SOA真題November2004Course8RC
COURSE8:Fall2004-1-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
MorningSession
**BEGINNINGOFEXAMINATION8**
COMPREHENSIVESEGMENT-CANADA
MORNINGSESSION
1.(9points)ApensioncommitteememberatyourCanadianbasedclientbelievesthatthe
interestrateforthedefinedbenefitplanvaluationsistoolow.Hesupportshisviewby
statingthatahigherinterestratewouldlowerthecostoftheplan.Asecondcommittee
memberarguedagainstraisingtheassumption.
Thechairmanofthepensioncommitteehasaskedyoutoleadadiscussionatthenext
pensioncommitteemeetingregardingtheinterestrateassumptionsforfundingpurposes
andforaccountingpurposes,andtheireffectontheinterestedparties.
Outlineyourdiscussion.
COURSE8:Fall2004-2-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
MorningSession
Questions2–6pertaintotheCaseStudy
2.(12points)TheCFOofNOChasdecidedtotakeamoreactiveroleinmanagingNOC’s
pensionplanassets.InreviewingtheperformanceoftheNationalOilFull-TimeHourly
UnionPensionPlan,heisdisturbedbytherecentabsoluteperformance.Heproposes
thattheassetsshouldbemovedto100%domesticfixedincomebecausethatassetclass
hasoutperformedtheotherassetclassesin2ofthelast3years.
Youaregiven:
CalendarYearRfRmβ
20034%21%0.9
20025%-5%0.85
20014%1%0.8
AdditionalInformationfor2003
TargetPortfolioMix
for2003BenchmarkReturnin
2003
DomesticLargeCap
Equities
35%30%
DomesticSmallCap
Equities
25%47%
DomesticFixedIncome25%4%
InternationalEquities10%39%
RealEstate5%9%
Cash0%1%
(a)DescribethefeaturesinaStatementofInvestmentPoliciesandProceduresthat
couldhelptheCFOinhisevaluationofthePlan’sperformance.
(b)Calculatethe2001,2002&2003RiskAdjustedRateofReturnforthefund.
(c)Calculatethe2001,2002&2003TreynorMeasureforthefund.
(d)Evaluatetheinvestmentperformanceofthefundduring2003.
(e)CritiquetheCFO’sproposal.
COURSE8:Fall2004-3-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
MorningSession
Questions2–6pertaintotheCaseStudy
3.(8points)ThegovernmentofGevreyisconcernedthatworkersareharmedbyswitching
companiesperiodicallythroughouttheircareers.Thegovernmenthasaskedforyour
assistanceinunderstandingthisissue.
(a)Describetheimplicationsofswitchingemployersonworkers’retirementbenefits.
(b)SuggestpoliciesthatcouldbeadoptedbythegovernmentofGevreytoimprove
theportabilityofprivateretirementbenefits.
(c)Describehowthesepoliciesaddresstheissuesidentifiedin(a).
(d)DescribetheimpactofthesepoliciesonNOC.
4.(10points)AuditorsinGevreyhavecriticizeditscurrentpensionaccountingstandards
asbeingmisleadingtoreadersoffinancialstatementsandcontrarytotheteachingsof
financialeconomics.
TheDepartmentofAccountingStandardsisconsideringchangestothecurrent
accountingrulestoachievethefollowinggoals:
•Increasedtransparency;
•Improvedconsistencywithhowfinancialeconomicsmeasures“risk”;and
•Morepracticalandusableinformationforfinancialstatementreaders.
(a)CritiquethecurrentaccountingrulesinlightoftheDepartment’sgoals.
(b)RecommendchangestotheaccountingrulestomeettheDepartment’sgoals.
COURSE8:Fall2004-4-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
MorningSession
Questions2–6pertaintotheCaseStudy
5.(9points)Inordertoattractandretainemployeesinseniorpositions,NOCwantsto
introduceterminalfundingbyprovidingtheoptionsofaninsuredannuityoralumpsum
benefitfortheNationalOilFull-TimeSalariedSupplementalRetirementPlan(SRP).
Thelumpsumwillbeequivalenttothenetpresentvalueoftheafter-taxannualSRP
benefit.Theafter-taxpaymentfromtheinsuredannuitywillbeequaltotheafter-tax
annualSRPbenefit.NOCwillreimbursethememberforanyimmediatetaxespayable
underbothoptions.
Youaregiven:
•Pat,aseniorexecutiveofNOC,willretirewithanannualpensionundertheSRP
of$100,000.
•Thebefore-taxdiscountrateusedbyNOCtocalculatelumpsumbenefitsis10%.
•LumpsumannuityfactorsatPat’sretirementdateare:
Atadiscountrateof10%:9.5
Atadiscountrateof6%:13.5
•ThecostofbuyingPat’sannuityatretirementis$10forevery$1ofannual
benefitpurchased.
Gevrey’staxrulesforsinglepremiumannuitycontractsare:
•Theemployerobtainsadeductionforanypremiumsitpays;
•Theexecutiveisimmediatelytaxedonthefullpurchasepriceoftheannuity;
•Aproportionatepartofeachannuitypaymentwouldbedeemedatax-freereturn
ofthepremium(“exclusionratio”)andthebalanceistaxableattheindividualtax
rate.Forthispurpose,alifeexpectancyof20yearsisused.
(a)DescribetheissuesthatNOCmustaddressinadoptingaterminalfunding
approach.
(b)Calculatethecostdifferentialbetweenthetwoterminalfundingoptions.
Showyourwork.
COURSE8:Fall2004-5-S
RetirementBenefits,
ComprehensiveSegment-Canada
MorningSession
Questions2–6pertaintotheCaseStudy 6.(12points)NOCisproposingthefollowingchangestotheRetireeHealthBenefit
programofitssalariedemployees:
•EffectiveJanuary1,2004,theprogramwillbeclosedtonewemployees;
•Salariedemployeeswithlessthan20yearsofserviceatJanuary1,2004whodo
notretirebeforeJanuary1,2005willnotbeeligibleforthebenefitafterthatdate;
and
•Forallothersalariedemployees,effectiveJanuary1,2005,theportionofthe
premiumpaidbytheprogramwillbeinaccordancewiththefollowingschedule:
YearsofServiceat
Retirement
PlanRetiree/Spouse
20-2450%50%
25-2975%25%
30+100%0%
NOCwantsananalysisoftheproposedchanges,inrespectofthefollowinggroupsof
employees:
•GroupA–thesalariedemployeeswhoarecurrentlyeligibleforthebenefitsbut
wholosethebenefitsiftheydonotretireinthenextyear;
•GroupB–thesalariedemployeesotherthanthoseinGroupAwhoarenolonger
eligibletoreceivebenefitsundertheprogram;
•GroupC–thesalariedemployeeswhoareeligible,undercurrentassumptions,to
receivereducedbenefitsundertheprogram;and
•GroupD–thesalariedemployeesnotaffectedbytheproposedchanges.
(a)(7points)BasedontheageandservicedistributionoftheNOCFull-Time
SalariedPensionPlanatJanuary1,2004,estimatethenumberofsalaried
employeesinGroupsA,B,CandD.Identifyanyassumptionsyouusedinyour
estimate.
(b)(3points)Describeanyspecialaccountingtreatmentsthatareapplicablefor
GroupsA,B,CandD.
(c)(2points)DescribetheconsequencestoNOCoftheproposedchanges.
**ENDOFEXAMINATION**
MORNINGSESSION
COURSE8:Fall2004-6-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
AfternoonSession
**BEGINNINGOFEXAMINATION8**
COMPREHENSIVESEGMENT-CANADA
AFTERNOONSESSION
Questions7–9pertaintotheCaseStudy
7.(8points)YourclientNOCisbudgetingforfiscalyear2005inJuneof2004.Theyhave
askedyoutoestimatethefiscalyear2005pensionexpensefortheNationalOilFull-Time
HourlyUnionPensionPlan.
Youaregiven(allnumbersin$000’s):
AccruedBenefitObligationatJanuary1,2004with6%discountrate=560,919
ServiceCostatJanuary1,2004with6%discountrate=27,169
2005EstimatedEmployerContributions=38,000
2005EstimatedBenefitPayments=12,100
(a)Describetheconsiderationsforselectingthereturnonassetsduring2004andthe
discountratefor2005forbudgetingpurposes.
(b)Estimatethe2005pensionexpenseusingadiscountrateof6%andassumingno
othergainsorlosses.
(c)Describeandestimatetheeffectofachangeintheeconomicenvironmentoneach
componentofyourestimateofthe2005pensionexpense.
COURSE8:Fall2004-7-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
AfternoonSession
Questions7–9pertaintotheCaseStudy
8.(12points)NOC’sVice-PresidentofHumanResourceshasaskedyoutopropose
changestoNOC’sFull-TimeSalariedPensionPlaninordertoreducecost.Shebelieves
thatthepensionplanistoogenerousforparticipantswhoretirebeforeage60,andshe
wantsplanparticipantstoretirelaterinthefuture.
(a)Describetheprocessyouwouldundertakeinperformingaplandesignproject.
(b)RecommendpossibleplandesignchangestomeetthegoalsoftheVice-President
ofHumanResources.Providesupportforyourrecommendation.
(c)ThegovernmentofGevreyisproposingintroducingapensionadjustmentsystem
similartothatdefinedbytheCanadianIncomeTaxAct.Describehowyour
responseto(b)wouldchangeasaresultofthisproposal.
COURSE8:Fall2004-8-S
RetirementBenefits,
ComprehensiveSegment-Canada
AfternoonSession
Questions7–9pertaintotheCaseStudy
9.(10points)Gevreyisproposingtheintroductionofadefinedcontribution(DC)social
insuranceprogram(SIP)effectiveJanuary1,2004.Benefitswouldbefundedby
employeeandemployercontributions,asfollows:
•Employeesandemployersbothcontribute5%ofpayonearningsupto$45,000(the
“WageBase”).
•TheWageBasechangesinlinewithchangesintheaveragewageinGevrey.
•Contributionsareinvestedatthedirectionoftheemployeesbyprivatelymanaged
investmentcompaniesselectedbyGevrey.
•Accountbalancesareavailabletoprovidedeath,disabilityandretirementbenefits.
•Accountbalancesmustbeusedtopurchaseannuitiesnolaterthanage65.
(a)DescribethechallengesthatothercountrieswithDCbasedsocialinsurance
systemshavefaced.
(b)Recommendchangestotheproposedprogram.Justifyyourrecommendation.
(c)Inordertomaintainanemployee’stotalbenefit(DCSIPpluscurrentplan)ata
levelequivalenttothatprovidedunderthecurrentsalariedplanprovisions,the
CFOofNOCisproposingtoamendtheNationalOilFull-TimeSalariedPension
Planbenefitto0.5%ofbestaverageearningsuptotheWageBase,plus2.0%of
bestaverageearningsinexcessoftheWageBase.
Critiquethisproposal.
**ENDOFEXAMINATION**
AFTERNOONSESSION
COURSE8:Fall2004-1-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
MorningSession
**BEGINNINGOFEXAMINATION8**
COMPREHENSIVESEGMENT-CANADA
MORNINGSESSION
1.(9points)ApensioncommitteememberatyourCanadianbasedclientbelievesthatthe
interestrateforthedefinedbenefitplanvaluationsistoolow.Hesupportshisviewby
statingthatahigherinterestratewouldlowerthecostoftheplan.Asecondcommittee
memberarguedagainstraisingtheassumption.
Thechairmanofthepensioncommitteehasaskedyoutoleadadiscussionatthenext
pensioncommitteemeetingregardingtheinterestrateassumptionsforfundingpurposes
andforaccountingpurposes,andtheireffectontheinterestedparties.
Outlineyourdiscussion.
COURSE8:Fall2004-2-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
MorningSession
Questions2–6pertaintotheCaseStudy
2.(12points)TheCFOofNOChasdecidedtotakeamoreactiveroleinmanagingNOC’s
pensionplanassets.InreviewingtheperformanceoftheNationalOilFull-TimeHourly
UnionPensionPlan,heisdisturbedbytherecentabsoluteperformance.Heproposes
thattheassetsshouldbemovedto100%domesticfixedincomebecausethatassetclass
hasoutperformedtheotherassetclassesin2ofthelast3years.
Youaregiven:
CalendarYearRfRmβ
20034%21%0.9
20025%-5%0.85
20014%1%0.8
AdditionalInformationfor2003
TargetPortfolioMix
for2003BenchmarkReturnin
2003
DomesticLargeCap
Equities
35%30%
DomesticSmallCap
Equities
25%47%
DomesticFixedIncome25%4%
InternationalEquities10%39%
RealEstate5%9%
Cash0%1%
(a)DescribethefeaturesinaStatementofInvestmentPoliciesandProceduresthat
couldhelptheCFOinhisevaluationofthePlan’sperformance.
(b)Calculatethe2001,2002&2003RiskAdjustedRateofReturnforthefund.
(c)Calculatethe2001,2002&2003TreynorMeasureforthefund.
(d)Evaluatetheinvestmentperformanceofthefundduring2003.
(e)CritiquetheCFO’sproposal.
COURSE8:Fall2004-3-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
MorningSession
Questions2–6pertaintotheCaseStudy
3.(8points)ThegovernmentofGevreyisconcernedthatworkersareharmedbyswitching
companiesperiodicallythroughouttheircareers.Thegovernmenthasaskedforyour
assistanceinunderstandingthisissue.
(a)Describetheimplicationsofswitchingemployersonworkers’retirementbenefits.
(b)SuggestpoliciesthatcouldbeadoptedbythegovernmentofGevreytoimprove
theportabilityofprivateretirementbenefits.
(c)Describehowthesepoliciesaddresstheissuesidentifiedin(a).
(d)DescribetheimpactofthesepoliciesonNOC.
4.(10points)AuditorsinGevreyhavecriticizeditscurrentpensionaccountingstandards
asbeingmisleadingtoreadersoffinancialstatementsandcontrarytotheteachingsof
financialeconomics.
TheDepartmentofAccountingStandardsisconsideringchangestothecurrent
accountingrulestoachievethefollowinggoals:
•Increasedtransparency;
•Improvedconsistencywithhowfinancialeconomicsmeasures“risk”;and
•Morepracticalandusableinformationforfinancialstatementreaders.
(a)CritiquethecurrentaccountingrulesinlightoftheDepartment’sgoals.
(b)RecommendchangestotheaccountingrulestomeettheDepartment’sgoals.
COURSE8:Fall2004-4-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
MorningSession
Questions2–6pertaintotheCaseStudy
5.(9points)Inordertoattractandretainemployeesinseniorpositions,NOCwantsto
introduceterminalfundingbyprovidingtheoptionsofaninsuredannuityoralumpsum
benefitfortheNationalOilFull-TimeSalariedSupplementalRetirementPlan(SRP).
Thelumpsumwillbeequivalenttothenetpresentvalueoftheafter-taxannualSRP
benefit.Theafter-taxpaymentfromtheinsuredannuitywillbeequaltotheafter-tax
annualSRPbenefit.NOCwillreimbursethememberforanyimmediatetaxespayable
underbothoptions.
Youaregiven:
•Pat,aseniorexecutiveofNOC,willretirewithanannualpensionundertheSRP
of$100,000.
•Thebefore-taxdiscountrateusedbyNOCtocalculatelumpsumbenefitsis10%.
•LumpsumannuityfactorsatPat’sretirementdateare:
Atadiscountrateof10%:9.5
Atadiscountrateof6%:13.5
•ThecostofbuyingPat’sannuityatretirementis$10forevery$1ofannual
benefitpurchased.
Gevrey’staxrulesforsinglepremiumannuitycontractsare:
•Theemployerobtainsadeductionforanypremiumsitpays;
•Theexecutiveisimmediatelytaxedonthefullpurchasepriceoftheannuity;
•Aproportionatepartofeachannuitypaymentwouldbedeemedatax-freereturn
ofthepremium(“exclusionratio”)andthebalanceistaxableattheindividualtax
rate.Forthispurpose,alifeexpectancyof20yearsisused.
(a)DescribetheissuesthatNOCmustaddressinadoptingaterminalfunding
approach.
(b)Calculatethecostdifferentialbetweenthetwoterminalfundingoptions.
Showyourwork.
COURSE8:Fall2004-5-S
RetirementBenefits,
ComprehensiveSegment-Canada
MorningSession
Questions2–6pertaintotheCaseStudy 6.(12points)NOCisproposingthefollowingchangestotheRetireeHealthBenefit
programofitssalariedemployees:
•EffectiveJanuary1,2004,theprogramwillbeclosedtonewemployees;
•Salariedemployeeswithlessthan20yearsofserviceatJanuary1,2004whodo
notretirebeforeJanuary1,2005willnotbeeligibleforthebenefitafterthatdate;
and
•Forallothersalariedemployees,effectiveJanuary1,2005,theportionofthe
premiumpaidbytheprogramwillbeinaccordancewiththefollowingschedule:
YearsofServiceat
Retirement
PlanRetiree/Spouse
20-2450%50%
25-2975%25%
30+100%0%
NOCwantsananalysisoftheproposedchanges,inrespectofthefollowinggroupsof
employees:
•GroupA–thesalariedemployeeswhoarecurrentlyeligibleforthebenefitsbut
wholosethebenefitsiftheydonotretireinthenextyear;
•GroupB–thesalariedemployeesotherthanthoseinGroupAwhoarenolonger
eligibletoreceivebenefitsundertheprogram;
•GroupC–thesalariedemployeeswhoareeligible,undercurrentassumptions,to
receivereducedbenefitsundertheprogram;and
•GroupD–thesalariedemployeesnotaffectedbytheproposedchanges.
(a)(7points)BasedontheageandservicedistributionoftheNOCFull-Time
SalariedPensionPlanatJanuary1,2004,estimatethenumberofsalaried
employeesinGroupsA,B,CandD.Identifyanyassumptionsyouusedinyour
estimate.
(b)(3points)Describeanyspecialaccountingtreatmentsthatareapplicablefor
GroupsA,B,CandD.
(c)(2points)DescribetheconsequencestoNOCoftheproposedchanges.
**ENDOFEXAMINATION**
MORNINGSESSION
COURSE8:Fall2004-6-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
AfternoonSession
**BEGINNINGOFEXAMINATION8**
COMPREHENSIVESEGMENT-CANADA
AFTERNOONSESSION
Questions7–9pertaintotheCaseStudy
7.(8points)YourclientNOCisbudgetingforfiscalyear2005inJuneof2004.Theyhave
askedyoutoestimatethefiscalyear2005pensionexpensefortheNationalOilFull-Time
HourlyUnionPensionPlan.
Youaregiven(allnumbersin$000’s):
AccruedBenefitObligationatJanuary1,2004with6%discountrate=560,919
ServiceCostatJanuary1,2004with6%discountrate=27,169
2005EstimatedEmployerContributions=38,000
2005EstimatedBenefitPayments=12,100
(a)Describetheconsiderationsforselectingthereturnonassetsduring2004andthe
discountratefor2005forbudgetingpurposes.
(b)Estimatethe2005pensionexpenseusingadiscountrateof6%andassumingno
othergainsorlosses.
(c)Describeandestimatetheeffectofachangeintheeconomicenvironmentoneach
componentofyourestimateofthe2005pensionexpense.
COURSE8:Fall2004-7-GOTONEXTPAGE
RetirementBenefits,
ComprehensiveSegment-Canada
AfternoonSession
Questions7–9pertaintotheCaseStudy
8.(12points)NOC’sVice-PresidentofHumanResourceshasaskedyoutopropose
changestoNOC’sFull-TimeSalariedPensionPlaninordertoreducecost.Shebelieves
thatthepensionplanistoogenerousforparticipantswhoretirebeforeage60,andshe
wantsplanparticipantstoretirelaterinthefuture.
(a)Describetheprocessyouwouldundertakeinperformingaplandesignproject.
(b)RecommendpossibleplandesignchangestomeetthegoalsoftheVice-President
ofHumanResources.Providesupportforyourrecommendation.
(c)ThegovernmentofGevreyisproposingintroducingapensionadjustmentsystem
similartothatdefinedbytheCanadianIncomeTaxAct.Describehowyour
responseto(b)wouldchangeasaresultofthisproposal.
COURSE8:Fall2004-8-S
RetirementBenefits,
ComprehensiveSegment-Canada
AfternoonSession
Questions7–9pertaintotheCaseStudy
9.(10points)Gevreyisproposingtheintroductionofadefinedcontribution(DC)social
insuranceprogram(SIP)effectiveJanuary1,2004.Benefitswouldbefundedby
employeeandemployercontributions,asfollows:
•Employeesandemployersbothcontribute5%ofpayonearningsupto$45,000(the
“WageBase”).
•TheWageBasechangesinlinewithchangesintheaveragewageinGevrey.
•Contributionsareinvestedatthedirectionoftheemployeesbyprivatelymanaged
investmentcompaniesselectedbyGevrey.
•Accountbalancesareavailabletoprovidedeath,disabilityandretirementbenefits.
•Accountbalancesmustbeusedtopurchaseannuitiesnolaterthanage65.
(a)DescribethechallengesthatothercountrieswithDCbasedsocialinsurance
systemshavefaced.
(b)Recommendchangestotheproposedprogram.Justifyyourrecommendation.
(c)Inordertomaintainanemployee’stotalbenefit(DCSIPpluscurrentplan)ata
levelequivalenttothatprovidedunderthecurrentsalariedplanprovisions,the
CFOofNOCisproposingtoamendtheNationalOilFull-TimeSalariedPension
Planbenefitto0.5%ofbestaverageearningsuptotheWageBase,plus2.0%of
bestaverageearningsinexcessoftheWageBase.
Critiquethisproposal.
**ENDOFEXAMINATION**
AFTERNOONSESSION