Air Canada 2010 Annual Report Download - page 112

2010 Air Canada Annual Report
112
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 as well as employees of the Corporation who were contractually assigned to Aeroplan until June 1, 2009.
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 Aveos and are members of Corporation-sponsored defined benefit pension
plans and also participate in Corporation-sponsored health, life and disability benefit plans. Other Corporation employees
performed work for Aeroplan until June 1, 2009, the date of transition to employment at Aeroplan and then ceased to
accrue benefits under the Corporation-sponsored defined benefit pension plans and under the Corporation-sponsored
health, life and disability 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 Aveos and Aeroplan for those
employees contractually assigned. The cost recovery includes current service costs for pensions for Aveos, past service
cost to Aeroplan for pensions and a portion of post-employment and post-retirement benefits to Aveos, based on actuarial
calculation for their specific employee group. This cost recovery amounted to $27 for the year ended December 31, 2010
(2009 - $32).
In May 2009, Air Canada and Aeroplan reached an agreement with the Canadian Auto Workers (CAW) Local 2002 providing
for a process for the approximately 750 Air Canada employees then assigned to and working in the Aeroplan contact
centres to choose to transition to employment at Aeroplan, effective June 1, 2009, or to remain employees of Air Canada.
Employees at Air Canada work locations who became surplus to Air Canada’s needs due to employees who were senior to
them and then working at Aeroplan contact centres choosing to remain employees of Air Canada were given the option to
transition to employment at Aeroplan. Effective October 4, 2009, all affected employees had completed the transition to
Aeroplan. For those employees who transferred to Aeroplan, their service, which largely determines benefit levels under the
Air Canada pension and other employee benefit plans, ceased to accrue as of the date of employment with Aeroplan. Air
Canada and Aeroplan continue to discuss the terms surrounding the transfer of pension benefits and certain implications
relating to same remain to be resolved. Air Canada continues to retain plan assets and report liabilities for services accrued
for the transferred Aeroplan employees as at December 31, 2010, pending final determination of this matter. Post transition,
Aeroplan is contributing current service costs in their pension plan for service accruing with Aeroplan.
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. In 2010, the Office of the Superintendent of Financial
Institutions (“OSFI”) provided its approval for the transfer of pension assets and liabilities from the Air Canada pension plans
to the Aveos pension plan for certain non-unionized employees of Air Canada who became employees of Aveos effective
October 16, 2007. The amount of the asset transfer was established as a pro-rata share, based on solvency liabilities, of
assets in the Air Canada pension plans as at October 16, 2007. The resulting amount was adjusted by investment returns
and benefit payments until the actual date funds were transferred. The transaction, completed in the second quarter of
2010, included an asset transfer of $43, as well as a reduction of $43 to the benefit obligation, in addition to transferring
cash payments previously made under the Pension and Benefits Agreement of $2. An amount of $1 has also been accrued
relating to the Pension and Benefits Agreement. The settlement was recognized in the unamortized actuarial gains (losses)
upon the annual remeasurement at December 31, 2010 and will be amortized over the expected average remaining service
life as appropriate.
As described in Note 2B, 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.