Practice Education Course Retirement Exam June 8, Table of Contents. This exam consists of 7 questions worth 37 points.

Transcription

1 Practice Education Course Retirement Exam June 8, 2016 Table of Contents This exam consists of 7 questions worth 37 points. Question 1 (8.0 points)... 2 Question 2 (8.0 points)... 3 Question 3 (5.0 points)... 5 Question 4 (6.0 points)... 7 Question 5 (3.0 points)... 8 Question 6 (3.0 points)... 9 Question 7 Multiple Choice (4.0 points)... 10

2 Question 1 (8.0 points) Effective January 1, 2016, the Pencil & Eraser Company (PEC) closed its largest manufacturing plant in Ontario. The closure impacted 400 active hourly Ontario members. Please refer to the Case Study for the plan provisions and accounting information with respect to the PEC Hourly Plan. You are also provided with the following additional information with respect to the PEC Hourly Plan: At January 1, 2016, the current service cost changed to $50,000. At January 1, 2016, it was estimated that the plan's expected benefit payments will increase by $1,000,000 due to paying out commuted values and further increase by $600,000 due to pension legislation requirements for Ontario active members expected employer contributions are $2,200,000 before the plant closure and $1,200,000 after the plant closure. Assume contributions and benefits are paid in the middle of the year, for other calculations assume beginning of year, and use simple interest in your calculations. Assume expected number of terminations/retirements are equal to actual number of terminations/retirements from the plant closure and assume the actual return on assets equals expected. a) (2.0 points) Explain the pension legislation that may impact the Ontario 400 active members. b) (2.0 points) Describe and define the events under IAS 19R that apply in this case. c) (2.0 points) Calculate the 2016 expense (recognized in P&L) under IAS 19R before and after the plant closure. d) (2.0 points) Show the reconciliation of the balance sheet under IAS 19R before and after the plant closure for the period from January 1, 2016 to December 31,

3 Question 2 (8.0 points) Mr. Ted Trump joined the PEC Salaried Plan effective July 1, His pensionable earnings and pensionable service for the years 2011 to 2015 were as follows: Year Pensionable Earnings Pensionable Service 2011 $55,000 6 months 2012 $120, months 2013 $130, months 2014 $200, months 2015 $150, months The high pensionable earnings for Mr. Ted Trump for the 2014 year were attributable to the payment of a one-time significant bonus that was included in pensionable earnings in accordance with the plan provisions. Effective January 1, 2016, Mr. Ted Trump enrolled in the PEC Executive Plan and his pension benefits in respect of the pensionable service for the period July 1, 2011 to December 31, 2015 were transferred from the PEC Salaried Plan and upgraded to the PEC Executive Plan benefit rate. You have been provided with the following information and received confirmation from the Pencil & Eraser Company that the definition of pensionable earnings is identical under both the Salaried Plan and the Executive Plan: Date of Birth for Ted Trump: July 1, 1956 Year Defined Benefit Maximum Pension Limit YMPE 2011 $2, $48, $2, $50, $2,696,67 $51, $2, $52, $2, $53, $2, $54,900 (continued next page) 3

4 Question 2 (continued) a) (2.0 points) Calculate the Past Service Pension Adjustment (PSPA) in respect of the past service event of transferring Mr. Ted Trump s four and a half years of pensionable service from the PEC Salaried Plan to the PEC Executive Plan. b) (2.0 points) After the transfer to the PEC Executive Plan, Mr. Ted Trump worked for another six months and earned pensionable earnings of $80,000 before his retirement as at June 30, 2016 at age 60. Calculate his annual pension payable under the PEC Executive Plan. c) (2.0 points) Calculate Mr. Ted Trump s annual pension payable under the PEC Salaried Plan had he remained in the PEC Salaried Plan and not transferred to the PEC Executive Plan. d) (2.0 points) Calculate Mr. Ted Trump s temporary bridge benefit to age 65 under the PEC Executive Plan. 4

5 Question 3 (5.0 points) Effective June 30, 2016, two Pencil & Eraser (PEC) employees, Mr. Vincent Vega and Ms. Mia Wallace decide to leave the Company. Pension information in respect of these two employees is as follows: Vincent Vega Mia Wallace Province of employment Alberta Ontario Age as at June 30, years 24 years Date of hire June 30, 1996 September 30, 2013 Marital status Single Single Category of employment since date of hire Salaried employee Salaried employee Date of joining the PEC Salaried Plan On hire On hire Credited service under the PEC Salaried 20 years 2.75 years Plan as at June 30, 2016 Final Average Monthly Earnings as at $5,000 $2,500 June 30, 2016 Accumulated Member Contributions with Interest as at June 30, 2016 $46,000 $5,200 The main provisions of the PEC Salaried Plan are as described in the Case Study. The following annuity factors and other information are appropriate for the calculation of commuted values under the PEC Salaried Plan as of June 30, 2016, and these are the only annuity factors which could possibly have an impact on the calculation of commuted values for these two (in other words, they provide for the maximum commuted values). Provincial requirements have been considered in these factors, and in responding to the questions below, consider only commuted values, pensions at normal retirement, and pensions at immediate retirement, if applicable, all payable in the normal form. Also for purposes of your response, assume that ITA limits with respect to maximum tax-free transfers are not applicable. Your answer should discuss vesting, locking-in, and cash availability. Description Age 56 Age 24 Deferred annuity commencing at age 65 N/A 3.9 Immediate annuity commencing at age N/A 2016 YMPE $54,900 $54,900 (continued next page) 5

6 Question 3 (continued) a) (2.0 points) Calculate and describe the options available for the benefits payable to Mr. Vincent Vega. b) (2.0 points) Calculate and describe the options available for the benefits payable to Ms. Mia Wallace. c) (1.0 point) Discuss any additional considerations if the PEC had decided to terminate Ms. Mia Wallace s employment instead of a voluntary termination of employment. 6

7 Question 4 (6.0 points) PEC is considering a merger with ABC company. As such you are asked to provide discount rate assumptions to be used to estimate the liabilities of ABC s plan as at March 31, You are provided the following information: Pension formula: Annual pension of 1% of career average earnings Post retirement indexation: 50% of CPI Plan registered in Québec. All members are employed in Québec Liabilities of members valued under an annuity purchase rate are: At 3.03%: $2,603,000 At 3.04%: $2,600,000 CANSIM V39062 as at March 31, 2016: 1.86% CANSIM V39057 as at March 31, 2016: 0.49% Month CANSIM Series V CANSIM Series V CANSIM Series V January % 2.05% 0.68% February % 1.93% 0.60% March % 2.00% 0.49% a) (2.0 points) Calculate the transfer value interest rates before and after retirement. b) (2.0 points) Calculate the annuity purchase rate. c) (2.0 points) Discuss the factors that should be considered in selecting an appropriate discount rate on a going concern basis. 7

8 Question 5 (3.0 points) Recently, the VP HR of the Pencil & Eraser Company (PEC) heard different things about the cash availability of pension benefit entitlements at termination of employment, and he is a little bit confused. As the actuary for the PEC Salaried Plan, he asks you to summarize the conditions under which the plan may and/or must provide for a refund of the commuted value upon termination of employment for the different provinces in which the plan has members, i.e., New Brunswick, Nova Scotia, Ontario and Québec. 8

9 Question 6 (3.0 points) The Pencil & Eraser Company (PEC) has decided to amend the PEC hourly plan effective January 1, 2017 to offer a retirement window over the next three years. Members retiring within that window would be eligible for an unreduced pension. All data, assets and liabilities are projected from the valuation as at January 1, Describe what would need to be included in the cost certificate to comply with the Standards of Practice. 9

10 Question 7 Multiple Choice (4.0 points) 1. (0.50 point) Which of the following statements regarding subsequent events is true? a) Subsequent events must be taken into account in calculations. b) If providing one Actuarial Opinion, assumptions used would be appropriate at the calculation date, even when the effective date is at a later date. c) If there is a long period of time between the original calculation and the date of the event, it is typically preferred to produce two separate actuarial opinions, reflecting the funding or funded status at the two dates. d) Actuaries are not required to ask if subsequent events happened after the report date. However if they are aware of a subsequent event, they might have to amend or replace the report. 2. (0.50 point) In which of the following jurisdictions is a Statement of Investment Policies and Goals/Procedures (SIP&G/P) required to be filed with the pension authorities: a) Ontario. b) Québec. c) New Brunswick. d) Ontario and New Brunswick. e) Ontario, New Brunswick, and Québec 3. (0.50 point) Under IAS 19R, service cost consists of: a) Current service costs b) Past service costs c) Any gain or loss on settlement d) a), b), and c) e) a) and b) only (continued next page) 10

11 Question 7 Multiple Choice (continued) 4. (0.50 point) When calculating the solvency incremental cost, which of the following statements is true? a) It is possible for the solvency incremental cost to be negative. b) No salary increase should be applied in the projection. c) There is no incremental cost for retirees. d) Solvency incremental cost is usually more volatile than the going concern normal cost, as it reflects the impact of members becoming eligible to growin benefits, or unreduced or subsidized early retirement benefits. 5. (0.50 point) Which one of the following is not a required condition for a contribution to a defined benefit pension plan to be deductible by an employer for income tax purposes: a) The effective date of the valuation is not more than 4 years before the day on which the contribution is made. b) The actuarial valuation is prepared in accordance with generally accepted actuarial principles. c) The actuarial valuation must be prepared on a going-concern valuation basis. d) The funding recommendation in the actuarial valuation report is approved by the Minister in writing. e) All assumptions made for the purposes of the actuarial valuation are reasonable at the time the valuation is prepared and at the time the contribution is made. 6. (0.50 point) Under CPA Canada 3462, remeasurements consist of: a) Actuarial gains and losses. b) The return on plan assets, excluding amounts included in the net interest on the defined benefit liability (asset). c) Past service costs. d) Gains and losses arising from settlements and curtailments. e) All of the above. (continued next page) 11

12 Question 7 Multiple Choice (continued) 7. (0.50 point) Which one of the following actuarial assumptions is not prescribed for purposes of a Maximum Funding Valuation for a Designated Plan under the Income Tax Regulations: a) Valuation interest rate is 7.5% per annum. b) Rate of increase in general wages and salaries is 5.5% per annum. c) Rate of increase in the Consumer Price Index is 4.0% per annum. d) The 1994 Uninsured Pensioners (UP-1994) Mortality Table with generational mortality improvement projection using projection scale AA. e) Retirement benefits will commence to be paid to the member no earlier than the day on which the member attains 65 years of age in the case of a restricted-funding member. 8. (0.50 point) In which of the following situations is the plan administrator of a defined benefit pension plan registered in Ontario not required to seek the approval of the Superintendent before transferring any funds under section 42 or 43 of the Pension Benefits Act: a) The most recently determined transfer ratio is equal to 1.0, and you have determined that the new transfer ratio is equal to 0.90; b) The most recently determined transfer ratio is equal to 1.0, and you have determined that the new transfer ratio is equal to 0.89; c) The most recently determined transfer ratio is equal to 0.88, and you have determined that the new transfer ratio is equal to 0.80; d) The most recently determined transfer ratio is equal to 0.76, and you have determined that the new transfer ratio is equal to 0.67; e) The most recently determined transfer ratio is equal to 0.81, and you have determined that the new transfer ratio is equal to *** End of Examination Paper *** 12