7. (11 points) NOC would like to amend the Full-Time Hourly Union Pension Plan to
encourage members to retire later. The union has proposed a voluntary phased retirement
program that would allow employees to:
• work 50% of full-time at current hourly rates;
• receive 50% of early retirement pension benefits based on accrued service;
• earn 50% of regular pension credit for future service; and
• retain full-time eligibility and cost-sharing for other employee benefits.
(a) Critique the union proposal from the perspective of the employer.
(b) Describe how a Deferred Retirement Option Plan (DROP) could be used instead
of the union’s proposal.
(c) Outline the considerations in preparing the next accounting valuation if a DROP
is implemented.
COURSE 8: Fall 2005 - 6 - STOP
Retirement Benefits,
Comprehensive Segment – Canada
Afternoon Session
Questions 7 – 9 pertain to the Case Study
8. (10 points) On January 1, 2005, NOC purchased non-participating annuity contracts for
all inactive participants in the Full-Time Hourly Union Pension Plan for $95,000,000.
The Normal Retirement Benefit rate was subsequently increased from $75 to $80
effective January 1, 2005.
You are given:
ABO as of December 31, 2004:
• Inactive participants: $ 105,600,000
• Active participants: $ 500,433,000
ABO as of December 31, 2005: $ 476,500,000
Contribution on July 1, 2005: $ 100,000,000
Benefit payments in 2005: $ 225,000
Market Value of Assets as of December 31, 2005: $ 295,000,000
(a) Determine the 2005 pension expense.
(b) Develop the change in benefit obligation, change in plan assets, and a
reconciliation of the ABO to the accrued benefit asset/liability as required by
CICA 3461 for NOC’s financial statements as of December 31, 2005.
9. (9 points) In Gevrey, multiemployer retiree medical plan benefits may be prefunded at
the discretion of the board of trustees. The contributions to the fund are tax deductible.
You are the actuary for a multiemployer retiree medical plan in Gevrey. The plan
provisions are identical to the NOC plan. The plan is contracted to be funded on a cents
per hour basis.
A recent medical breakthrough will increase life expectancy by 10 years. As a result, the
plan is no longer fully funded.
Analyze the impact on the plan as it relates to funding, design and participation.
**END OF EXAMINATION**
AFTERNOON SESSION