LETTER OF UNDERSTANDING 19:
Deferred Salary Plan
THE AIR CANADA SELF-FUNDED LEAVE OF ABSENCE PLAN
ESTABLISHMENT OF THE PLAN
The Air Canada Self-Funded Leave of Absence Plan (the “Plan”) shall be established effective July 1st, 2002, for the purpose of permitting employees to fund, through salary deductions, leaves of absence from employment, and not to provide retirement benefits. Air Canada (the “Company”) will make contributions out of the employees’ payroll to be held in trust for the Member in such amounts and as agreed upon by the Company and the Member. The Plan contributions will be held by the arm’s length Trustee appointed by the Company. Members will receive their deferred contributions as taxable income when they are paid during the self-funded leave of absence.
The provisions of the Plan have been established in accordance with the requirements of any Applicable Legislation. In the event of a discrepancy between this Plan and any Applicable Legislation, the Applicable Legislation shall prevail.
The Company is responsible for ensuring that the provisions of the Plan are administered as outlined in this Plan document.
DEFINITIONS
“Applicable Legislation” means the Income Tax Act (Canada) or any other Federal legislation, including regulations, rulings, interpretation and court decisions thereunder, all as amended from time to time.
“Agreement” means the trust and investment agreement among the Company, the Trustee and the Investment Dealer.
“Contribution Period” means the period prior to the Leave Period during which the employee contributes into the Member’s Account.
“Company” means Air Canada and any successor thereto.
“Leave Period” means that period of the employee`s leave of absence from employment which has been funded during the Contribution Period by the Plan.
A Leave Period shall be granted for a period of six (6) consecutive months OR for a period of twelve (12) consecutive months.
“Member” means an employee of the Company who has become and continues to be, a member of the Plan in accordance with the terms of the Plan.
“Member`s Account” means the account representing the value of the assets held on behalf of the Member.
“Plan” means the Air Canada Self-Funded Leave of Absence Plan which Plan is intended by the Company to constitute a leave of absence plan in accordance with Regulation 6801 of the Income Tax Act.
“Prime” means the BMO Bank of Montreal’s prime lending rate.
“Investment Dealer” means BMO Nesbitt Burns Inc./Ltee or any successor thereto.
“Trustee” means The Trust Company of Bank of Montreal or any successor thereto.
ELIGIBILITY
Employees who have attained one year of seniority, upon application to participate in the program, will be eligible to bid for membership in the Plan. The Company maintains the ability to restrict eligibility based on classification and language.
ENROLLMENT
The Company shall offer the Plan to employees every year. The annual deadline for application will be May 1st of every year. The Company will provide a Plan information package including an application form to employees by placing it in their mail folders at least three weeks prior to the annual application deadline of May 1st. Employees shall request enrollment by completing and submitting the appropriate forms no later than May 1st of the application year to the Company. The Company shall forward written approval or denial of the employee’s enrollment application, with a copy to the Component President, by June 1st of the application year. Payroll deductions will begin July 1st of the application year.
LEAVE PERIOD
The terms of a leave under the Plan will be as agreed between the Member and the Company, subject to other terms and conditions of the Plan. As defined, the Leave Period shall be either six (6) consecutive months or one year.
The Leave Period shall commence immediately after the Contribution Period, but nevertheless, no later than six (6) years from the start of the Contribution Period.
Through the Leave Period, the Member will not receive any current salary or wages from the Company, or from any other person or partnership with whom the Company does not deal with at arm’s length, other than the amount of salary or wages that were deferred during the Contribution Period, and any retroactive adjustments for applicable periods prior to the leave.
LEAVE PERIOD OPTIONS
There are six Leave Period options for Members. The options are as follows:
Option 1
The Leave Period is for 12 months. The Contribution Period is for 24 months with deferral at 33 1/3%. The salary deferral begins with July 2002 block month and terminates with June 2004 block month. The Leave Period commences with January 2005 block month and terminates with December 2005 block month.
Option 2
The Leave Period is for 6 months (January to June block months). The Contribution Period is for 12 months with deferral at 33 1/3%. The salary deferral begins with
July 2002 block month and terminates with June 2003 block month. The Leave Period begins with January 2004 block month and terminates with June 2004 block month.
Option 3
The Leave Period is for 6 months (July to December block months). The Contribution Period is for 12 months with deferral at 33 1/3%. The salary deferral begins with July 2002 block month and terminates with June 2003 block month. The Leave Period begins with July 2003 block month and terminates with December 2003 block month.
Option 4
The Leave Period is for 12 months. The Contribution Period is for 36 months with deferral at 25%. The salary deferral begins with July 2002 block month and terminates with June 2005 block month. The Leave Period begins with January 2006 block month and terminates with December 2006 block month.
Option 5
The Leave Period is for 6 consecutive months (January to June block months). The Contribution Period is for 18 months with deferral at 25%. The salary deferral begins with July 2002 block month and terminates with December 2003 block month. The Leave Period begins with January 2004 block month and terminates with June 2004 block month.
Option 6
The Leave Period is for 6 consecutive months (July to December block months). The Contribution Period is for 18 months with deferral at 25%. The salary deferral begins with July 2002 block month and terminates with December 2003 block month. The Leave Period begins with July 2004 block month and terminates with December 2004 block month.
NUMBER OF LEAVES
For the first year of the program, the Company shall award a minimum of 75 Leave Periods by system-wide seniority as follows:
25 for the six (6) consecutive months Leave Period (January to June block month)
25 for the six (6) consecutive months Leave Period (July to December block month)
25 for the twelve (12) consecutive months Leave Period (January to December block month)
In future years, the Company will offer leaves in accordance with its staffing requirements.
SENIORITY
The Member shall retain and accrue seniority during her/his Leave Period.
BENEFITS AND TRAVEL PRIVILEGES
The Member shall retain all employee benefits (subject to payments of any applicable premiums), including travel privileges during her/his Leave Period. However, travel privileges will not be provided if during the leave of absence, the Member works or is engaged, with or without remuneration, as an employee, consultant or if Member acts as an administrator or director, of an airline, airline consulting firm, travel agent or tour operator.
REINSTATEMENT
The Member shall be reinstated to her/his classification at her/his Base at the termination of the Leave Period for a period that is not less than her/his Leave Period. The Member shall be responsible to schedule herself/himself to attend the first recurrent safety training course available in the month of her/his return to work and the Company shall be responsible to ensure training is available in the block month of the Member’s return to work. These responsibilities may be waived by mutual consent of the Member and the Company.
EMPLOYEE CONTRIBUTIONS
Employee contributions shall be a percentage of the gross earnings which would have been paid to the Member by the Company in the year except for her/his participation in this Plan. The percentage deducted from the gross earnings is as agreed upon by the Company and the Member and will be 25% OR 33 1/3% of gross earnings.
The Company shall deposit the contributions twice monthly into the Member`s Account from the payroll system (on the 1st and on the 17th day of each calendar month). The Contribution Period shall commence with the first pay advance on or after July 1st of the application year subsequent to the approval of the enrollment application and shall terminate with the earlier of commencement of the Leave Period, termination of employment, termination from the Plan, or death of the employee.
TAX IMPLICATIONS
All tax implications are subject to changes in accordance with the Applicable Legislation. .
Employee contributions into the Plan are taxed on a deferred basis, i.e. contributions made into the Plan are not subject to income tax. Payments during the Leave Period shall be paid out by the Company as agent for the Trustee and treated as taxable employment income when received. Payments received during the Leave Period are subject to required statutory deductions, including income tax.
Accrued interest on the employee contributions shall be paid out annually to the Member by the Company as agent for the Trustee and treated as taxable employment income when received. Payments received during the Leave Period are subject to required statutory deductions, including income tax.
The prescribed T4 for reporting, in accordance with Applicable Legislation will be provided to the Member by the Company.
WITHDRAWAL FROM THE PLAN
The Member may elect to withdraw from the Plan at any time by giving written notice to the Company. Within 30 calendar days from withdrawal from the Plan, the Member will receive a lump sum payment equal to the amount in the Member`s Account and any interest accrued thereon. The lump sum payment will be treated as taxable employment income in the year it is received and subject to required statutory deductions, including income tax.
A Member must be on the active payroll during the Contribution Period or she/he will automatically be withdrawn from the Plan.&nbs
p; This would occur in the event the Member becomes entitled to maternity leave, Wage Indemnity Plan (WIP) leave, workers’ compensation leave and/or leaves specified under Article 10 of the Collective agreement only when such leaves exceed one block month.
PAYMENT OF BENEFITS UNDER THE PLAN
A Member becomes eligible for payments under the Plan upon taking a leave of absence. The following conditions must be present:
(a) throughout the Leave Period the Member does not receive any salary or wages from the Company or any other person or partnership with whom the Company does not deal with at arm’s length, as defined in the Income Tax Act, other than benefits payable under the Plan and the reasonable fringe benefits usually paid by the Company to the Member as a condition of the Member’s employment; and
(b) as a term and condition of qualifying for the Leave Period, the Member undertakes to return to her/his regular employment with the Company for a period of time that is not less than the Member’s Leave Period.
Benefits payable under this Section shall be equal to and not exceed the amount in the Member`s Account. The Company shall pay to the Member the accrued interest on her/his Member`s Account as of each December 31st while the Member participates in the Plan until the last day of the Leave Period or withdrawal from the Plan or death of the Member.
The Member may elect to commence the benefit payments at the beginning of the Leave Period either in one lump sum or in equal monthly installments to the end of the Leave Period. Installment payments shall commence with the regularly scheduled mid-month
pay period one month following commencement of the Leave Period.
During the Leave Period, the Member shall not be entitled to receive benefits from the WIP or workers’ compensation and supplements thereto. The Member may be eligible for short term or long-term disability benefits upon the expected date of return to work if unable to work due to a covered disability incurred during the Leave Period, subject to the terms and conditions of the WIP.
DEATH WHILE A MEMBER OF THE PLAN
If a Member dies during the Contribution Period, the Company shall pay to the Member’s estate the total contributions plus interest, subject to required statutory deductions, within 30 calendar days following notification of death.
If the Member dies before receiving all installments due during the Leave Period, the Company shall pay to the Member`s estate a lump sum payment equal to the amount in the Member`s Account and any interest accrued thereon, subject to required statutory deductions, within 30 calendar days following notification of death.
TERMINATION OF EMPLOYMENT
Within 30 calendar days from termination of employment, the employee will receive a lump sum payment equal to the amount in the Member`s Account and any interest accrued thereon, subject to required statutory deductions.
DEDUCTIONS
In accordance with Applicable Legislation, employment insurance (E.I.) deductions will continue to be based on the Member`s gross earnings before any salary deferral during the Contribution Period. During the Leave Period, E.I. will not be deducted. All other compulsory deductions will be based on the gross earnings after salary deferral during the Contribution Period and will be deducted based on the deferred salary payments during the Leave Period.
The Company will pay the employer’s portion of Canada Pension Plan premiums on all payments to Members or to Member’s estates, where required under Applicable Legislation.
PLAN SERVICES
The Company shall:
(a) Establish and maintain separate records for each Member. The Member`s Account shall be comprised of two parts: Part A shall represent the total amount of employment salary deferred. Part B shall represent the interest on the Member`s Account at a guaranteed rate of Prime less 3%.
(b) Provide quarterly benefit statements to each Member.
TRUSTEE AND INVESTMENT DEALER
The Trustee and Investment Dealer will be appointed from time to time by the Company. The Trustee and Investment Dealer roles will be to provide trust and investment services, respectively, for the Plan as per the Agreement including the investment of the Plan’s contributions on instructions from the Company.
The Trustee’s and Investment Dealer’s fees shall be paid by the Company.
This AGREEMENT signed
________________________________ _____________________________
For the Union For the Company