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
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COURSE 8: November 2001 - 6 - GO TO NEXT PAGE
Retirement Benefits,
Pension Funding Mathematics Segment

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