Air Canada 2013 Annual Report Download - page 60

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2013 Air Canada Annual Report
60
Actuarial assumptions
Mortality rates
The cost and related liabilities of Air Canada’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.
Sensitivity Analysis
Sensitivity analysis is based on changing one assumption while holding all other assumptions constant. In practice, this may be
unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined
benefit obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit
obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as for
calculating the liability recognized in the statement of financial position.
Sensitivity analysis on 2013 pension expense and net financing expense relating to pension benefit liabilities, based on
different actuarial assumptions with respect to discount rate is set out below. The effects on each pension plan of a change in
an assumption are weighted proportionately to the total plan obligation to determine the total impact for each assumption
presented.
0.25 Percentage Point
Decrease Increase
Discount rate on obligation assumption
Pension expense $15 $ (14)
Net financing expense relating to pension benefit liabilities 4 8
Total $19 $ (6)
Increase (decrease) in pension obligation $530 $ (537)
An increase of one year in the mortality rate assumption would increase the pension benefit obligation by $394 million.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 6% annual
rate of increase in the per capita cost of covered health care benefits was assumed for 2013 (2012 – 6.75%). 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 total of current service and interest costs by $4 million and the obligation by $55 million. A one
percentage point decrease in assumed health care trend rates would have decreased the total of current service and interest
costs by $4 million and the obligation by $53 million.
A 0.25 percentage point decrease in discount rate would have increased the total of current and interest costs by less than
$1 million and the obligation by $42 million. A 0.25 percentage point increase in discount rate would have decreased the total
of current and interest costs by less than $1 million and the obligation by $36 million.