Air Canada 2011 Annual Report Download - page 103

2011 Consolidated Financial Statements and Notes
103
Amendments to the Defined Benefit Pension Plans
In 2011, Air Canada reached an agreement with the Canadian Auto Workers union (“CAW”) Local 2002 which represents
approximately 4,000 call centre and airport check-in and gate agents employed by Air Canada and the Canadian Union of
Public Employees (“CUPE”), the union representing the airline’s 6,800 flight attendants. The agreements include amendments
to the defined benefit pension plans of CAW and CUPE members which are subject to regulatory approval and will be
accounted for at the time this approval has been received. In addition, a hybrid pension regime consisting of defined
contribution and defined benefit components applies to new employees represented by the CAW and CUPE, hired after the
date of ratification of the new agreements. The expense and obligations relating to the hybrid pension plan as at December 31,
2011 are negligible.
Pension Plan Cash Funding Obligations
As at January 1, 2011, based on the actuarial valuations which were used to determine certain pension funding requirements
in 2011, the aggregate solvency deficit in the domestic registered pension plans was $2,167. The next required valuations are
as of January 1, 2012, and will be completed in the first half of 2012, but as described below, they will not increase the 2012
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 relieved 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 is 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. Current service
contributions continue to be made in the normal course while the Air Canada 2009 Pension Regulations are in effect.
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 future net proceeds of sale of such shares by the trust are
to be contributed to the pension plans. 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.
After consideration of the effect of the Air Canada 2009 Pension Regulations as outlined above, total employer pension
funding contributions during 2011 amounted to $385. Expected total employer contributions to pension benefit plans for
2012 are $426.
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 approximate the timing and amount of expected benefit payments.
An increase in the discount rate of 0.25% results in a decrease of $473 to the pension obligation and $7 to the pension
expense. A decrease in the discount rate of 0.25% results in an increase of $473 to the pension obligation and $5 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 a number of factors including 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.