ALL IAMAW MEMBERS
AIR CANADA LIFE INSURANCE COMPANY
On Friday, August 10, 2018 Air Canada announced to their employees that they would be creating a new
wholly owned subsidiary, Air Canada Life Insurance Company (ACLI). ACLI will be a fully registered and
regulated insurance company under the terms and conditions of all existing Canadian financial and insurance
regulations and will fall under the auspices of OSFI.
The Air Canada Pension Master Trust Fund (MTF) intends to purchase group annuities from various
established Canadian insurance companies. The sheer size of the MTF ($19.5 Billion as at 1/1/2018) dwarfs
the ability of the Canadian annuity market to absorb such a large investment and the associated risk.
It is common practice for insurance companies to indemnify themselves against risk when taking on large
policies or investments. This is typically done through reinsuring portions of the investment with other
insurance companies. This is the role that Air Canada has indicated ACLI will fulfil. By offering the participating
insurance companies partial reinsurance on the group annuity purchases, ACLI will help to mitigate the risk of
the annuities for the primary insurers and make the purchases possible.
ACLI must be fully capitalized in accordance with all laws and regulations governing insurance companies in
Canada. Right now, we do not know what will be required to reach full capitalization, but Air Canada has stated
that it will provide the necessary capitalization for ACLI to meet its mandate.
The purchase of annuities to provide identical replicating pension benefits for our members, if properly done, is
permissible under all pension, financial and insurance laws and regulations. The purchase of annuities is also
permissible in accordance with the Air Canada pension investment policy. Air Canada also has the
independent right to create a life insurance company, subject to its meeting all legal and regulatory
requirements. Therefore, Air Canada has the right to unilaterally make the decision to both create ACLI and
purchase the annuities as soon as they obtain the necessary regulatory approvals from OSFI and the federal
Minister of Finance.
At this point in time Air Canada has given the required notice that it intends to apply to the Minister of Finance
to incorporate a life insurance company and is waiting for the expiry of the period for objections and for a
decision to be made. Air Canada is presently anticipating receiving all such approvals and being in a position
to make the first group annuity purchase in the fourth quarter of 2019.
Air Canada has stated that the purchase of group annuities will be an ongoing process into the foreseeable
future. It is their intention to annuitize most or all of the MTF over an extended time period, possibly fifteen (15)
years or longer. As with all monetary investment decisions, the exact timing and amount of the group annuity
purchases will be determined by prevailing market conditions over time.
So what does all of this mean and why does Air Canada say they are doing it? Simply put, Air Canada
says that it is doing it to both lessen the risk profile (investment and interest rate volatility, solvency risk and
longevity risk) of their pension plans and lock in an amount of the surplus gains that the MTF has realized in
the last four (4) years. In terms of a personal RRSP investment account, this is the equivalent of monetizing
your personal RRSP money market investments into a guaranteed monthly revenue stream by purchasing an
annuity from an insurance provider when you retire. At this time, we are unable to independently verify whether
these goals are achievable under the proposed structure, and are continuing in our inquiries.
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Is Air Canada trying to lessen or avoid any of their fiduciary duties and responsibilities with respect to
their Defined Benefit (DB) pension plans? Legally Air Canada, as the plan sponsor and administrator,
retains their fiduciary obligations and cannot lessen or avoid them through this structure. Air Canada remains
solely 100% responsible for all actions and decisions that are made on their behalf by any subcontracted
parties.
That will be true of ACLI and the group annuity purchases. The MTF will continue to include and be financially
responsible for all liabilities associated with the payment of earned and owed pension benefits for all DB
pension plan members. Air Canada has stated that this will be reflected in all legal financial statements, reports
and annual audited valuation reports that must be filed with OSFI and CRA. That means that Air Canada will
continue to retain the legal fiduciaryl obligation to ensure that 100% of all DB pension plan members’ owed
pension benefits are paid and provided. This includes all pension benefits that are owed and provided through
any group annuities that they purchase.
In addition, as a registered Canadian insurance company, ACLI will be afforded additional guaranteed
coverage protection through Assuris* which is a Canadian federal government backed insurer of last resort,
similar to the CDIC. This means an additional measure of government protection for all Air Canada pension
benefits that are annuitized through this initiative. Assuris* has limits on the amounts it will insure for any one
individual, however, and so this may not be a total backstop for all members.
What does this mean for our members? At this point in time, it simply means an additional asset investment
class being utilized by the Air Canada Pension Investment Department (ACPI) to lock in some of the gains they
have realized on the MTF asset investments. More importantly for our members it could mean a lowering of the
inherent risk profile of the Air Canada pension plans.
Air Canada has stated that this will be a seamless process for our DB pension plan members, both active and
retired, who will ALL continue to remain members of the Air Canada IAMAW DB pension plan under the
EXACT SAME terms and conditions as they currently enjoy. All retirees and survivors will continue to receive
100% of their monthly Air Canada pension benefit paid to them by Air Canada exactly as they do now.
Because ALL current members of the Air Canada IAMAW DB pension plan will remain as members of the
plan, they will continue to be entitled to receive any future pension benefit improvements or enhancements as
may be negotiated between the IAMAW and Air Canada in the future.
At this point in time there are still a large number of details that are unknown. In particular, we do not have
enough information to evaluate whether the proposed structure actually lessens the risk for our members, as
stated by Air Canada. More details, such as the group annuity purchase policy, timing and dollar values of the
group annuity purchases, ACLI Board of Directors and corporate structure and participating insurance
companies etc. still remain to be disclosed. Your Air Canada IAMAW Pension Committee and District Lodge
140 will continue to monitor this initiative very carefully as it moves forward through the regulatory approval and
implementation processes.
I strongly urge all affected members to read the three (3) documents provided by Air Canada through the
Aeronet on August 10, 2018 (Communication, Glossary and FAQs) for a greater understanding of this issue
and the associated terminology. I would also encourage members who continue to have questions or concerns
about ACLI or the group annuity purchase initiative to contact Air Canada via email at
pension_questions@aircanada.ca with your questions or comments.
In Solidarity,
Christopher Hiscock
Chairman, Air Canada IAMAW Pension Committee
