Exam FAM Practice Question 4
Study guide: Exam FAM
An employer's pension plan pays each retiring member an annual life pension of 1.5% of final average salary for each year of service. Over the past ten years the plan's investments have earned much less than the valuation assumed, and its retirees are living longer than the valuation assumed.
Which of the following best describes who bears the cost of these two experiences?
- A) Members bear both, through pensions reduced in line with the fund's shortfall
- B) Members bear the investment shortfall; the employer bears the longer lifetimes
- C) Neither, since the employer's contribution is fixed as a percentage of payroll
- D) The employer bears both, through higher contributions; pensions are unchanged
- E) Members bear the longer lifetimes, through lower pensions for each year lived
Answer this question and see the worked solution