Air Canada 2008 Annual Report Download - page 117

Consolidated Financial Statements and Notes
117
Other Benefits — Sensitivity Analysis
Assumed health care cost trend rates have a significant 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 benefits was assumed for 2008 (2007 - 9.25%). 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 $16. A one percentage point decrease in assumed
health care trend rates would have decreased the service and interest costs by $1 and the obligation by $21.
PensionPlanCashFundingObligations
Pension plan cash funding paid in 2008 amounted to $456 for domestic registered plans and other pension arrangements.
For domestic registered plans, the funding requirements are based on minimum past service contributions disclosed in the
annual actuarial valuation plus a projection of the current service contributions. The final funding obligation for 2009 will
be determined based on the January 1, 2009 valuation, which will be completed in the first half of 2009.
As at January 1, 2008, the solvency deficit in the registered domestic plans was $1,175. As at January 1, 2009, based on
preliminary estimates, the solvency deficit in the registered pension plans is estimated to be approximately $3,200. Based
on pension funding legislation and regulations as at December 31, 2008, this preliminary estimate of the solvency deficit
would be funded over five years requiring an approximate $410 increase to cash funding obligations for 2009.
The Corporation is actively monitoring and pursuing a number of initiatives, certain of which are beyond the control of the
Corporation, which may reduce the cash funding obligations in and after 2009 as described further below. These include:
• TemporarysolvencyfundingreliefproposedbytheGovernmentofCanada;
• Theassetsmoothingmethod,ifany,thatcouldbeappliedtothevalueofassets;and
• AreviewofthelegislativeandregulatoryframeworkofpensionplansbytheGovernmentofCanada,whichis
currently underway.
In November 2008, the Government of Canada proposed temporary solvency funding relief for defined benefit pension
plans under federal regulation. The proposed funding relief would allow plans to extend their solvency funding payment
schedule to 10 years from 5 in respect of solvency deficiencies that emerged in 2008, subject to certain conditions. In
particular, both members and retirees would need to agree to the extended schedule, or the difference between the 5- and
10-year payment schedules would need to be secured by a letter of credit. One of these two conditions would need to
be met by December 31, 2009. If agreement by plan members and retirees or a letter of credit were not secured by the
end of 2009, the plan would be required to fund the deficiency over the following 5 years. This measure, if implemented
by the Government of Canada, would reduce 2009 pension funding by $165 versus the preliminary estimate of funding
requirements on the January 1, 2009 valuation report, when completed. Funding reductions in subsequent years would be
dependent upon satisfying one of the two conditions as noted above. There can be no assurance that the proposed relief
will be implemented.
The Pension Benefits Standards Act and Regulations allow the use of an asset smoothing method over five years, limited
to 110% of the market value of plan assets, to determine minimum funding requirements on a solvency basis. Any such
smoothing method would also have to comply with actuarial practice and be accepted by regulators. In January 2009,
the Government of Canada announced that it will work with the body that regulates federally regulated pension plans to
consider additional funding flexibility options regarding asset smoothing. The Corporation will monitor these developments
to determine the impact, if any, on the Corporation’s pension funding obligations. Based on preliminary estimates, if a
smoothed asset value limited to 110% of market value were to be used to determine Air Canada’s minimum funding
requirement, cash funding obligations for year 2009 would be reduced by a further $85.
Given the economic uncertainty and the uncertain outcome of the pension funding regulations, the Corporation’s actual
funding obligations for 2009 cannot be determined with any reasonable degree of certainty however they will rise
significantly over 2008 levels. If the provisions outlined above are finalized, and assuming preliminary estimates, the
Corporation estimates funding requirements for 2009 would increase by approximately $150 versus 2008, which would
result in estimated aggregate pension funding payments of approximately $605 during 2009. The estimated funding