SOA Exam ALTAM Sample Question 37
Study guide: Exam ALTAM
(This is a modified version of Question 7 from the Spring 2014 Written Answer exam.)
Part a (1 point)
List three reasons why employers sponsor pensions for their employees.
Part b (3 points)
A benefit plan provides a retirement benefit if the employee lives to age 65, and a death benefit if the employee dies prior to age 65.
- The retirement benefit is an annual whole life annuity-due of 3% of the final 3-year average salary for each year of service.
- The death benefit is a lump sum payable at the end of the year of death equal to two times the employee's annual salary in the year of death.
You are given:
- A person started the employment on January1 (as printed), 1990 at exact age 38 with a starting salary of 50,000.
- The company gives salary increases of 3% on January 1 each year.
- Employees can terminate employment only by retirement at 65 or death.
You are given the following:
q_{62+k} = 0.08 + 0.01kfork = 0, 1, 2, 3- The expected present value on January 1, 2017 of an annuity-due of 1 per year payable annually to the person, if they survive, will be 4.7491.
i = 0.04
Calculate the actuarial present value on January 1, 2014 of the person's death benefit.
Part c (3 points)
Calculate the actuarial present value on January 1, 2014 of the person's retirement benefit.
Answer this question and see the worked solution