COURSE 8: Fall 2002 - 1 - GO TO NEXT PAGE
Retirement Benefits,
Comprehensive Segment
Morning Session
Fall 2002
Society of Actuaries
**BEGINNING OF EXAMINATION 8**
COMPREHENSIVE SEGMENT
MORNING SESSION
All Questions pertain to the Case Study
1. (9 points) NOC and its union have negotiated the following changes to NOC’s Full-
Time Hourly Union Pension Plan:
Vesting 100% immediate vesting
Early Retirement Age 50 with 10 years of service
Normal Retirement Benefit $80 per month times years of service for
terminations/retirements during 2003 and beyond.
Early Retirement Benefit Unreduced benefit at age 62 with 30 years of service,
otherwise reduced by 0.4% per month that early
retirement precedes Normal Retirement Age.
Disability Benefit Continued benefit accrual until participant commences
disability retirement benefit. Disabled participants can
receive their unreduced accrued Normal Retirement
Benefit at any age.
(a) Describe issues associated with the design and introduction of this disability
benefit.
(b) Describe the effect of these plan changes on the funding and expense actuarial
valuations and their results.
Course 8R
COURSE 8: Fall 2002 - 2 - GO TO NEXT PAGE
Retirement Benefits,
Comprehensive Segment
Morning Session
All Questions pertain to the Case Study
2. (8 points) NOC is acquiring SmallSub, a subsidiary of LargeCo. NOC is purchasing
the assets of SmallSub. Employees of SmallSub will be offered employment with
NOC after the sale.
The employees of SmallSub participate in a DB ERP, sponsored by LargeCo, with a
benefit of 3% of best average earnings times years of service with SmallSub. All
other provisions mirror NOC’s Full- Time Salaried Pension Plan.
There are two options being proposed for pension benefits for employees transferring
from SmallSub.
Option 1
All SmallSub employees hired by NOC join NOC’s Full-Time Salaried Pension Plan.
Their past service benefits remain with the SmallSub pension plan.
Option 2
NOC would become the plan sponsor of the existing SmallSub pension plan. The
benefit formula would be amended to the greater of:
•the frozen accrued benefit on the date of sale, or
•2% of best average earnings times years of service with SmallSub and NOC.
(a) Evaluate Option 1 and Option 2 from the perspective of NOC.
(b) Evaluate Option 1 and Option 2 from the perspective of the transferring
SmallSub employees.
COURSE 8: Fall 2002 - 3 - GO TO NEXT PAGE
Retirement Benefits,
Comprehensive Segment
Morning Session
All Questions pertain to the Case Study
3. (7 points) NOC is considering improving the early retirement benefit for the Full- Time Salaried
Pension Plan.
The early retirement benefit after January 1, 2003 would be the greater of:
(i) Accrued Benefit reduced by 0.25% per month that early retirement precedes
age 62, or
(ii) Accrued Benefit reduced by 0.25% per month that early retirement precedes 90
points (age plus service).
The following is a projected age/service table as at January 1, 2003 for the Full-Time Salaried
Pension Plan provided to you by NOC.
Age
(Years)
Service
(Years)
< 5 5-10 10-15 15-20 > 20 Totals
< 25 # Participants
Average Salary
185
29,800
70
43,000
–
–
–
–
–
–
255
33,424
25-35 # Participants

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