Air Canada 2013 Annual Report Download - page 118

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2013 Air Canada Annual Report
118
Interest rate risk
A decrease in corporate and/or government bond yields will increase plan liabilities, which will be partially offset by an
increase in the value of the plans’ bond holdings.
Funding risk
Adverse changes in the value of plan assets or in interest rates could have a significant impact on pension plan solvency
valuations and cash funding requirements. Refer to discussion above with respect to past service funding obligations while the
2014 Regulations are in effect.
Life expectancy
The majority of the plans’ obligations are to provide benefits for the life of the member, so increases in life expectancy will
result in an increase in the plans’ liabilities.
Assumptions
Management is required to make significant estimates about actuarial and financial assumptions to determine the cost and
related liabilities of the Corporation’s employee future benefits.
Financial assumptions
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.
Future increases in compensation are based upon the current compensation policies, labour agreements and economic
forecasts.
The significant weighted average assumptions used to determine the Corporation’s accrued benefit obligations and cost are as
follows:
Pension Benefits Other Employee Future Benefits
2013 2012 2013 2012
Discount rate used to determine:
Accrued benefit cost for the year ended December 31 4.30% 5.20% 4.17% 4.90%
Accrued benefit liability as at December 31 4.90% 4.30% 4.80% 4.17%
Rate of future increases in compensation used to
determine:
Accrued benefit cost for the year ended December 31 2.50% 2.50% not applicable not applicable
Accrued benefit obligation as at December 31 2.50% 2.50% not applicable not applicable
Actuarial assumptions
Mortality rates
The cost and related liabilities of the Corporation’s pension plans, and other post-retirement and post-employment benefit
programs are determined using actuarial valuations. The actuarial valuations include several economic and demographic
assumptions including mortality rates. For the December 31, 2013 accounting valuations, the mortality assumption has been
updated to reflect the results of a mortality study specific to Air Canada pension plan membership which was completed in
the fourth quarter of 2013. The change in mortality rate assumptions resulted in an actuarial remeasurement of the
accounting liabilities with the impact being recorded in other comprehensive income. The improvements in assumed mortality
rates are consistent with those presented by the Canadian Institute of Actuaries (“CIA”) which issued a draft report during the
third quarter of 2013 proposing new mortality tables for use in the valuation of Canadian pension and benefit plans. The CIA is
expected to issue further guidance for mortality rate assumptions by early 2014, and Air Canada’s experience will be
remeasured against the revised CIA tables.