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10 Cards in this Set
- Front
- Back
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QBS 10: 1 of 12
Types of cost-of-living adjustments |
a) Automatic
b) Nonautomatic |
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QBS 10: 2 of 12
Types of Automatic adjustments |
1) Equity pensions
2) Cost-of-living formulas 3) Wage-related formulas 4) Specified percentage formulas |
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QBS 10: 3 and 4 of 12
Advantages and disadvantages of equity pension adjustments (1 and 2 of 2) |
Advantages
a) Employee could be better off since retirement income will fluctuate with general level of economic activity b) Shifts investment risk to employee c) Costs are more predictable d) May reduce need to provide other generous benefit provisions e) Plan would be better valued by employees during a rising market Disadvantages a) Lower income employees may not be able to take on investment risk b) Downward turns may cause hardships c) More complicated and difficult to explain d) Adjustments may be inappropriate in timing and magnitude e) May produce additional or unnecessary costs for the employer |
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QBS 10: 5 and 6 of 12
Advantages and disadvantages of cost-of-living formulas (1 and 2 of 2) |
Advantages
a) Protects employees against inflation b) Easy to explain and understand c) Employee criticism unlikely Disadvantages a) Costs are undeterminable and beyond employer's control b) Allowance not made for rising standard of living c) Index may overstate inflation d) Vested terms may be entitled to adjustment by law e) Early retirement subsidy cost likely to increase f) May put pressure on employer to provide automatic wage adjustments to active employees g) Costs can be significant |
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QBS 10: 7 of 12
Advantages of wage-related formulas |
a) Employee benefits tied to standard of living improvements
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QBS 10: 8 of 12
Disadvantage of wage-related formulas |
a) May be very expensive
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QBS 10: 9 of 12
Advantages and disadvantages of specified formulas |
Advantage
a) Plan cost is more predictable Disadvantage a) Will not necessarily reflect inflation |
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QBS 10: 10 of 12
Types of nonautomatic adjustments |
a) Fixed-percentage increase
b) Flat-dollar increase |
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QBS 10: 11 of 12
Advantages and disadvantages of nonautomatic adjustments |
Advantages
a) Non committed to predetermined method given inflation unpredictable b) Employer controls cost c) Government benefit may reduce or eliminate need for increases d) Employer receives credit every time an increase is given Disadvantages a) Employees don't have assurance retirement income will meet their needs b) Can't pre-fund during active employement |
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QBS 10: 12 of 12
Determining the amount of non-automatic adjustment will depend on |
1) Cost and funding implications
2) Original level of pension 3) Actual CPI movement 4) Changes in government benefits 5) Timing and form of last increase 6) Competitive practices 7) Cost and level of other benefits |
