47,000
350
52,000
250
57,000
750
52,667
Total # Participants
Avg Salary
700
44,357
1,950
48,410
2,800
55,018
5,450
51,284
The ABC Refinery Plans have no retirees.
COURSE 8: Fall 2003 -11- GO TO NEXT PAGE
Retirement Benefits,
Comprehensive Segment – U.S.
Afternoon Session
All Questions pertain to the Case Study9. Continued
January 1, 2003 Accounting Valuation Results for the ABC Refinery Plans
Pension Plan Post-Retirement
Medical Plan
Market value of assets $350,000,000 $0
PBO/APBO
Active members $325,000,000 $280,000,000
Inactive members 0 0
Total $325,000,000 $280,000,000
Service Cost $21,000,000 $15,000,000
Assumptions and Methods
Interest 8.5%
Salary scale 5.0%
Mortality GAM83
Turnover None
Retirement 100% at age 62
Asset valuation method Market Value
Actuarial cost method Projected unit credit
COURSE 8: Fall 2003 -12- GO TO NEXT PAGE
Retirement Benefits,
Comprehensive Segment – U.S.
Afternoon Session
All Questions pertain to the Case Study
9. Continued
Provisions of the Draft Purchase and Sale Agreement
The main provisions of the draft purchase and sale agreement, prepared by ABC,
for discussion with NOC, are:
Pension Benefits
•Accrued benefits under the ABC Refinery Pension Plan will become
the responsibility of NOC under its Full-Time Salaried Pension Plan.
•ABC will transfer the ABC Refinery Pension Plan assets to the NOC
plan, subject to regulatory approval
•NOC is required to provide “substantially similar” pension benefits for
refinery employees following the sale date.
Post – Retirement Medical Benefits
•NOC will be responsible for providing retiree medical benefits for
refinery employees.
•ABC will make a lump sum cash payment to NOC equal to the
accounting liabilities for post-retirement medical benefits determined
using the ABC accounting assumptions.
Analyze the terms of the agreement and recommend revisions. Justify your
recommendation.
COURSE 8: Fall 2003 -13- STOP
Retirement Benefits,
Comprehensive Segment – U.S.
Morning Session
All Questions pertain to the Case Study
10. (7 points) The CEO of NOC is targeting a substantial reduction in operating expenses.
Three alternatives are being considered:
(i) An employee lay-off with severance benefits.
(ii) A temporary early retirement pension enhancement.
(iii) Phased-retirement.
(a) Describe advantages and disadvantages of each alternative.
(b) Describe the accounting implications of each alternative.
**END OF EXAMINATION**
AFTERNOON SESSION

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