Air Canada 2010 Annual Report Download - page 42

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2010 Air Canada Annual Report
42
9.8 PENSION FUNDING OBLIGATIONS
Air Canada maintains several pension plans including defined benefit and defined contribution pension plans and plans
providing other retirement and post-employment benefits to its employees. As at January 1, 2010, based on actuarial
valuations completed in the second quarter of 2010 and which were used to determine certain pension funding
requirements in 2010, the aggregate solvency deficit in the registered pension plans was $2,728 million. 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 pension past service cost funding obligations projected for 2011 to 2013 and identified in the table below.
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
solvency 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 million, $175 million, and $225 million in
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 Air Canada’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, Air Canada
recorded a decrease to its net pension and other benefit liabilities in the amount of $28 million and an increase to share
capital in the amount of $28 million. 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, Air Canada’s pension
funding contributions amounted to $243 million in 2010.
(Canadian dollars in millions) 2010 2009
Past service cost for registered pension plans $ - $ 140
Current service cost for registered pension plans 169 185
Other pension arrangements (1) 74 64
Total contributions $ 243 $ 389
(1) Includes retirement compensation arrangements, supplemental plans and international plans.
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 by reason of changes in plan experience, financial markets, future expectations, and changes in
legislation and other factors. Until 2013, Air Canada’s past service pension funding obligations are also limited by the Air
Canada 2009 Pension Plan Funding Regulations.