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8. (12 points) the vice-president of human resources of noc (vp of hr) is concerned about the increased level and volatility of the national oil company full-time salaried pension plan costs over the past few years. the vp of hr has proposed the following new cash balance design: • interest rate credit: 6% per annum • annual contribution credit: 5% of earnings you are the actuary for noc and have been hired by the vp of hr to assist with implementing the new plan design. for purposes of this question, assume that regulations governing pension plan benefits in vosne are identical to those in the united states. (a) identify the key plan design features that will need to be addressed in the proposed design pertaining to retirement and ancillary benefits. (b) propose two options for transitioning current plan participants to the new design. (c) describe the effect that each of your proposed options is expected to have on the benefits of current participants. (d) describe the effect that each of your proposed options is expected to have on the 2004 expense. course 8: fall 2004 - 8 - stop retirement benefits, comprehensive segment – u.s. afternoon session questions 7 – 9 pertain to the case study 9. (10 points) vosne is proposing the introduction of a defined contribution (dc) social insurance program (sip) effective january 1, 2004. benefits would be funded by employee and employer contributions, as follows: • employees and employers both contribute 5% of pay on earnings up to $45,000 (the “wage base”). • the wage base changes in line with changes in the average wage in vosne. • contributions are invested at the direction of the employees by privately managed investment companies selected by vosne. • account balances are available to provide death, disability and retirement benefits. • account balances must be used to purchase annuities no later than age 65. (a) describe the challenges that other countries with dc based social insurance systems have faced. (b) recommend changes to the proposed program. justify your recommendation. (c) in order to maintain an employee’s total benefit (dc sip plus current plan) at a level equivalent to that provided under the current salaried plan provisions, the cfo of noc is proposing to amend the national oil full-time salaried pension plan benefit to 0.5% of best average earnings up to the wage base, plus 2.0% of best average earnings in excess of the wage base. critique this proposal. **end of examination** afternoon session  |
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