Retirement Benefits Section of the CIA Practice Education Course Case Study May 2017

Transcription

1 Retirement Benefits Section of the CIA Practice Education Course Case Study Pencil & Eraser Company Pencil & Eraser Company (PEC) manufactures and distributes stationery throughout Canada. It operates three registered pension plans, as follows: a non-contributory flat dollar defined benefit pension plan for its manufacturing employees (the PEC Hourly Plan ); a contributory final average earnings defined benefit pension plan for its salaried employees (the PEC Salaried Plan ); and a non-contributory final average earnings defined benefit pension plan for its executive employees (the PEC Executive Plan ). (Note: The PEC Executive Plan has been exempted from the designated plan rules). A summary for each plan is given below: Category of Hourly employees Non-executive Executive employment salaried employees employees Location of plan members Number of plan members Ontario and Québec All s Ontario 500 actives 180 inactives 200 actives 60 inactives 20 actives 2 inactives Registration of plan Ontario Ontario Ontario Effective date January 1, 1980 January 1, 1980 January 1, 1985 Eligibility Vesting Immediate Immediate 1

2 Locking-in In accordance with provincial requirements In accordance with provincial requirements In accordance with provincial requirements Credited service 2080 hours = 1 year Years and fractions Years and fractions Required employee contributions Required employer contributions Normal retirement age None As per actuary s recommendation 5% of pensionable earnings As per actuary s recommendation None 65 years 65 years 65 years Early retirement age 55 years 55 years 55 years Lifetime benefit formula $45 per month multiplied by all years of credited service, effective 01/01/ % of final 5- year average earnings multiplied by all years of credited service As per actuary s recommendation 2.00% of final 3- year average earnings multiplied by all years of credited service (Flat dollar benefit amount was previously $40 per month multiplied by all years of credited service, effective 01/01/97; and $35 per month multiplied by all years of credited service, effective 01/01/94) Early retirement reduction Unreduced at age 62, 0.50% per month prior to age % per month prior to age 65 Unreduced at age 60, 0.50% per month prior to age 60 2

3 Postponed retirement adjustments Continued accrual Disability Normal form of pension Optional forms of pension Temporary benefit (to age 65 only) Portability options No further accrual, actuarial increase of benefit accrued to age Continued accrual during period of disability Continued accrual, subject to revalorization as minimum benefit for Québec members Continued accrual, deemed earnings at pre-disability rate, waiver of employee contributions 5 year guarantee 60% J&S for married; 5 year guarantee for single Optional forms, including life only form, available on an actuarial $20 per month per year of credited service if the member retires from active employment with 20 or more years of service (no reduction on early retirement) Available for terminations prior to age 55 only Optional forms, including life only form, available on an actuarial None Full portability at any age at termination or retirement Continued accrual, deemed earnings at pre-disability rate 60% J&S for married; 5 year guarantee for single Optional forms, including life only form, available on an actuarial Full CPP benefit as if age 65, no reduction on early retirement, subject to ITA limits Full portability at any age at termination or retirement 3

4 Termination benefit Deferred pension at age; early retirement available but reduced at 0.5% per month prior to age 65 Deferred pension at age; early retirement available on an actuarial Deferred pension at age; early retirement available on an actuarial Death benefit compliance compliance compliance PEC also sponsors a Supplementary Executive Retirement Plan (SERP) for employees who participate in the registered PEC Executive Plan. The SERP lifetime benefit is equal to 2.00% per year of credited service multiplied by the member s final 3-year average earnings, minus the lifetime benefits provided by the registered PEC Executive Plan. The bridging benefit from the registered PEC Executive Plan is not used as an offset when determining the SERP benefit. All other SERP provisions are identical to those of the registered PEC Executive Plan, except that there is no provision for additional bridging benefits under the SERP. PEC provides $10,000 of retiree life insurance and pays the full cost for continuing extended health benefits to retirees and their dependants. In British Columbia, the company also pays the full cost of the provincial health insurance premiums for retirees. This practice has been in place since January 1, Financial Condition of the Plans Actuarial valuations for funding purposes were performed as at January 1, 2017 for all three registered plans. The following is a summary of the valuation results: 4

5 Actuarial value of Assets $26,500,000 $18,500,000 $9,500,000 Actuarial liabilities with respect to: Active Members $10,100,000 $8,000,000 $5,200,000 Inactive Members $19,400,000 $5,700,000 $1,100,000 Total $29,500,000 $13,700,000 $6,300,000 Total 2017 current service cost January 1) $820,000 $960,000 $310,000 Market value of Assets $28,000,000 $17,000,000 $9,500,000 Solvency Liabilities with respect to: Active members $12,700,000 $5,900,000 $4,900,000 Inactive members $21,000,000 $6,100,000 $1,100,000 Total liabilities $33,700,000 $12,000,000 $6,000,000 Wind-up expense $500,000 $200,000 $30,000 Estimated 2017 Pensionable Earnings n/a $10,000,000 $2,500,000 The fiscal year of the Company is the calendar year. Actuarial valuations for accounting purposes were performed as at January 1, A discount rate of 4.00% per annum has been used to determine the liabilities and the current service cost as at January 1, 2017 for accounting purposes. The following are the results of the valuation: 5

6 Plan Fair Value of Plan Assets PEC Hourly Registered Plans PEC Salaried PEC Executive SERP Postretirement non-pension benefits $28,000,000 $17,000,000 $9,500,000 N/A N/A Defined Benefit Obligation with respect to: Active Members $10,800,000 $7,900,000 $5,400,000 $3,000,000 $3,000,000 Inactive Members $20,700,000 $5,600,000 $1,100,000 $1,000,000 $4,500,000 Total $31,500,000 $13,500,000 $6,500,000 $4,000,000 $7,500,000 Total 2017 current service cost January 1) $940,000 $911,000 $310,000 $130,000 $280,000 - End of Case Study - 6