SOA_FAP_Mod3Exercise01-05ModelSolution.pdf - Model Solution...

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Model Solution for Module 3 Exercise: Chocolate Factory— Risks in Groups How Did You Do? On the following pages you’ll find a model solution to the exercise you just completed. Spend at least 30 minutes comparing your deliverable to this solution. Consider the criteria below as you compare your results to the attached. Does Not Meet Minimum Requirements Did not perform all the tasks involved in providing accurate and complete background analysis of the risks associated with the selection of a defined contribution pension plan to provide a post-retirement income program for The Chocolate Factory employees. Did not consider and discuss both the underlying risks for the individual employees and the risks for The Chocolate Factory; did not identify and discuss the risks that should be monitored. Ineffectively communicates answers or gives inappropriate answers to each question posted in “Task 7: Tie It All Together.” Is poorly organized. Meets Minimum Requirements Performs all the tasks involved in providing accurate and complete background analysis of the potential approaches that may be used to provide the post-retirement income program for The Chocolate Factory. Specifically: Confirms whether or not the proposed defined benefit formula is appropriate for employees earning $50,000, $100,000 and $200,000 in 2006. Derives an ideal defined contribution formula for employees career employees. Estimates the effect of a 2% per annum change in the expected fund rate of return. Estimates the effect of a 1% per annum increase in expected inflation assuming a constant real rate of return and the effect of a 1% per annum decrease in expected inflation assuming a constant real rate of return. Determines whether the proposed defined contribution formula is appropriate; recommends changes to the proposed defined contribution pension for any employee where the resulting target pension is inappropriate; and determines The Chocolate Factory’s aggregate contribution should a revised formula be used. Compares the recommended defined contribution formula to the team’s proposed defined benefit formula. Determines the target pension members can expect to receive with a 95% probability under the recommended defined contribution plan, assuming the simulation results are reliable; and, recommends changes to the proposed defined contribution pension for any employee where the resulting target pension is inappropriate. Considers and discusses both the underlying risks for the individual employees and the risks for The Chocolate Factory; identifies and discusses the risks that should be monitored. Effectively communicates, in a well-organized memo, complete and accurate answers to each question posted in “Task 7: Tie It All Together.” How did you do? Once you’ve compared your results to the following pages, return to the Fundamentals of Actuarial Practice course and complete the self-assessment.

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