation maintains several defined benefit and defined contribution plans providing pension, other post-retirement
and post-employment benefits to its employees, including those employees of the Corporation who are contractually
assigned to Aveos and Aeroplan.
The Corporation is the administrator and sponsoring employer of ten Domestic Registered Plans (“Domestic Registered
Plans”) under the Pension Benefits Standard Act, 1985 (Canada). The US plan, UK plan and Japan plan are international plans
covering employees in those countries. In addition, the Corporation maintains a number of supplementary pension plans,
which are not registered. The defined benefit pension plans provide benefits upon retirement, termination or death based
on the member’s years of service and final average earnings for a specified period.
The other employee benefits consist of health, life and disability. These benefits consist of both post-employment and post-
retirement benefits. The post-employment benefits relate to disability benefits available to eligible active employees, while
the post-retirement benefits are comprised of health care and life insurance benefits available to eligible retired employees.
Certain Corporation employees perform work for ACE and others are contractually assigned to Aveos or Aeroplan. These
employees are members of Corporation-sponsored defined benefit pension plans and also participate in Corporation-
sponsored health, life and disability future benefit plans. These consolidated financial statements include all of the assets
and liabilities of all Corporation-sponsored plans. The employee benefit expense in these consolidated financial statements
includes the expenses for all employees participating in the plans less a cost recovery which is charged to ACE, Aveos, and
Aeroplan for those employees assigned. The cost recovery includes current service costs for pensions along with their
portion of post-employment and post-retirement benefits, based on the actuarial calculation for their specific employee
group. This cost recovery amounted to $40 for the year ended December 31, 2008 (2007 - $40).
As described in Note 18, Air Canada and Aveos are parties to a Pension and Benefits Agreement covering the future transfer
of certain pension and benefit assets and obligations to Aveos.
As described in Note 2, the accounting for pensions requires management to make significant estimates including estimates
as to the discount rate applicable to the benefit obligation and the expected rate of return on plan assets.
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 flows that approximately match the timing and amount of expected benefit
payments. An increase of 0.25% results in a decrease of $305 to the pension obligation and $10 to the pension expense.
A decrease of 0.25% results in an increase of $313 to the pension obligation and $9 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 specific 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 benefits. The determination of the long term rate considers recent fund performance, including the significant drop in
the value of plan assets during 2008, and historical returns, to the extent that the past is indicative of the expected long-
term, prospective rate. There can be no assurance that the plan will earn the assumed rate of return.