SOA Exam ALTAM Sample Question 42
Study guide: Exam ALTAM
Person D is a member of a pension plan that offers an annual retirement pension of 2% of the member's career average earnings for each year of service.
At the valuation date, D is exactly 63 years old, has 30 years of service, and their total past earnings are 2,500,000. D's salary in the year following the valuation date will be 160,000 if they work for the full year, and are paid in level monthly payments.
You are given:
(i) The pension is paid as a monthly life annuity-due.
(ii) Members can retire at any time after age 60 without actuarial reduction of benefits.
(iii) There are no benefits other than the age retirement pension.
(iv) The Traditional Unit Credit approach is used for valuation and funding.
(v) The valuation uses the Standard Service Table.
(vi) All lives retiring before age 65 are assumed to exit exactly half-way through the year of age.
(vii) Mortality after retirement follows the Standard Ultimate Life Table with Uniform Distribution of Deaths.
(viii) i = 0.05
(ix) \ddot{a}^{(12)}_{63.5} = 13.514, \quad \ddot{a}^{(12)}_{64.5} = 13.231, \quad \ddot{a}^{(12)}_{65} = 13.086
Part a (2 points)
Show that the Actuarial Liability for D is 595,000 to the nearest 1000. You should calculate the value to the nearest 1.
Part b (3 points)
Show that the Normal Contribution for D is 36,000 to the nearest 1000. You should calculate the value to the nearest 10.
(This is Question 3 from the Spring 2019 Written Answer exam.)
Answer this question and see the worked solution
Concepts tested
- Traditional Unit Credit Method
- Actuarial Accrued Liability
- Normal Cost
- Service Table
- Defined Benefit Plan
- Valuation