Problem
The following are excerpts from the 2020[1] Actuarial Valuation Report for a defined benefit pension plan for Western Cedar and Byproducts Inc.
Summary: Valuation Results for Western Cedar and Byproducts Inc.
|
Plan Financial Position
|
2020
|
2019
|
|
Solvency assets
|
$230,425,870
|
$228,002,428
|
|
Solvency liability
|
$237,448,284
|
$231,929,545
|
|
Solvency (shortfall)
|
|
|
|
Plan Financial Position
|
2020
|
2019
|
|
Going concern assets
|
$249,302,978
|
$237,475,930
|
|
Going concern liability
|
$227,002,238
|
$218,989,377
|
|
Going concern excess (shortfall)
|
|
|
Assumptions Used in Valuation versus Actual Results
• Investment Return - The actuarial value of assets earned 3.4% per annum during the period, lower than the assumed return of 6.50% per annum.
• Salary Increases - Members' salary increases during the period were higher than the assumed increase rates. Average salaries increased by 2.8% over the period versus an assumed rate of increase of 1.7%.
Answer the following questions. Ensure to draw upon the course reading materials to help you understand and explain these concepts.
A. Calculate the four missing amounts in the valuation results, and indicate if the plan is in deficit or surplus in each case.
B. Explain in general terms why the results might be different in 2020 between the going concern and solvency valuation.
C. Explain, in your own words, what happened to investment returns during the period of the valuation, compared to what was expected. Who bears the risk associated with this result? Explain clearly how this differs from a defined contribution plan.
• Disregard any potential impact of the COVID-19 pandemic.