SOA真題November2004Course8RC
    COURSE8:Fall2004-1-GOTONEXTPAGE
    RetirementBenefits,
    ComprehensiveSegment-Canada
    MorningSession
    **BEGINNINGOFEXAMINATION8**
    COMPREHENSIVESEGMENT-CANADA
    MORNINGSESSION
    1.(9points)ApensioncommitteememberatyourCanadianbasedclientbelievesthatthe
    interestrateforthedefinedbenefitplanvaluationsistoolow.Hesupportshisviewby
    statingthatahigherinterestratewouldlowerthecostoftheplan.Asecondcommittee
    memberarguedagainstraisingtheassumption.
    Thechairmanofthepensioncommitteehasaskedyoutoleadadiscussionatthenext
    pensioncommitteemeetingregardingtheinterestrateassumptionsforfundingpurposes
    andforaccountingpurposes,andtheireffectontheinterestedparties.
    Outlineyourdiscussion.
    COURSE8:Fall2004-2-GOTONEXTPAGE
    RetirementBenefits,
    ComprehensiveSegment-Canada
    MorningSession
    Questions2–6pertaintotheCaseStudy
    2.(12points)TheCFOofNOChasdecidedtotakeamoreactiveroleinmanagingNOC’s
    pensionplanassets.InreviewingtheperformanceoftheNationalOilFull-TimeHourly
    UnionPensionPlan,heisdisturbedbytherecentabsoluteperformance.Heproposes
    thattheassetsshouldbemovedto100%domesticfixedincomebecausethatassetclass
    hasoutperformedtheotherassetclassesin2ofthelast3years.
    Youaregiven:
    CalendarYearRfRmβ
    20034%21%0.9
    20025%-5%0.85
    20014%1%0.8
    AdditionalInformationfor2003
    TargetPortfolioMix
    for2003BenchmarkReturnin
    2003
    DomesticLargeCap
    Equities
    35%30%
    DomesticSmallCap
    Equities
    25%47%
    DomesticFixedIncome25%4%
    InternationalEquities10%39%
    RealEstate5%9%
    Cash0%1%
    (a)DescribethefeaturesinaStatementofInvestmentPoliciesandProceduresthat
    couldhelptheCFOinhisevaluationofthePlan’sperformance.
    (b)Calculatethe2001,2002&2003RiskAdjustedRateofReturnforthefund.
    (c)Calculatethe2001,2002&2003TreynorMeasureforthefund.
    (d)Evaluatetheinvestmentperformanceofthefundduring2003.
    (e)CritiquetheCFO’sproposal.
    COURSE8:Fall2004-3-GOTONEXTPAGE
    RetirementBenefits,
    ComprehensiveSegment-Canada
    MorningSession
    Questions2–6pertaintotheCaseStudy
    3.(8points)ThegovernmentofGevreyisconcernedthatworkersareharmedbyswitching
    companiesperiodicallythroughouttheircareers.Thegovernmenthasaskedforyour
    assistanceinunderstandingthisissue.
    (a)Describetheimplicationsofswitchingemployersonworkers’retirementbenefits.
    (b)SuggestpoliciesthatcouldbeadoptedbythegovernmentofGevreytoimprove
    theportabilityofprivateretirementbenefits.
    (c)Describehowthesepoliciesaddresstheissuesidentifiedin(a).
    (d)DescribetheimpactofthesepoliciesonNOC.
    4.(10points)AuditorsinGevreyhavecriticizeditscurrentpensionaccountingstandards
    asbeingmisleadingtoreadersoffinancialstatementsandcontrarytotheteachingsof
    financialeconomics.
    TheDepartmentofAccountingStandardsisconsideringchangestothecurrent
    accountingrulestoachievethefollowinggoals:
    •Increasedtransparency;
    •Improvedconsistencywithhowfinancialeconomicsmeasures“risk”;and
    •Morepracticalandusableinformationforfinancialstatementreaders.
    (a)CritiquethecurrentaccountingrulesinlightoftheDepartment’sgoals.
    (b)RecommendchangestotheaccountingrulestomeettheDepartment’sgoals.
    COURSE8:Fall2004-4-GOTONEXTPAGE
    RetirementBenefits,
    ComprehensiveSegment-Canada
    MorningSession
    Questions2–6pertaintotheCaseStudy
    5.(9points)Inordertoattractandretainemployeesinseniorpositions,NOCwantsto
    introduceterminalfundingbyprovidingtheoptionsofaninsuredannuityoralumpsum
    benefitfortheNationalOilFull-TimeSalariedSupplementalRetirementPlan(SRP).
    Thelumpsumwillbeequivalenttothenetpresentvalueoftheafter-taxannualSRP
    benefit.Theafter-taxpaymentfromtheinsuredannuitywillbeequaltotheafter-tax
    annualSRPbenefit.NOCwillreimbursethememberforanyimmediatetaxespayable
    underbothoptions.
    Youaregiven:
    •Pat,aseniorexecutiveofNOC,willretirewithanannualpensionundertheSRP
    of$100,000.
    •Thebefore-taxdiscountrateusedbyNOCtocalculatelumpsumbenefitsis10%.
    •LumpsumannuityfactorsatPat’sretirementdateare:
    Atadiscountrateof10%:9.5
    Atadiscountrateof6%:13.5
    •ThecostofbuyingPat’sannuityatretirementis$10forevery$1ofannual
    benefitpurchased.
    Gevrey’staxrulesforsinglepremiumannuitycontractsare:
    •Theemployerobtainsadeductionforanypremiumsitpays;
    •Theexecutiveisimmediatelytaxedonthefullpurchasepriceoftheannuity;
    •Aproportionatepartofeachannuitypaymentwouldbedeemedatax-freereturn
    ofthepremium(“exclusionratio”)andthebalanceistaxableattheindividualtax
    rate.Forthispurpose,alifeexpectancyof20yearsisused.
    (a)DescribetheissuesthatNOCmustaddressinadoptingaterminalfunding
    approach.
    (b)Calculatethecostdifferentialbetweenthetwoterminalfundingoptions.
    Showyourwork.
    COURSE8:Fall2004-5-S
    RetirementBenefits,
    ComprehensiveSegment-Canada
    MorningSession
    Questions2–6pertaintotheCaseStudy　6.(12points)NOCisproposingthefollowingchangestotheRetireeHealthBenefit
    programofitssalariedemployees:
    •EffectiveJanuary1,2004,theprogramwillbeclosedtonewemployees;
    •Salariedemployeeswithlessthan20yearsofserviceatJanuary1,2004whodo
    notretirebeforeJanuary1,2005willnotbeeligibleforthebenefitafterthatdate;
    and
    •Forallothersalariedemployees,effectiveJanuary1,2005,theportionofthe
    premiumpaidbytheprogramwillbeinaccordancewiththefollowingschedule:
    YearsofServiceat
    Retirement
    PlanRetiree/Spouse
    20-2450%50%
    25-2975%25%
    30+100%0%
    NOCwantsananalysisoftheproposedchanges,inrespectofthefollowinggroupsof
    employees:
    •GroupA–thesalariedemployeeswhoarecurrentlyeligibleforthebenefitsbut
    wholosethebenefitsiftheydonotretireinthenextyear;
    •GroupB–thesalariedemployeesotherthanthoseinGroupAwhoarenolonger
    eligibletoreceivebenefitsundertheprogram;
    •GroupC–thesalariedemployeeswhoareeligible,undercurrentassumptions,to
    receivereducedbenefitsundertheprogram;and
    •GroupD–thesalariedemployeesnotaffectedbytheproposedchanges.
    (a)(7points)BasedontheageandservicedistributionoftheNOCFull-Time
    SalariedPensionPlanatJanuary1,2004,estimatethenumberofsalaried
    employeesinGroupsA,B,CandD.Identifyanyassumptionsyouusedinyour
    estimate.
    (b)(3points)Describeanyspecialaccountingtreatmentsthatareapplicablefor
    GroupsA,B,CandD.
    (c)(2points)DescribetheconsequencestoNOCoftheproposedchanges.
    **ENDOFEXAMINATION**
    MORNINGSESSION
    COURSE8:Fall2004-6-GOTONEXTPAGE
    RetirementBenefits,
    ComprehensiveSegment-Canada
    AfternoonSession
    **BEGINNINGOFEXAMINATION8**
    COMPREHENSIVESEGMENT-CANADA
    AFTERNOONSESSION
    Questions7–9pertaintotheCaseStudy
    7.(8points)YourclientNOCisbudgetingforfiscalyear2005inJuneof2004.Theyhave
    askedyoutoestimatethefiscalyear2005pensionexpensefortheNationalOilFull-Time
    HourlyUnionPensionPlan.
    Youaregiven(allnumbersin$000’s):
    AccruedBenefitObligationatJanuary1,2004with6%discountrate=560,919
    ServiceCostatJanuary1,2004with6%discountrate=27,169
    2005EstimatedEmployerContributions=38,000
    2005EstimatedBenefitPayments=12,100
    (a)Describetheconsiderationsforselectingthereturnonassetsduring2004andthe
    discountratefor2005forbudgetingpurposes.
    (b)Estimatethe2005pensionexpenseusingadiscountrateof6%andassumingno
    othergainsorlosses.
    (c)Describeandestimatetheeffectofachangeintheeconomicenvironmentoneach
    componentofyourestimateofthe2005pensionexpense.
    COURSE8:Fall2004-7-GOTONEXTPAGE
    RetirementBenefits,
    ComprehensiveSegment-Canada
    AfternoonSession
    Questions7–9pertaintotheCaseStudy
    8.(12points)NOC’sVice-PresidentofHumanResourceshasaskedyoutopropose
    changestoNOC’sFull-TimeSalariedPensionPlaninordertoreducecost.Shebelieves
    thatthepensionplanistoogenerousforparticipantswhoretirebeforeage60,andshe
    wantsplanparticipantstoretirelaterinthefuture.
    (a)Describetheprocessyouwouldundertakeinperformingaplandesignproject.
    (b)RecommendpossibleplandesignchangestomeetthegoalsoftheVice-President
    ofHumanResources.Providesupportforyourrecommendation.
    (c)ThegovernmentofGevreyisproposingintroducingapensionadjustmentsystem
    similartothatdefinedbytheCanadianIncomeTaxAct.Describehowyour
    responseto(b)wouldchangeasaresultofthisproposal.
    COURSE8:Fall2004-8-S
    RetirementBenefits,
    ComprehensiveSegment-Canada
    AfternoonSession
    Questions7–9pertaintotheCaseStudy
    9.(10points)Gevreyisproposingtheintroductionofadefinedcontribution(DC)social
    insuranceprogram(SIP)effectiveJanuary1,2004.Benefitswouldbefundedby
    employeeandemployercontributions,asfollows:
    •Employeesandemployersbothcontribute5%ofpayonearningsupto$45,000(the
    “WageBase”).
    •TheWageBasechangesinlinewithchangesintheaveragewageinGevrey.
    •Contributionsareinvestedatthedirectionoftheemployeesbyprivatelymanaged
    investmentcompaniesselectedbyGevrey.
    •Accountbalancesareavailabletoprovidedeath,disabilityandretirementbenefits.
    •Accountbalancesmustbeusedtopurchaseannuitiesnolaterthanage65.
    (a)DescribethechallengesthatothercountrieswithDCbasedsocialinsurance
    systemshavefaced.
    (b)Recommendchangestotheproposedprogram.Justifyyourrecommendation.
    (c)Inordertomaintainanemployee’stotalbenefit(DCSIPpluscurrentplan)ata
    levelequivalenttothatprovidedunderthecurrentsalariedplanprovisions,the
    CFOofNOCisproposingtoamendtheNationalOilFull-TimeSalariedPension
    Planbenefitto0.5%ofbestaverageearningsuptotheWageBase,plus2.0%of
    bestaverageearningsinexcessoftheWageBase.
    Critiquethisproposal.
    **ENDOFEXAMINATION**
    AFTERNOONSESSION