Lump Sum
The other provisions of the plan are the same as those in the NOC Full-Time Hourly
Union Pension Plan.
DC ERP
Employee Contributions: Voluntary
Matching Employer contributions: 100% match on the first 3% of employee
contributions
Form of Benefit: Lump sum or periodic pension
(a) Critique the design of the new plans from the perspective of NOC.
(b) Critique the design of the new plans from the perspective of the hourly union
employees.
(c) Assess the current hourly plan asset allocation for the new DB plan.
(d) Describe the considerations in setting investment options to be offered to
participants in the DC ERP.
(e) Predict the socio-economic effects of the change in the law in Vosne.
COURSE 8: Fall 2003 -5- GO TO NEXT PAGE
Retirement Benefits,
Comprehensive Segment – U.S.
Morning Session
All Questions pertain to the Case Study5. (6 points) NOC has just established a global subsidiary. Employees of the subsidiary
include transferred NOC employees and third-country nationals.
(a) Explain the issues affecting a retirement benefit policy for permanent and
temporary transfers between countries.
(b) Assuming that global comparability of retirement benefits is a corporate
objective, describe the issues NOC must consider.
COURSE 8: Fall 2003 -6- GO TO NEXT PAGE
Retirement Benefits,
Comprehensive Segment – U.S.
Morning Session
All Questions pertain to the Case Study
6. (10 points) NOC’s CEO has proposed an asset mix policy for the Full-Time Hourly
Union Pension Plan to achieve the following objectives:
•Minimize short-term volatility of the company’s pension expense.
•Minimize the long-term cost of the plan.
Proposed Asset Mix Policy
Domestic Equities (mostly oil companies) 60%
International Equities 5%
Domestic Fixed Income (short & medium-term
treasuries)
20%
Real Estate 15%
(a) Critique the proposed asset mix policy.
(b) You are going to perform an asset liability study for the NOC Full-Time Hourly
Union Pension Plan. Describe the inputs you would need and the process you
would undertake.
(c) Explain how the output of your asset liability study would be used to recommend
and justify an asset mix policy to the CEO.
COURSE 8: Fall 2003 -7- GO TO NEXT PAGE
Retirement Benefits,
Comprehensive Segment – U.S.
Afternoon Session
All Questions pertain to the Case Study
7. (8 points) NOC is acquiring TechCo, a private company in the country of Xanadu.
Xanadu has similar tax and pension legislation rules to Vosne, with the following
exceptions:
•Employees can contribute up to $5,000 per year to a DB ERP and $5,000 per year to
a DC ERP.
•Employee contributions are tax-deductible to the individual.
•Investment earnings on the employee contributions are not taxable until withdrawn.
•There are no PPAs.
Xanadu sponsors the following government-provided retirement income program:
•Both employees and employers contribute 5% of pay every year.
•The pension provided at retirement is equal to 50% of the best 3-year average
earnings, provided the contributory period was at least 30 years. A proportionately
reduced benefit is provided if less than 30 years of contributions were made to the
program.
•Eligibility for a pension is age 62.
•The pension is reduced by 5% per year that the retirement age precedes age 67.
TechCo did not provide either a DB ERP or a DC ERP.
(a) Evaluate the appropriateness of NOC establishing an ERP for the salaried
employees of TechCo.
(b) NOC’s VP of Human Resources is proposing a plan with the same provisions as
the Full-Time Salaried Pension Plan. Critique this proposal.
(c) Recommend

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