Air Canada 2011 Annual Report Download - page 106

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2011 Air Canada Annual Report
106
Other Benefits – Sensitivity Analysis
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 7.50%
annual rate of increase in the per capita cost of covered health care benefits was assumed for 2011 (2010 – 8.25%). 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 current service and interest costs by $5 and the obligation by $57. A one percentage point decrease in
assumed health care trend rates would have decreased the current service and interest costs by $4 and the obligation by $55.
Composition of Pension Plan Assets
Domestic Registered Plans
The composition of the Domestic Registered Plan assets and the target allocation are the following:
2011 2010 Target
Allocation(1)
Non-matched assets (mainly equities) 53.0% 54.0% 54.4%
Matched assets (mainly Canadian bonds) 47.0% 46.0% 45.6%
100.0% 100.0% 100.0%
(1) Weighted average of the Master Trust Fund target allocation (99% of Domestic Registered Plan assets) and the Bond Trust Fund target allocation. The Bond Trust Fund
serves the purpose of altering the asset mix of some of the participating plans. These plans exhibit characteristics that differ from the majority of the participating plans,
which are solely invested in the Master Trust.
For the Domestic Registered Plans, the investments conform to the Statement of Investment Policy and Objectives of the Air
Canada Pension Funds, as amended during 2011. The investment return objective is to achieve a total annualized rate of
return that exceeds by a minimum of 1.0% before investment fees on average over the long term (i.e. 10 years) the total
annualized return that could have been earned by passively managing the Liability Benchmark. The Liability Benchmark, which
is referenced to widely used Canadian fixed income performance benchmarks (DEX), is composed of a mix of the DEX
Universe Provincial Bond Index, DEX Long Term Provincial Bond Index and DEX Real Return Bond Index that closely matches
the characteristics of the pension liabilities.
In addition to the broad asset allocation, as summarized in the asset allocation section above, the following policies apply to
individual asset classes:
Non-matched assets are mainly equities, and are required to be diversified among industries and economic sectors.
Foreign equities can comprise 25% to 39% of the total market value of the Master Trust Fund. Limitations are placed on
the overall allocation to any individual security at both cost and market value. Investments in non-publicly traded
securities and in non-traditional asset classes are allowed up to 10% of the total market value of the Master Trust Fund.
Matched assets are mainly Canadian bonds, oriented toward long term investment grade securities rated "BBB" or higher.
With the exception of Government of Canada securities or a province thereof, in which the plan may invest the entire
fixed income allocation, these investments are required to be diversified among individual securities and sectors.
Derivatives are permitted provided that they are used for managing a particular risk (including interest rate risk related to
pension liabilities) or to create exposures to given markets and currencies and that counterparties have a minimum credit
rating of A. As of December 31, 2011, a 15% derivatives exposure to matched assets is in place to mitigate interest rate risk
related to pension liabilities.
Similar investment policies are established for the International pension plans sponsored by the Corporation.
The trusts for the supplemental plans are invested 50% in indexed equity investments, in accordance with their investment
policies, with the remaining 50% held by the Canada Revenue Agency as a refundable tax, in accordance with tax legislation.
Defined Contribution Plans
The Corporation's management, administrative and certain unionized employees may participate in defined contribution plans.
Contributions range from 3% to 6% of annual pay for those employees in Canada and 3% to 7% of annual pay for those
participants in the United Kingdom. The Corporation contributes an equal amount. The Corporation’s expense for defined
contribution plans amounted to $3 for the year ended December 31, 2011 (2010 – $2).