Spring 2021 Retirement Benefits—Funding And Regulation Exam

Exam RETFRCFunding & Regulation Exam - CanadaDate: Wednesday, April 28, 2021INSTRUCTIONS TO CANDIDATESGeneral InstructionsWritten-Answer Instructions1. This examination has 12 questions numbered 1through 12 with a total of 100 points.1. Each question part or subpart should be answeredeither in the Word document or the Excel file asdirected. Graders will only look at work in theindicated file.The points for each question are indicated at thebeginning of the question.2. While every attempt is made to avoid defectivequestions, sometimes they do occur. If you believea question is defective, the supervisor or proctorcannot give you any guidance beyond theinstructions provided in this document.a) In the Word document, answers should beentered in the box marked ANSWER. The boxwill expand as lines of text are added. There isno need to use special characters or subscripts(though they may be used). For example, β1 canbe typed as beta 1 (and used to indicate asuperscript).b) In the Excel document formulas should beentered. Performing calculations on scratchpaper or with a calculator and then entering theanswer in the cell will not earn full credit.Formatting of cells or rounding is not requiredfor credit.2. The answer should be confined to the question asset.3. Prior to uploading your Word and Excel files, eachfile should be saved and renamed with your fivedigit candidate number in the filename.4. The Word and Excel files that contain youranswers must be uploaded before time expires.Recognized by the Canadian Institute of Actuaries. 2021 by the Society of Actuaries475 N. Martingale RoadSchaumburg, IL 60173

Navigation InstructionsOpen the Navigation Pane to jump to questions.Press Ctrl F, or click View Navigation Pane:

1.(7 points) You are the actuary for Company XYZ, which sponsors a defined benefitpension plan. You are provided with the key plan provisions below:ProvisionNormal retirement benefitDescriptionMonthly benefit per year of credited service inaccordance with the following table:For credited serviceMonthly Benefit AmountBefore 2008 35From 2008 to 2011 40From 2012 to 2015 42Starting in 2016 43Normal form of payment:Normal retirement age:Early retirement benefit:Life only, payable monthly in advanceAge 656% reduction for each year prior to age 65Deferred pension payable at age 65; or lump sumcommuted value transfer from the planTermination benefit:You are also given the following membership data at December 31, 2020:Data – ActiveID2301023012250122702265024Date of 01/198903/04/1991Date 01/200601/01/2020SexFMMMFService(years)151214Data – InactiveID230111012110231202312036StatusAgeSexForm of 5898728162FMFMMJoint & SurvivorLife Guarantee 5Life Guarantee 10LifeLifePensionamount 3,000 7,200 14,000 2,203 1,220You are performing the funding valuation as at December 31, 2020.Exam RETFRC: Spring 2021Funding & Regulation Exam – CanadaRETFRC 0421.docx

1.Continued(a)(3 points) Identify potentially incorrect, missing, or incomplete data required forthe actuarial valuation.ANSWER:You have requested that Company XYZ provide additional and/or revised data.Company XYZ has indicated that additional data is not easily accessible and they do nothave the resources to collect that data.(b)(2 points) Describe how you would proceed with a funding valuation, taking intoconsideration the Standards of Practice.ANSWER:Company XYZ has now informed you that they will be winding up the pension plan, withan effective date of December 31, 2020.(c)(2 points) Describe how you would proceed with the plan wind-up valuation,taking into consideration the Standards of Practice.ANSWER:Exam RETFRC: Spring 2021Funding & Regulation Exam – CanadaRETFRC 0421.docx

2.(11 points) Your client sponsors a non-contributory defined benefit pension plan. Youare given:Plan Provisions:Normal retirement benefit:Normal form of payment:Optional forms of payment:Normal retirement age:Early retirement benefit:2% of final year’s earnings times years of serviceLife only, payable monthly in advanceActuarially-equivalent to normal formAge 655% reduction for each year prior to age 65Deferred pension payable at age 65 or lump sumcommuted value transfer from the planTermination benefit:Retirement from age 55 possible on an actuariallyequivalent basisActuarial Assumptions and Methods:Interest rate:5% per yearSalary increase rate:3% per yearRetirement rates:Age606365All other agesTermination rates:Age4045All other agesPre-retirement mortality:NoneTiming of decrements:Beginning of yearActuarial cost method:AggregateAsset valuation method:Market ValueExam RETFRC: Spring 2021Funding & Regulation Exam – CanadaRate25%50%100%0%Rate3%2%0%RETFRC 0421.docx

2.ContinuedParticipant Data at December 31, 2020:Member AMember BAge40552020 Salary: 55,000 65,000Service:1010Member C64 80,00013Annuity Factors:ሺଵଶሻ15.6äହହሺଵଶሻ14.8ä ሺଵଶሻ14.1ä ଷሺଵଶሻ13.6ä ସሺଵଶሻ13.3ä ହAdditional Information:Market value of assets as at December 31, 2020:(a) 450,000(5 points) Calculate the accrued liability and estimated normal cost of the plan, indollars, as at December 31, 2020.The response for this part is to be provided in the Excel spreadsheet.You are given:Fund rate of return during 2021:10%Contribution made on December 31, 2021 50,000Member A earned the following salary in 2021: 56,000Member B earned the following salary in 2021: 79,000Member C retired at January 1, 2021 and started collecting his monthlypension effective January 1, 2021(b)(6 points) Calculate the gains and losses by source for 2021.The response for this part is to be provided in the Excel spreadsheet.Exam RETFRC: Spring 2021Funding & Regulation Exam – CanadaRETFRC 0421.docx

3.(13 points) Your client sponsors a single-employer non-indexed closed defined benefitpension plan registered in Ontario. The plan is not a designated plan as defined under theIncome Tax Act.You are given the following valuation results as at December 31, 2020:Going concern assets (including buy-in annuity; excluding present valueof special payments previously established in respect of any past serviceunfunded actuarial liability)Going concern liabilities (including buy-in annuity; excluding PfAD)Buy-in annuity value included in going concern assets and liabilitiesGoing concern annual employer current service cost (excluding PfAD)Annual provision for administrative expensesGoing concern discount rate (net of investment expenses; gross ofadministrative expenses)Provision for adverse deviations ("PfAD")Going concern annual special payments payable in 2021 from priorvaluationDuration of going concern liabilities (excluding buy-in annuity)Duration of total going concern current service costSolvency assets (including buy-in annuity before wind-up expenses)Solvency liabilitiesBuy-in annuity value included in solvency assets and liabilitiesSolvency annual special payment payable in 2021 from prior valuationSolvency blended discount rate (for calculation of special payments)Provision for wind-up expenses 25,600,000 30,000,00010,000,000120,00050,0006.00%16.04% 200,0001620 31,400,00038,800,00015,800,00003.2%200,000There are no allowable exclusions from the solvency liabilities (e.g. consent benefits).(a)(3 points) Calculate the minimum required and maximum permissible employercontributions in 2021.The response for this part is to be provided in the Excel spreadsheet.Exam RETFRC: Spring 2021Funding & Regulation Exam – CanadaRETFRC 0421.docx

3.ContinuedYou are given the following:Pension fund assets at December 31, 2021 excluding the value ofthe buy-in annuityBenefit payments for portion of liabilities not backed by the buy-inannuity in 2021Benefit payments for portion of liabilities backed by the buy-inannuity in 20212021 total going concern current service costSolvency incremental cost excluding buy-in annuity in 2021There are no liability gains or losses during the periodAll assumptions remain the same as at December 31, 2020The going concern discount rate is net of passive investmentexpenses of: 14,400,000 200,000 600,000 150,000250,0000.05%The target asset allocation is the following:Fixed income assetsNon-fixed income assets45%55%Non-Fixed Income component of the Provision for Adverse Deviations (PfAD):% of Non-FixedClosed Plans Open PlansIncome %15%8%100%23%12%Exam RETFRC: Spring 2021Funding & Regulation Exam – CanadaRETFRC 0421.docx

3.Continued Benchmark Yield of Government of Canada Long-Term Bonds (V39056) atDecember 31, 2021 is 2.00% The formula to determine the benchmark discount rate that is used in thedetermination of the PfAD is:0.5% Benchmark Yield of Government of Canada Long-Term Bonds 5% allocation of non-fixed income 1.5% allocation of fixed income(b)(10 points) Calculate the minimum required and maximum permissible employercontributions for 2022, rolling forward liabilities and current service costs usingextrapolation techniques.The response for this part is to be provided in the Excel spreadsheet.Exam RETFRC: Spring 2021Funding & Regulation Exam – CanadaRETFRC 0421.docx

4.(6 points) Company XYZ sponsors a large defined benefit pension plan. The followingis a summary of the key plan provisions:Plan Provisions:Normal retirement benefit:Normal retirement age:Early retirement benefit:2% of final year’s earnings times years of serviceAge 65Unreduced at age 62 with 20 years of credited service;Otherwise 0.25% reduction per month for retirementsbefore age 65Deferred pension payable at age 65 or lump sumcommuted value transfer from the planTermination benefit:Retirement from age 55 possible on an actuariallyequivalent basisYou have performed a demographic experience study for the plan’s going concernfunding valuation. The results for the retirement and termination decrements are asfollows:Retirement -620.1062-640.1065 and over 1.00Termination AssumptionCurrentAgeAssumptionUnder 250.1525-340.1035-440.0545-540.0255 and over 030.020.050.00Exam RETFRC: Spring 2021Funding & Regulation Exam – CanadaRETFRC 0421.docx

4.ContinuedAssume the following: (a)Experience is credible for the retirement decrement; andExperience is not credible for the termination decrement.(4 points) Assess the appropriateness of the current retirement and terminationassumptions.ANSWER:The early retirement benefit was changed as follows: (b)Unreduced with 30 years of credited service; orUnreduced at age 62 with 20 years of credited service;Otherwise 0.25% reduction per month for retirements before age 65(2 points) Recommend changes to the current retirement assumption. Justifyyour recommendation.ANSWER:Exam RETFRC: Spring 2021Funding & Regulation Exam – CanadaRETFRC 0421.docx

5.(7 points) You are the actuary for Company ABC which sponsors a single-employerfinal-average salary-based defined benefit pension plan registered in Ontario.You are preparing the actuarial valuation report for funding purposes as at January 1,2021 for the plan.(a)(3 points) List the disclosure requirements for the actuarial valuation reportaccording to the Standards of Practice.ANSWER:(b)(4 points) Describe three plausible adverse scenarios that you would include inthe valuation report, including the elements required for reporting on eachscenario.ANSWER:Exam RETFRC: Spring 2021Funding & Regulation Exam – CanadaRETFRC 0421.docx