Actuarial Notes

SOA Exam ALTAM Sample Question 44

Study guide: Exam ALTAM

You act as the valuation actuary for a corporation which sponsors a final average salary defined benefit pension plan for its employees. The age retirement benefit provisions and valuation assumptions for the corporation's plan are described below.

  • The accrual rate is 2% per year of service.
  • The final average salary is defined as the salary over the final year of employment.
  • The Normal Form of pension is a life annuity with no guarantee, paid monthly in advance.
  • The normal retirement age is 65.
  • Salaries increase each year on 1 January at a rate of 2.5% per year.
  • i = 0.05
  • Mortality of active members and retirees follows the Standard Ultimate Life Table.
  • There are no exits prior to retirement at age 65, other than death.
  • The two-term Woolhouse formula is used for annuities paid more frequently than annually.
  • The plan is funded using the Traditional Unit Credit method.

You are also given the following summary membership data, as of the valuation date, 1 January 2020.

Age Number of members Status Pension in payment Salary per member in 2019 Years of service per member
35 20 Active - 45,000 8
60 5 Active - 62,000 25
70 1 Retired 32,000 -- 30

Part a (2 points)

Calculate the total actuarial liability for the corporation's pension plan as of the valuation date.

Part b (3 points)

Calculate the normal cost for 2020, expressed as a percentage of the total payroll at the valuation date.

Part c (1 point)

The corporation terminated the employment of all the 35-year-old members on the valuation date.

Calculate the revised normal contribution rate for the corporation, expressed as a percentage of the total payroll of the remaining plan members.

Part d (2 points)

Without further calculation, state whether the change in the normal contribution rate would be greater or smaller under Projected Unit Credit funding. Justify your answer.

(This is Question 6 from the Fall 2020 Written Answer exam.)

Answer this question and see the worked solution

Concepts tested

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