an alternative program for the salaried employees of TechCo.
Justify your recommendation.
**END OF EXAMINATION**
MORNING SESSION
COURSE 8: Fall 2003 -8- GO TO NEXT PAGE
Retirement Benefits,
Comprehensive Segment – U.S.
Afternoon Session
**BEGINNING OF EXAMINATION 8**
COMPREHENSIVE SEGMENT – U.S.
AFTERNOON SESSION
All Questions pertain to the Case Study8. (8 points) NOC is considering laying off part of its union workforce to reduce costs. In
order to avoid layoffs, the union has agreed to discuss changes to the Full-Time Hourly
Union Pension Plan.
NOC has proposed to freeze accruals in the pension plan as of September 30, 2003.
Under the frozen plan, benefits would be determined for all active participants based on
service earned through September 30, 2003, and no future benefits would accrue.
The union offers a counter proposal to reduce future accruals as of January 1, 2004.
Under the union’s proposal, benefits would accrue to December 31, 2003 at the $75 rate.
After December 31, 2003, benefits would accrue at a rate of $50 per year of service
earned after December 31, 2003.
(a) Estimate the change in NOC’s 2003 accounting expense if NOC’s proposal is
adopted.
(b) If the union proposal is adopted, estimate the change in the 2003 and the 2004
accounting expense.
(c) Describe the effect of NOC’s proposal from both the employee and the employer
perspectives.
COURSE 8: Fall 2003 -9- GO TO NEXT PAGE
Retirement Benefits,
Comprehensive Segment – U.S.
Afternoon Session
All Questions pertain to the Case Study
9. (15 points) NOC is purchasing a refinery from ABC Company, and will offer
employment to all of the employees at the refinery. All refinery employees are members
of the ABC Refinery Pension Plan and the ABC Refinery Post-Retirement Medical plan.
There are no other members of these plans.
You are given:
Provisions of the ABC Refinery Plans
The ABC Refinery Pension Plan provisions are as follows:
•Normal Retirement Age: Age 65
•Early Retirement Age: Age 60
•Normal Retirement Benefit: 1.75% of final earnings times years of service
•Early Retirement Reduction: Actuarially equivalent
•Normal Form of Benefit: If married, 50% joint & survivor, without
reduction. If not married, single life annuity
•Post-Retirement Indexing: Lesser of 1% or CPI
•Termination and Pre-Retirement Death Benefits: Lump sum value of the
accrued benefit, excluding indexation.
The ABC Refinery Post-Retirement Medical Plan provisions are exactly the same
as NOC’s.
COURSE 8: Fall 2003 -10- GO TO NEXT PAGE
Retirement Benefits,
Comprehensive Segment – U.S.
Afternoon Session
All Questions pertain to the Case Study
9. Continued
January 1, 2003 Membership Data – ABC Refinery Plans
The membership demographics of the refinery’s employees are described in the
following table:
Age <5 years
of service
5-10 years
of service
>10 years
of service
Total
<55 # Participants
Avg Salary
50
40,000
100
42,000
50
46,000
200
42,500
55-65 # Participants
Avg Salary
500
44,000
1,500
48,000
2,500
50,000
4,500
51,444
>65 # Participants
Avg Salary
150

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