COURSE 8: November 2001 - 1 - GO TO NEXT PAGE Retirement Benefits, Pension Funding Mathematics Segment November, 2001- Course 8P Society of Actuaries **BEGINNING OF EXAMINATION** 1. (8 points) A new Company has established a contributory pension plan on January 1, 2001. You are given: Plan Provisions Retirement benefit: The greater of: (i) 2% of career average earnings, or (ii) actuarial equivalent of 200% of employee contributions accumulated at the fund rate of return Normal form of payment: 5 years certain and life thereafter, payable monthly in advance Normal retirement age: 65 Employee contributions: 4% of annual earnings, payable at the beginning of the year Termination or death benefit: Lump sum payment of 200% of employee contributions accumulated at the fund rate of return Actuarial equivalence: At valuation assumptions Actuarial Assumptions and Methods Interest rate: 6.5% per annum Retirement age: 65 Salary increases: 4.0% per annum Termination rates: Attained Age Year-end rates Up to 34 10% 35 and over 0% Other pre-retirement decrements: None Actuarial cost method: Unit Credit Actuarial value of assets: Market value &.&. : a 10.4 655 b12g . COURSE 8: November 2001 - 2 - GO TO NEXT PAGE Retirement Benefits, Pension Funding Mathematics Segment COURSE 8: November 2001 - 3 - GO TO NEXT PAGE Retirement Benefits, Pension Funding Mathematics Segment 1. (CONTINUED) Participant Data Group J Group K Number of employees 30 30 Age at 1/1/2001 30 50 2001 earnings per employee $40,000 $60,000 (a) Calculate the employer normal cost for 2001. (b) The employer contributes the employer normal cost on January 1, 2001. The fund earns 8% during 2001. At December 31, 2001, 6 employees in Group J terminate and 1 Group K employee dies. Determine the plan’s assets and accrued liability at January 1, 2002. (c) Calculate the gains and losses by source for 2001. Show all work. COURSE 8: November 2001 - 4 - GO TO NEXT PAGE Retirement Benefits, Pension Funding Mathematics Segment 2. (4 points) The CEO of ABC Company will receive a pension on retirement at age 65. You are given the following as at January 1, 2001: CEO’s Age: 50 CEO’s Service: 10 years CEO’s Salary: $300,000 per annum Pension Benefit: 2% of final year’s salary times years of service Form of Payment: Life only, payable monthly in advance The pension is paid from a basic plan and a supplemental executive plan. The maximum annual pension payable under the Basic Plan is $2,000 times years of service. The remainder is paid from the Supplemental Plan. ABC pre-funds the CEO’s entire pension. Actuarial Assumptions and Method Basic Plan Supplemental Plan Interest rate: 8% per annum 6% per annum Salary scale: 5% per annum 5% per annum Normal retirement age: 65 65 Pre-retirement decrements: None None Actuarial Cost Method: Projected Unit Credit (prorated on service) Entry Age Normal (level % of pay) &.&. a65 b12g 9.0 11.0 (a) Calculate the normal cost for the Basic Plan at January 1, 2001. (b) Calculate the normal cost for the Supplemental Plan at January 1, 2001. Show all work. COURSE 8: November 2001 - 5 - GO TO NEXT PAGE Retirement Benefits, Pension Funding Mathematics Segment THIS PAGE INTENTIONALLY LEFT BLANK COURSE 8: November 2001 - 6 - GO TO NEXT PAGE Retirement Benefits, Pension Funding Mathematics Segment