1) Q: What changes were made to my pension as a result of the 2012 IAM&AW pension MOA?

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1 Q & A DOCUMENT FOR ALL IAM&AW AIR CANADA CLERICAL, FINANCE & TMOS MEMBERS CONCERNING THE JUNE 2012 PICHER AWARD PENSION MOA PLUS THE OCTOBER 2012 AIR CANADA RETIREMENT ADMINISTRATION & POLICY CHANGES 1) Q: What changes were made to my pension as a result of the 2012 IAM&AW pension MOA? A: The 2012 Pension MOA negotiated five changes to the existing IAM&AW former CAIL and Air Canada pension plans. One affects the reduction factor for early retirement, one affects the normal form of pension, two are purely administrative and do not affect anyone s pension benefit and one creates a new IAM&AW sponsored Defined Benefit Multi Employer Pension Plan (MEPP) for all IAM&AW members hired after the date of ratification or imposition of their respective Collective Agreement. 2) Q: When are these changes effective? A: For all terminations and retirements on or after January 1 st, All new IAM&AW members hired by Air Canada after the ratification date of their respective Collective Agreement will be placed in the new MEPP. 3) Q: What is the last date that I can retire under the current pension plan rules? A: December 1 st, This means that your last day of work, vacation, GDIP, WCB or leave of absence on the Air Canada payroll must be November 30, 2013 or earlier. 4) Q: What is the first administrative change that was made? A: Currently IAM&AW members working for Air Canada have their pension assets in one of two Air Canada sponsored pension plans; the former CAIL pension plan or the Air Canada Main Plan. The pension benefit assets of all IAM&AW Air Canada members will be combined into a single stand alone IAM&AW pension plan sponsored by Air Canada effective January 1, This pension plan will still have all of its assets invested in the Air Canada Pension Master Trust Fund and be sponsored and administered by Air Canada. 5) Q: Why are all the IAM&AW members being put into a single plan? A: The Air Canada Main Plan contains the pension assets and liabilities for all original Air Canada CALDA, CAW, CUPE, IAM&AW, non-unionized and management employees. The IAM&AW will be better able to represent all of its Air Canada members by placing them into a single stand alone plan. This will allow us to have a single pension committee, an IAM&AW Retiree representative for the original Air Canada members rather than the current Pionairs representative and will allow us to make future decisions about our pension without any input from the other unions and non-unionized employees. This new single pension plan was an IAM&AW request during negotiations. 1 P age

2 6) Q: Will moving to this new single IAM&AW pension plan affect my pension? A: No. No member, either former CAIL or original Air Canada will be advantaged or disadvantaged as a result of the merger of the two pension plans. All members will continue to accrue and receive their pension benefit under the exact same terms and conditions as they do in their current pension plans. 7) Q: What is the second administrative change that was made? A: Our pensions have been made subject to the consent of Air Canada. 8) Q: Does that mean that Air Canada must approve my pension when I apply to retire or can stop me from retiring and receiving my pension? A: No. The reason for the consent provision is to allow for a legal separation of the dual responsibilities that Air Canada has for the pension plan; sponsor and administrator. Air Canada is bound by the Pension MOA to grant consent for all IAM&AW pensions in the Collective Agreement. This consent is for all IAM&AW pensions and is for the life of the Collective Agreement. The consent will be renewed with each successive Collective Agreement. 9) Q: Then why make our pensions subject to the consent of Air Canada if it doesn t make any difference? A: It is done for actuarial accounting purposes. Under the consent provision, when the actuaries do the annual solvency funding valuation, they do not have to account for any early retirement benefits that are not being used because the member is still working. Currently the actuaries have to value every member s early retirement benefits as if everyone took them at the very first available date. By making the pensions subject to consent, that accounting requirement is removed and lessens the solvency funding requirement of the pension plan. The consent provision combined with the change to the new early retirement reduction factor will provide for a 24.9% decrease in the IAM&AW solvency funding deficit. At the 2011 deficit figures (when this was negotiated) 24.9% equaled $355 million. This same consent provision is contained in the Pension MOAs of all 5 unions at Air Canada as well as the non-unionized and management pension plans for this same reason. 10) Q: I heard that there is a major change in the pension plan and I have to leave before the end of 2013 or I will lose a large part of my pension? A: Under the current pension plan rules an unreduced pension is payable anytime after the member has attained both age 55 and 80 points of age + qualifying service. This rule is unchanged under the new Pension MOA. An unreduced pension will still be paid for a retirement anytime after the member has attained both age 55 and 80 points. The value of your unreduced pension will be identical under the current rules and the new rules. The major change to the pension plan is the replacement of the two existing early retirement reduction factors with a new single reduction factor that is applicable only if you terminate or retire prior to attaining both age 55 and 80 points. The current reduction factors are from age 55 and 80 points and Air Canada will apply whichever reduction is the greater to your pension. The new reduction factor is a single actuarial reduction from age 65. This will be a much larger reduction than the two existing reduction factors. 2 P age

3 11) Q: What is an actuarial reduction? A: It is a reduction that is applied in insurance policies, pension plans, RRSPs and all similar investments to ensure that benefit payments made on different dates are equal to each other in terms of the total amount of money paid out. Your commuted value represents the total value of your accrued pension benefit. An actuarial reduction of your commuted value accounts for the fact that you will receive your money for a longer period of time. It also accounts for the lost investment income as a result of paying your pension benefit earlier and therefore longer. As a general rule, an approximate actuarial reduction is 6% per year compounded. The exact value of the actuarial reduction is calculated using a more complex formula that also takes into account the compounded impact of the interest rate that is in effect on the date that the member terminates from the pension plan. The compounding is to take into account the extra period of time for which the pension benefit is to be paid out of the pension plan. 12) Q: What does compounding mean? A: It simply means subtracting the reduction percentage from each successive reduced amount in small pieces rather than from the original amount all at once. As an example, if your unreduced pension was $1,000 a month and you elected to take a reduced pension 5 years early, the approximate actuarial reduction would be 26.61% not 30% (5 years x 6%). You would receive $ a month and not $700 a month. By compounding you subtract the 6% from each successive reduction. In this example, the reduction for the first year would be 6% of the original $1000, the second year s reduction would be 6% of $940, the third year s reduction would be 6% of $883.60, the fourth year s reduction would be 6% of $ and the fifth year s reduction would be 6% of $ for a final pension payable of $ ) Q: Is the actuarial reduction calculated in one year increments? A: No. It will be calculated in monthly increments of approximately 0.5% per month (6% per year / 12 months). Everything to do with pensions is calculated in whole months including your age and allowable service. A member who terminates or retires one year early will receive a larger pension than a person who retires one year and one month early. The first will be reduced by 12 monthly reductions and the second will be reduced by 13 monthly reductions. 14) Q: So is this just like the reduction in my CPP if I take it before age 65? A: This is similar to the reduction in your CPP if you take it prior to age 65 but not identical. The reduction in your CPP is a linear reduction and not an actuarial reduction. The CPP reduction has been increased from 0.5% to 0.6% per month effective January 2012 and is not compounded like an actuarial reduction. It is calculated as one large reduction of your initial CPP that would have been payable from age 65. An actuarial reduction would be approximately 26.61% at age 60 but the CPP reduction will be 36% (0.6% per month x 60 months) at age P age

4 15) Q: Does this actuarial reduction apply to all early retirements before age 65? A: No. The actuarial reduction from age 65 only applies to members who terminate or retire before attaining both age 55 and 80 points of age + qualifying service. Exactly like the current rules, an unreduced pension is payable from the first day of the month next following the month in which the member attains both age 55 and has 80 points. This is known as your unreduced pensionable date. No reduction will be applied to any member s pension who retires after attaining their unreduced pensionable date. 16) Q: I will have 83 points but I but will only be 53 years old in April Will my pension be reduced if I retire then? A: Yes. Your pension will be actuarially reduced from age 65. This will mean that your pension will be reduced by approximately 52.41%. On the first day of the month following your 55 th birthday your reduction will drop to zero and you will be eligible to receive an unreduced pension on the first day of any month after your 55 th birthday. 17) Q: I will be age 57 but only have 78 points in July Will my pension be reduced if I retire then? A: Yes. Your pension will be actuarially reduced from age 65. This will mean that your pension will be reduced by approximately 39.05%. If you continued working you would attain 80 points in July 2015, therefore you could retire on August 1 st, 2015 with an unreduced pension because you will have attained both age 55 and 80 points in July ) Q: Does the amount of service that I have in the pension plan affect the amount of my actuarial reduction? A: No. The actuarial reduction is calculated as explained in questions 11, 12 and 13 and based solely on the number of months your age in the month that you terminate or retire is less than age 65. Your qualifying service is not factored into the actuarial reduction. 19) Q: In the new pension agreement that has been imposed, it states that An unreduced pension is payable from the date on which a member attains both age 55 and 80 points of age plus service. Are the years of service in the Company or in the pension plan? A: The service is a total of all full months of service in any Air Canada pension plan. Working just one day in a month will give you credit for the full month. This is called your qualifying service. 20) Q: I have heard that there is a change to the survivor pensions and that they will be less than they are under the current rules. Is that true? A: Yes and no. When the pension MOA was negotiated we also negotiated a change in the normal form of pension. The normal form of pension was changed to a Guaranteed 10 year option from the current Joint & Survivor 50% option. All pension options must be an actuarial equivalent to the normal form of pension. This means that after January 1 st, 2014 the J&S50% option pensions would be reduced 3% from their value under the current rules. 4 P age

5 21) Q: What is a normal form of pension and why was it changed? A: Every pension plan has to have what is called a normal form of pension. The actuaries simply take the least expensive form of pension option that is offered (based upon the monthly dollar value payable under that pension form) and call it the normal form of pension. That pension form (option) is then used by the actuaries when they do their annual valuation and all other calculations of the pension plan s liabilities. All other pension options or forms offered to members of the pension plan must be an actuarial equivalent of the normal form of pension. Changing the normal form of pension to the Guaranteed 10 year option from the current J&S50% option resulted in a $38 million reduction (of the 2011 solvency deficit) in the IAM&AW solvency funding deficit. This change was necessary to keep our pension milestones at 25 years of qualifying service and 80 points. This change in the normal form of pension was negotiated to prevent the IAM&AW from having to move our qualifying service for retirement to 30 years and 85 points like the CAW, CUPE and CALDA agreed to do in their 2011 Pension MOAs. The IAM&AW s major negotiating demand was to maintain our unreduced pension date at age 55 and 80 points (25 years of qualifying service) exactly as it is under the current rules. This was achieved by agreeing to this change in the normal form of pension. 22) Q: So why is the survivor pension reduced because of this change in the normal form of pension to a Guaranteed 10 year option? A: As explained above, all pension options have to be actuarially equivalent to the normal form of pension. The value of the normal form of pension will be the same dollar amount per month when paid out as the Guaranteed 10 year option as is paid out under the current J&S50% normal form option. That means that if you would have received $1,000 a month under the current J&S50% normal form of pension, then you will receive the same $1,000 a month as the new Guaranteed 10 year normal form of pension. If you elect to receive the J&S50% option your monthly pension will decrease to $970 a month (3% reduction) and if you elect to receive the default J&S60% option your monthly pension will decrease to $960 a month from the current $990 a month (3% + 1% from the original $1,000). There is also a 4 th option that is available only to members who are single on the date of their retirement. It is a Guaranteed 5 year option. Under this option, because your pension benefit is only guaranteed for 5 years in the event of your death your monthly pension amount will be actuarially increased to equal the G10 normal form amount. This option would be attractive to single members who have no beneficiaries to leave a pension amount to. This allows you to receive more of your own money in the form of an increased monthly pension while you are alive. 5 P age

6 23) Q: Does that mean that my spouse will only get a pension for 10 years after I retire? A: No. All spousal survivor pensions (J&S50% and J&S60%) are payable for the spouse s lifetime. The Guaranteed 10 year normal form of pension would simply be a 3 rd option that is available in addition to the current J&S50% and J&S60% options. The G10 option will pay 100% of the value of your monthly pension to your spouse or beneficiary or estate from the date of your death to the first day of the month 10 years from the date of your retirement. As an example, if you died 6 years after the date you retired, 100% of the value of your monthly pension would be paid to your spouse or beneficiary or estate for the remaining 4 years left in your guaranteed payment period. If you died 11 years after your date of retirement, no further monies would be owed to your spouse or beneficiary or estate as you would have exceeded your guaranteed payment period. All members who are not married on the date of their retirement will be eligible to receive either a G10 or G5 option pension. If they marry subsequent to their retirement, the spouse will not receive a survivor pension. The surviving spouse would only be entitled to any remaining pension amount on the G10 or G5 option after the date of the member s death. The Pension Benefit Standards Act requires that all pension plans provide a lifetime spousal survivor pension. It further directs that the default pension option for all members who have a spouse at their date of retirement must receive their pension in the form of a J&S60% option. The J&S60% is the default option under the current pension plan rules. The J&S60% will continue to be the default option under the new pension plan rules after January 1 st, Under the new pension plan rules, the spouse must sign a legal waiver form to allow the member to receive the J&S50% or the Guaranteed 10 year option instead of the J&S60% option. This waiver form is also required under the current pension plan rules. Under the current rules for all Air Canada pension plans, the J&S50% option is the normal form of pension and the J&S60% option is actuarially reduced by 1% from the value of the J&S50% option. All member pensions are lifetime pensions which are payable from their date of retirement until the date of the member s death. The G10, G5, J&S50% and J&S60% options simply determine what pension benefit form and amount is still owed after the member s death. NOTE: The June 2012 Picher Award will remove this change in the normal form of pension from the 2012 Pension MOA provisional upon the IAM&AW s support for and Air Canada successfully obtaining a new 10 year pension funding agreement with OSFI. If Air Canada is successful in obtaining this new agreement with OSFI, the normal form of pension will remain as the J&S50% option and the value will remain the same under the new rules as it is under the current rules. All 5 of Air Canada s unions have signed similar agreements to support Air Canada s application for another 10 year special funding arrangement since the Picher Award was imposed in June P age

7 24) Q: Why are new hires being put into an IAM&AW pension plan and not being allowed to join the existing Air Canada Defined Benefit pension plan? A: One of Air Canada s line in the sand negotiating demands with all unions in 2011 was that the company would bar all future new hires from membership in any of their existing Defined Benefit pension plans. This is a way for Air Canada to limit their future pension solvency funding deficit. To put it bluntly, as the existing members and their spouses die, the pension solvency funding requirement decreases until eventually it is zero. The CAW and CUPE fought this exact issue for their new hires in arbitration as part of their legislated collective agreement settlements in What they were able to get from the arbitrator was a hybrid pension plan. Under the terms of this hybrid pension plan their new hires will contribute to the existing CAW and CUPE Air Canada Defined Benefit pension plans at ½ the contribution rate and receive ½ the normal pension benefit as a result. They will also have the option to contribute to a Defined Contribution pension plan and they can choose how much they wish to contribute to that DC plan. Air Canada will make predetermined contributions to the DC plan based upon a % of the member s contributions. The IAM&AW either had to come up with another solution or have our new hires placed into a similar hybrid pension plan through an arbitrator or legislation. We felt that the hybrid pension plan did not offer an adequate final pension for our members when they retired, so we developed a new Defined Benefit MEPP for our new members to join. 25) Q: What is an MEPP? A: It is a Multi Employer Pension Plan. That means exactly what is says. It is a special type of pension plan that is shared by more than one employer as a group pension plan. It is governed by a Board of Trustees just like the Air Canada pension plan except the Trustees are selected by the IAM&AW. The employers will also have a number of seats on the Board of Trustees. It is a Targeted Defined Benefit pension plan that promises or targets a specific pension value based upon a formula of age + months of qualifying service + a specified amount of money for each month of service. It does not have any early retirement provisions like the Air Canada Defined Benefit plan because they are too expensive, especially for a brand new plan. The pension is payable from age 65 and will be actuarially reduced if taken prior to age 65, just like our new actuarial reduction factor for retiring before attaining age 55 and 80 points. The IAM&AW currently has 2 MEPPs for Canadian members, one registered in Ontario and one registered in Quebec. These plans are for members employed by provincially regulated companies in those provinces. Because Air Canada is a federally regulated company we needed to create a new MEPP that will be federally regulated by OSFI. 7 P age

8 26) Q: How much money do the new hires and Air Canada pay into this new MEPP? A: Both the member and Air Canada pay 6% of the member s salary. This is the same contribution rate that all current members pay on all pensionable earnings above the YMPE each year. Air Canada will also pay 6% of the member s salary and will not be responsible for any solvency funding of the MEPP. To the company the MEPP functions like a Defined Contribution plan whereby their only responsibility is to pay the agreed upon contribution rate. Under the terms of the CAW and CUPE Hybrid pension agreement for new hires the employee contribution rates into the existing Air Canada CAW DB pension plan are 0.595% and 1%. Contributions to the DC component of the hybrid plan are 0 2% for the first 5 years, up to 2.5% for years 5 to 15 and up to a maximum of 3% after year 15. Air Canada s contributions to the DC component of the hybrid plan are 100% of the employee s contributions for the first 3 years, 135% for years 4 to 6 and 175% of the employee s contribution rate after year 7. (Note: 175% of 3% equals 5.25% and is only paid by Air Canada after 15 years of qualifying service) Also under the CAW and CUPE Hybrid pension agreement for new hires the Air Canada contributions into the existing Air Canada DB pension plan are as required by the solvency funding deficit of the plan and OSFI funding regulations until the plan is 100% funded and zero thereafter. 27) Q: So why didn t the IAM&AW also put our new hires into the hybrid pension plan and keep some of their money in the existing Air Canada pension plan? A: There were 3 reasons why we created our own MEPP for the new hires. 1) Our actuaries did a valuation on the maximum pension that could be payable under the hybrid plan and it is as much as 50% less than the pension that can be payable under the MEPP plan, depending on when the member chooses to retire. 2) Over time it will decouple our members pensions from the employer and the pension plan will no longer be an issue in bargaining. Also, if the employer goes into bankruptcy our member s pensions will not be at risk of being wound up as a result. 3) The employment model has changed in most industries including aviation and employees seldom work for the same company for an entire career but rather work for several employers during their career. All of the employers who will be in the MEPP will be IAM&AW represented companies. Members will have the ability to work for any of these companies and still maintain their pension in the MEPP. Also many of our part time Air Canada members work for a 2 nd IAM&AW represented company. If both companies are in the MEPP, the members will be contributing to their pension on all earnings from both employers. 8 P age

9 28) Q: Who are these other employers? A: When the MEPP was negotiated in 2011 the initial two employers were to be Air Canada and Aveos. Other federally regulated IAM&AW employers such as CATSA (G4S), Swissport, Handlex, Servisair, Air Transat and others could all choose to join the MEPP during future rounds of bargaining rather than their current DC pension arrangements. 29) Q: So what happens to the MEPP now that Aveos has become insolvent and ceased operations? A: The IAM&AW was successful in organizing the CATSA (G4S) screeners in YYZ in June They have joined the new IAM&AW MEPP as their pension plan as part of their initial collective agreement. Other IAM&AW employers will be added over time as their collective agreements are renewed if their members choose to do so. The IAM&AW MEPP has about 50 employers participating, although many of these are small employers like car dealerships. 30) Q: If no new members are coming into the IAM&AW Air Canada Defined Benefit pension plan, what happens to my pension over time? Won t our pension plan run out of money without new members joining and contributing to it? A: No. Defined Benefit pension plans are not pyramid schemes. They do not need new entrants to pay for the pensions of older members. The plans are designed by the actuaries such that each member s contributions and the investment income generated by those contributions during their time in the pension plan fund each member s own pension. The only exception to this is the shared life expectancy risk amongst members of the pension plan. Almost none of us will die at exactly 84.2 years of age but on average we all will. These types of demographic averages are how actuaries choose the numbers for their valuations of the pension plan. Some members will die before the average life expectancy age and some will live longer. This is part of the shared risk of the plan design but there is no intergenerational transfer of funds that requires younger workers to pay for retirees like Old Age Security. Air Canada currently sponsors 11 pension plans for its employees. Five of those plans are for ex-cail unionized employees. All 5 of those plans have been closed to new members since Air Canada purchased CAIL in None of these plans have accepted a single new member in the last 13 years. All Air Canada employees hired since 1999 have been placed into the Air Canada Main plan, except ACPA which has its own Air Canada pension plan. As at January 1, 2012 (the current solvency funding ratios) the Air Canada Main Pension Plan (for all AC employees except ACPA and Executives) has a solvency funding ratio of 72.2%. The 5 ex-cail union pension plans have solvency funding ratios that range between 70.0% (CALDA) and 73.4% (ACPA). The ex-cail IAM&AW pension plan has a solvency funding ratio of 72.2%. The existing Air Canada IAM&AW pension plan, just like the ACPA, CALDA, CAW and CUPE pension plans that were also closed to new members as a result of their new pension agreements, will not be detrimentally affected by their closure to new members. 9 P age

10 31) Q: Why did Air Canada get rid of Mercer and get a new pension administrator? A: When Air Canada originally outsourced their pension administration in 2006 they awarded a 5- year contract to Mercer to act as their pension administrator in addition to being their investment advisor and actuary. That contract has just expired and Aon Hewitt was the successful bidder for the Air Canada pension administration RFP. Mercer will continue to be Air Canada s pension actuary and investment advisor. 32) Q: So what difference does a new pension administrator mean to me? A: There will be no material change to you or your pension. All it really means for you as a pension plan member is that you will now be dealing with a new company with respect to your Air Canada pension. Aon Hewitt has their own contact numbers and addresses so the old Mercer Oneview website, hotline number and addresses are no longer valid. The new telephone number for Air Canada Pensions and HR Connex (formerly Employee Services) is The new address for Pensions and HR Connex is hr.rh@aircanada.ca 33) Q: What happened to the pension calculator and projector that were on the Mercer Oneview website? Where can I do pension calculations and projections now? A: The Mercer Oneview site which contained all of your pension information and the pension calculator has been replaced by a new Aon Hewitt website. It can be accessed by logging on to the AC Aeronet and selecting HR Connex > (Retirement) My DB Pension. Air Canada has posted a notice of this change and some additional information in the Tuesday, October 2, 2012 edition of The Daily on the AC Aeronet portal. Aon Hewitt has their own pension calculator and projector. It can be access from the AC Aeronet through the HR Connex portal. Log onto the AC Aeronet and select HR Connex > (Retirement) My DB Pension > Pension (tab) > Project Retirement Income. It will default to your normal retirement date (age 65). To calculate or project any other date or age that you want, input your requested age or date in the applicable data fields and then select Redisplay Projection from the bottom of the page. 34) Q: What about the detailed report information about my pension projections that used to be on the Mercer pension calculator? A: The Detailed Report link of the Mercer calculator is not on the Hewitt calculator. The same detailed information can be found by selecting Pension Forms of Payment and Calculation Details. All of the same detailed information can be found there. It is just presented in a different format. I encourage every member to take some time to access the new pension website and familiarize yourself with it and where to find your pension information. 10 P age

11 35) Q: The title of this document says that there were changes to the Air Canada pension policy. What changes did Air Canada make to their retirement policies? A: There are two significant changes that were made to the Air Canada Retirement policies, effective October 1 st, 2012 that affect all Air Canada pension plan members. 1) Air Canada has eliminated mandatory retirement at age 65 in compliance with recent legislative amendments. Members must now notify Air Canada when they wish to retire at any age. Air Canada will no longer automatically send out retirement paperwork to members when they turn age 65. All Air Canada employees must now notify Air Canada when they wish to retire regardless of their age. 2) The second policy change regards the retirement notification process. The process has now moved online and the paper ACF86 Retirement Request Forms will no longer be used. You can apply to retire by phoning AC Pension Services at or through the AC Aeronet by selecting HR Connex > (Retirement) My DB Pension > Pension (Tab) > Retire Now. You must still notify your department manager of your retirement date and they must complete the online e89 (Notice of Separation). This will ensure processing of your Final Pay and includes the reason for termination (Retirement) as required for your Record of Employment and the reconciliation of vacation. 11 P age