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course 8: fall 2003 -1- go to next page retirement benefits, comprehensive segment – canada morning session society of actuaries course 8rc fall 2003 **beginning of examination 8** comprehensive segment – canada morning session all questions pertain to the case study 1. (7 points) a noc executive with 30 years of service plans to retire one year from now at age 62. it is important to noc that the executive transitions to retirement over the next four years. (a) describe the benefit incentives that can be offered to help retain this executive. (b) if you were hired by this executive, provide your recommendation regarding the negotiation of benefits. (c) explain how your answer to (a) would be different if the executive had only eight years of service with noc. (d) identify the additional considerations that would exist if, instead of being hired by the executive, you were hired by noc to provide advice to the executive. course 8: fall 2003 -2- go to next page retirement benefits, comprehensive segment – canada morning session all questions pertain to the case study 2. (11 points) on june 30, 2003, noc purchased a non-participating annuity contract to cover the obligations of all the pensioners in the full-time hourly union pension plan. you are given: •the contract cost was $125 million. •as of june 30, 2003, noc has recorded half of its 2003 pension expense and contributed half of its 2003 contribution. •a discount rate of 6.0% was appropriate on june 30, 2003. •valuation results as of june 30, 2003, immediately before the annuity purchase: using a 6.5% discount rate using a 6.0% discount rate (all dollars in 000’s) abo active participants $377,000 $400,000 deferred vested participants 0 0 pensioners 103,000 108,000 total abo $480,000 $508,000 service cost $24,000 $28,000 market value of assets $320,000 $320,000 average remaining service period 11.5 11.5 (a) (5 points) calculate the pension expense for the year 2003. show all work. (b) (1 point) describe the additional considerations if a participating annuity contract were purchased. (c) (3 points) explain how your answer to (a) would differ under ias 19 and the rationale for the different requirements. (d) (2 points) describe the information noc will have to provide the insurer for the purpose of obtaining a quote for the annuity contract. course 8: fall 2003 -3- go to next page retirement benefits, comprehensive segment – canada morning session all questions pertain to the case study 3. (6 points) noc’s board of directors has established the following funding policy for noc’s db erps: annual contributions equal to normal cost plus five-year amortization of unfunded actuarial accrued liability. the cfo of noc is concerned about the volatility of funding policy contributions. (a) explain the effects of different asset valuation methods on this volatility. (b) explain the effects of different asset class allocations on this volatility. course 8: fall 2003 -4- go to next page retirement benefits, comprehensive segment – canada morning session all questions pertain to the case study 4. (12 points) the law in gevrey has been changed to permit voluntary employee contributions of up to 5% of pay to a dc erp. the tax treatment of these contributions is the same as for contributions to a ppa. noc has decided to change the full- time hourly union pension plan from a flat dollar plan to a final average earnings plan, and to add a dc erp for the union employees. the main provisions of the new plans are: db erp normal retirement benefit: 1% of final five-year average earnings times years of service post retirement indexing: 3% per year optional form of benefit: lump sum the other provisions of the plan are the same as those in the noc full-time hourly union pension plan. dc erp employee contributions: voluntary matching employer contributions: 100% match on the first 3% of employee contributions form of benefit: lump sum or periodic pension (a) critique the design of the new plans from the perspective of noc. (b) critique the design of the new plans from the perspective of the hourly union employees. (c) assess the current hourly plan asset allocation for the new db plan. (d) describe the considerations in setting investment options to be offered to participants in the dc erp. (e) predict the socio-economic effects of the change in the law in gevrey. course 8: fall 2003 -5- go to next page retirement benefits, comprehensive segment – canada morning session all questions pertain to the case study  |
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