Air Canada 2010 Annual Report Download - page 113

Consolidated Financial Statements and Notes
113
Pension Plan Cash Funding Obligations
As at January 1, 2010, based on the actuarial valuations which were used to determine certain pension funding requirements
in 2010, the aggregate solvency deficit in the registered pension plans was $2,728. The next required valuations are as of
January 1, 2011, and will be completed in the first half of 2011, but as described below, they will not increase the 2011
pension past service cost funding obligations.
In July 2009, the Government of Canada adopted the Air Canada 2009 Pension Regulations. The Air Canada 2009 Pension
Regulations relieve Air Canada from making any past service contributions (i.e. special payments to amortize the plan
deficits) to its ten domestic defined benefit registered pension plans in respect of the period beginning April 1, 2009 and
ending December 31, 2010. Thereafter, in respect of the period from January 1, 2011 to December 31, 2013, the aggregate
annual past service contribution shall equal the lesser of (i) $150, $175, and $225 in respect of 2011, 2012, and 2013,
respectively, on an accrued basis, and (ii) the maximum past service contribution permitted under the Canadian Income
Tax Act.
The Air Canada 2009 Pension Regulations were adopted during the third quarter of 2009 in coordination with pension
funding agreements reached with all of the Corporation’s Canadian-based unions (“the Pension MOUs”). Pursuant to the
Pension MOUs, on October 26, 2009, Air Canada issued to a trust, 17,647,059 Class B Voting Shares. This number of shares
represented 15% of the shares of Air Canada issued and outstanding as at the date of the Pension MOUs and the date of
issuance (in both cases after taking into account such issuance). All net proceeds of sale of such shares by the trust are to
be contributed to the pension plans. On October 26, 2009, upon the issuance of the shares to the trust, the Corporation
recorded a decrease to its Pension and other benefit liabilities in the amount of $28 and an increase to Share capital in the
amount of $28. For so long as the trust continues to hold at least 2% of the issued and outstanding shares of Air Canada,
the trustee will have the right to designate one nominee (who shall not be a member or officer of any of Air Canada’s
Canadian-based unions) to Air Canada’s board of directors, subject to completion of Air Canada’s usual governance process
for selection and confirmation of director nominees. Current service contributions will continue to be made in the normal
course while the Air Canada 2009 Pension Regulations are in effect.
After consideration of the effect of the Air Canada 2009 Pension Regulations as outlined above, employer pension funding
contributions during 2010 amounted to $243.
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 in the discount rate of 0.25% results in a decrease of $411 to the pension obligation and $9 to the
pension expense. A decrease in the discount rate of 0.25% results in an increase of $411 to the pension obligation and $8
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, and historical returns, to the
extent that the past is indicative of the expected long-term, prospective rate. There can be no assurance that any of the
plans will earn the expected rate of return.
US Health Care Reform
The Corporation is a sponsor of certain US post-retirement health-care plans that were impacted by US health care reform
legislation enacted in March 2010. Under this legislation, changes include the removal of lifetime benefit maximums. This
legislation has the impact of increasing the Corporation’s post-retirement benefit obligation by $55. The full amount is
recognized as an actuarial loss and will be recognized in pension expense over the expected average remaining service life
commencing in 2011.