{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

PFsolns - AS426a-FINAL EXAM SAMPLE SOLUTIONS Question 1{10...

Info icon This preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 6
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: AS426a-FINAL EXAM SAMPLE SOLUTIONS Question 1 {10 marks! (a) (4 marks)You have been asked to briefiy describe the purpose of the CPP actuarial report and methodology used. What key points would you present to give someone an overview of the report purpose and methodology? l> to review finaincial state of the CPP (at least every 3 years). > Analysis helps in determining/validating plan cont’n rates(re. current 9.95% ultimate rate & steady rate analysis) > steady state rate is rate that will stabilize ratio Assets/Expenditures in long run > revenues and expenditures are projected over ’75 years. Revenue includes contributions and II, expenditures include benefit payments and admin. expenses > assumptions have to be made to do projections-demographic(fertility, mortality, migration, population etc), eeonomicflabor force,wages, rates of return and other assumptions such as retirement rates, and disability rates) > sensitivity testing analysis is also done 16 marks! Select parts of b-e such that a total of 6 marks are attempted (b) (1 mark) How are the Canadian Otd Age Security (OAS) Programs funded and what is the eligibility requirement basis for the OAS pension? o alt OAS programs funded by general revenues, residency requirement (c) (2 marks) With regards to Property and Casualty Insurance Pricing, what are the key differences between the Pure Premium method and the Loss Ratio Method 0 Pure Premium method > develops indicated rate, based on exposure, doesn’t require existing rates, and doesn’t use on-level premium. “9' use this method for; new lob, when on-level P difficuit to calculate, and/or when have well defined responsive exposures 0 Loss Ratio method > develops rate change, isbased on earned premurn and does require existing rates and on-level rate premium ‘3' would use when exposures MA and have less detailed data (d) (3 marks) What are some of the key components of an Actuarial Valuation report? - summary of persons/group that reporttplan) covers 0 plan’s financial position for the fotlowing scenarios > going concerns basis-assume co. runs indefinitely, 3> Wind-up basis and solvency basis 0 accounting for difference in Unfunded liability(surplus) from previous valuation > G/L analysis is equivalent to statement of changes in financial position ‘> G/L looks at difference between expected and actual experience > G/L would also consider impact of changes in assumptions or plan provisions >> G/L considered core part of the report (e) (2 marks) What are some of the criticisms and problems with Canada’s Health Care system? waiting time for service(do to supply shortage, egs. in family dr. shortages) > required facilities may not be available > politically influenced decisions > administrative inefficiencies > costs not well managed > sacrifice technoiogy for costs >culbacks taking away too much F lack of flexibility (that would have with greater role of private sector) (l) (2 marks) The World Health Care Organization (WHO) ranks national health care systems. What are some of the health care system components that are evaluated? ‘P consumer satisfaction >-overall performance of health system r responsiveness > financial contribution ‘fairness’ ”P disability-adjustedlife-expectancy Question 215 marks! (a) (3 marks) You are given that the Actuarial Liability for a Defined Benefit pension plan as at Jan.1, 2001 and Jan.1, 2002 is $225,000 and $250,000 respectively. You are also given that the Normal costs (calculated at Jan. 1, 2001) is $12,000, and that the pension plans invested assets were $120,000 on Jan. 1, 2001 and $130,000 on Jan. 1, 2002. The employer contributed a total of $15,000 as at April 1, 2001. Assuming a valuation interest rate of 6%, what is the plan‘s gain (loss) in 2001? UAL 20m=$105,000, UALact 2002=$120,000 UALexp 2002 = $108,350=$(105,000+12,000)(1.06)-$15000(1.06)3"' LOSS = 108,350-$120,000=$11,650 = UALexp 2002, - UALact 2002 (b) (2 marks) You are given that the following information for a member of a given Defined Benefit Pension Plan: Annual Retirement Benefit : 1.5% x final salary per year of service for the first 20 years, 2% per year of service thereafter Projected salary increases : 4% annually up to age 45, 2% annually thereafter Age at entry into plan : 30 current age : 35 Current salary : $52,000 What is this plan’s member projected annual retirement benefit at retirement (at age 65)? $67,281: {(.015) (20) +(.02)(15)}$52,000(1.04)”(1.02) 1” Question 3 (5 marks] The 2004 maximum RRSP contribution limit is $15,500. For each of the following individuals, determine how much individual RRSP contributions they can make in 2004. Show all of your work. (a) (I mark) Mrs. James did not work in 2003 0 (since they didn’t work!) (b) (2 marks) Mr. Smith worked in 2003, and was a member of :1 Defined Contribution plan where employer contributions were 5% of salary and employee contributions were 3% of salary. Mr. Smith’s 2003 salary was 100,000 PA: $8,000 = (.05+.03)($100,000) RRSP room=$7,500=15,500 - $8,000 =$7,500 (maximum applies here) (c) (2 marks) Ms. Black worked in 2003, and was a member of a Defined Benefit plan where the retirement benefit is $30 per month of service. Assume Ms. Black’s 2003 salary was $50,000. PA: $2,640: (30)(12) (9) -600=2,640 RRSP room: $6,360: (.18) ($50,000) —PA ‘10 Question 4 giflgmarks! You are given the followin- data for a _ ension Ian; Plan Effective Date Jan 1, 2001 Actuarial Cost Method Entr Ae Normal-Level % Normal Retirement Benefit 1.5 % of final five year average salary per year of service Normal Retirement Ae Valuation interest rate 4% -er ear Pre—retirement decrements other than None death Full credit Month! retirement annuit factor 65 = 10 Selected commutation function values: N n: OOON all. 50,000 ‘0 (a) “it marks) Calculate the total Normal Cost as at January 1,2001 US “ ‘ = [05) (3:21:85 “W Du: $95 — SWEé two as “as-.110 ‘ Sahara—5? ) 5‘; . an. - llamas ‘ - / a E U Smooch-on 5 \ngwb : (-O’b)®)("%,tne 33 ('03 (15-9 — 10%, (110.905 3'15 '- =3 0 : teem-#197.» “Cue “ L‘SOmOOH-Wlswfl = ‘rl.57:{.75 e5 Taco, = stomp: Cruse; (b) GOmarks) The plan’s initial supplemental liability is to be amortized over fifteen years. What is the employer’s total 2001 annual cost (as at January lst ); “mat Annual (05;? = T’flc + 6!— (2.13;) W 5L= mum‘o'lOA‘w-o _ {o .. 5 {ALLto — Lsoyommllawsaa he (1%)- Uéo,ooo on”? Q ‘, "11.1339 , b 0.90 . —. mam-m - L-,_°3:j")l§°y°°§lra’:[email protected] = *3. 661-591 www.ma ' Tm. % =40 (qg1ggl.§t) f. 9207303! NH ,5 8L = .3“:ng 00m was” So Term. aw Cos-r a ate/Is *- am‘as = laws 3 Question 5 516 marks; a) (8 marks) Describe key characteristics of the four types of Defined Benefit Plans. b) Flat benefit(15-20% of DBPS) 35$ per year of service(yos) or month of service(mos) popular with unions(can negotiate increases) no earnings recognition generaily simpie (but have been changes‘variable rates per job class, other special provisions) well understood VV’VV’V?‘ Career average(30%) Equal weight to each year‘s earnings (eg. 1.5% per yos) Have l in popuiarity because of inflation consideration May be ad hoc adjustments (cg. for inflation) Exist with older plans VVVV!" Final earnings % of final average earnings x YOS "P final average could be last five, best 5, final 3 years, best 5 of last 8 formula implicitly provides some protection against inflation majority of these tend to be contributory plans V 5“ VV Flexible Relatively new Employer pays basic benefits(typically final average), employee pays ancillary benefits Can be tax advantages, customization White concept has been well received, # of DB flex pians currently in Canada is small VVVV? (4 marks) An employer is considering introducing a Supplemental Employee Retirement Plan (SERP). Briefly outiine the design issues that must be considered. setting eligibility requir‘ements“top up”(automatic enrollment) versus selected enroltrnent plan type-DC or DB or hybrid Benefits-typicaliy set so that benefit equivalent to what woutd be with PP if no lTA lmits, not that SERPS not heavily regulated, so ‘special’ benefits maybe offered(eg. pension as % of earnings regardless of yos) Contributory vs. non-most SERPS are non‘contrib. plans Funded vs. unfunded(neither require annual reporting), unfunded is PAYG, all employee has is a promise, vs. funded SERPS that offer empioyee more security(about 40% of SERPS are funded). There are various funding methods. V'Y/ \7' VV (4 marks) A Pension Plan document describes in detail the plan’s terms and conditions. List the principal provisions that would be described in this document. > eligibitity > Pension Formula > Pensionable service > employee contributions(if contrib.. plan) > Retirement age (and ERA/LRA provisions) > Normal &optional pension forms >Pre—retirement DB5 > Termination Benefits >Disability Benefits Inflation Protection Question 6 112 marks! You are given the following data for a pension plan; ——I Normal Retirement Benefit 2 % of final salary per year of service up to _ 25 years, 1.5% of final salary per year of I service in excess of 25 ears _—_I ——I _—_I —_I ——I ate“: :0 I —'-ll-—I ———I I-__I _——I _—I $75,000 I What are the normal cost and the unfunded actuarial liability as at Jan 1, 2001, assuming (a) (6 marks) the Entry Age Normal- level $ method u. -. 01:, no 1 {\C ‘6 -= go'qog [3€(-c¢) klgba‘fijmbé v.05 155369.13 inn—um.“ _;._.,. Mia-us. up i ALSO: Léoloozfi Eng (.07.) '1' lg (I0‘5)] ktév‘ig- “C mtg—1‘09 - “ms-Ia - mm = '0;,aa7.73 = ma, M__. film—LI : “Lav" 75100043131177 ___: M L: (b) (6 marks) the Projected Unit Credit Method go arm —.— VAL-73000 = 3gr5¢5=vflL j ll ‘\ (\C =' (30'5“ ($0,000) a}; 0:26 =[933b‘i-3 1:32, Question 7 112 marks) (a) (5 marks) You are working for an U.S. employee benefits consulting firm and one of your clients has inquired about using the Individual Level Premium Actuarial Costing Methods. Explain how the Normal cost and Actuarial Liabilities would be determined for each of the ILP methods. Define all terms used. there are two ILP methods are level $ and level % (NC as level 35 or NC as level % of salary) NC is spread out over the latter of aa & ea to NRA above implies no SL at plan inception for ILP (even if past service credit is given) -NC ‘slicing technique' for ILP-where changes in benefits or salary experience G/L’s are amortized by future NC slices (so no change in AL at time on of these events occur). Either case is handled by determining the NC slice at point of change(spread over remaining time) ILP—level % method is rarely used with regards to supplemental liabilities, only changes in benefits and salary experience G/L’s are amortized through future NCs(slicing technique), resto of categories of SL’s would not > key equations 0 Alq=PRFBx — PVFNCx (or equals the accumulated value of all NC’S) 0 use the following equations to determine NC: PVFB 1m, ealaa= PVFN C later ofema o if ILP-level % than PVFNCX= USanXH o if ILP-level % than NC,‘=USx VVVV VV (b) (7 marks) What is the change in Normal cost for 2003 due the difference between actual and expected salary increases? Plan Valuation Date Jan 1, 2003 I Normal Retirement Benefit 60% of final five year average salary Nomammremenmge Month] retirement annuit factor ‘A ('2) 65 = 9.167 __.._(_M Partici amnata mm m as - — Ageatplanemry Annual Salary 1995: $50,000 2000: $78,000 1996: $65,000 2001: $80,000 1997: $68,000 2002:$85,000_ 1998: $72,000 2003:$90,000 > ‘i'\”\g tibial 1999: $76,000 c1096» 1 \ ‘1- 1 61 ' “Cues;- _ 735.000 (‘53th1039__,, $71005)" + 0.9053“) c F052"! ._ same-517.0; 5’ 1 J?“ both lm") lurk +0 SliV “C1003 \ K {$4,300 -+ igloo“? 71,7 [23/ AB = U “(‘35) [$43009 + ‘30?” 57:1?!” 953“" 55’73'6] =. 387.9; D13 : 38251,)— —1 109531 . l ' J u r «5" (Mg' +l+ Than AM“ 5 7'— 3‘67. 01% VWWV") ) <1 4 L- I + (00530.05) “t 6 CL ° . "Tit, 4-“ q =>a_{\(. __— 731.40 Question 8 {20 marks) Indicate whether each statement is true or false. Where the answer is false, indicate why and/or correct the statement. a) b) a) h) 3) You are given that Sgom$55,000 and salaries are expected to increase 2% yearly. You are also given that the Retirement Pension benefit (RPB) is 2% x finai salary x years of service. Based on these assumptions, B50: $27,901.32 assuming the traditional unit credit method (TUCM), and assuming that the individual (aged 50) has 20 years of credited service. H.851: $15,000 and b5]: $250, then 8523 $15,250. You are given that the Retirement Pension Benefit for a certain plan is 2% of final three-year average salary per year of service. if there are no changes in actuarial assumptions, then NCX+1=NCx/vpx, for the Projected Unit Credit method. The key characteristic of the aggregate funding methods is that the Actuarial Liability is always equai to zero. The majority of public pension plans are non-contributory plans, as the benefits under public plans tend to be quite modest. Contributory Pension plans are more common in Canada than they are in the U.S. If the Entry Age method is used, then a supplemental liability due to a mortatity experience Foss may be amortized over five years. An employer’s total annual pian cost will always equal the Normal Cost If the ean age normal level % method is used to value a DB plan whose retirement benefit equals 2% of final five year average salary, then the Normal cost must be determined using historical salaries. Vesting refers to an individual’s right on termination to the portion of pension benefit provided by his/her contributions an: (TUCM assasgbooxnzxzm) arr err D) F (UAL=O) B) F most are contrib.(rich benefits) an“ G)T H) F (can include an SC or extra payment) I) F (can project past salaries for the NC) J) F (refers to right to employer eontns‘) Question 9 g7marks! Calculate the total actuarial liability as at Januarg 1,1997 for the following Plan Plan Effective Date Valuation interest rate 6% Assumed retirement 3 e 65 Total 1995 Normal Cost (as at 01/0/951 $45,000 35: 0.005 and gas: 0006 Member data 1 1 95 39 participants, ail aged 35 and all started working at the company when they were 23, no new entrants or deaths in 1995 or 1996 ' ' Traditional Unit Credit Method er month er ear of service “:33 I. on... ‘ A _ ”I! , “TH {Mgr/Cf? 1‘: "gig” (37» $3 2:: 7E6} (f; 5?? , Lg % Question 10 {13 marks! You are _iven the foiiowin data; NAME Date of Birth Retirement date (estimate) Mrs. Whensle 31/ 12/ 1940 31/12/2005 — _ Had one child born in 1958 — Current CPP YBE is $3,500 Em i0 ment Earnin_s(annual) YMPE Didnotwork 75% onMPE 80% onMPE 1993—1995 f}, 95% of YMPE $20,500 . 57 a $35,400 $20,500 . v $35,800 $33,000 i, sci-t a $36,900 $35,000 \ Lida $37,400 $36,000 \ fee"? $37,600 +er miss-— ( $39,500 $38,300 W i —$41,000 $39,100 .. “its $42,000 > s $39,900 ii‘o ( $42,000 $40,500 5 s $41,600 “:3; a”; i a) (10 marks) Calculate the estimated CPPretirement pension‘henefit that Mrs. Whensley would be entitled to if she were to retire at the end ofADrece'mber 2005. H ex 42;???” in???“ *3: 3% teas-a. 05st "a l: K; «a» tame + 25%;": a . ., __ _ “t ”KW a .57”: éifiiifi‘iioyj sigh—Es - {heat :- so - ‘ L g; ! fate-it’s we I , " i ”if. <5. "3" ":5"? 2-4.4» ‘. ’ 4'. "" ‘ 1': 5x."- in ”diet/ewe set/W a s5 ”e W T 35“?)(0/3; {5%} est/fa : {4. , wt Jr lé’eflsa) i. $35333) : tea «a a st s; set a: if: b) (1 marks) Calculate the estimated maximum earnings relationwportion of the 2005 CPP disability benefit, for an individual who was age 50 at time of\disahiii§ty. {add it as) Lvtié } “I“ m Es i .3: c) (1 marks) What is the estimatejmaximum Retirement pension for someone who retires at age 61 in 2005 and who has a calculated average earnings ratio of 85%? "C‘ ’ ,7. m- cf Z5 :31 ‘15, 5. is , \_ ‘ j 5 ' f 12’! 5‘ 05a " Hiya} (i ”7‘ 2‘05"“? “1 ., \ t ,_ s “A, s ,ri_ “i (’1: i .. . a u" 17 J , '. = ' 'f ‘.-"S J ....; 1,1: 3 f ('22,. d) (1 mark) An individuai is self-employed and is 2004 annual income is $50,000. What is the total amount that this individual contributed to the CPP in 2004? i} (j) C) ——.._ H». a ti: {0 <3 My ‘1 ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern