Actuarial Outpost > SoA 2018 EA-2L #34
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#1
01-11-2019, 05:43 PM
 michaelj203 SOA Join Date: May 2012 Posts: 16
2018 EA-2L #34

I'm going wrong somewhere on this question.

The 1/1/2017 AFTAP is (\$780,000 - \$100,000) / \$1,000,000 = 68%.

For 2018, the presumed AFTAP from 1/1/2018 to 3/31/2018 is the 2017 AFTAP, or 68%. When the actuary fails to certify on 4/1/2018, this presumed AFTAP is reduced by 10%, to 58%.

As a result of benefit restrictions taking effect 4/1/18, there is a mandatory PFB burn. The presumed FT is (1/1/18 AVA - 1/1/18 PFB) / 58% = (\$1,300,000 - \$350,000) / 58% = \$1,637,931. We must burn enough PFB to avoid the benefit restrictions (i.e. get above 60%, or if possible, above 80%).

There is not enough PFB to burn to bring the AFTAP up to 80%, so we must burn enough to get to 60%. Let the post-burn PFB be X as follows:

(\$1,300,000 - X) / \$1,637,931 = 60%; solving for X, X = \$317,241 (too high).

When we try to burn enough PFB to get to 80%, we clearly don't have enough:

(\$1,300,000 - X) / \$1,637,931 = 80%; solving for X, X = (\$10,345).

Anyone know where my mistake(s) are in this problem?
#2
01-11-2019, 06:22 PM
 Rick_G Member Join Date: May 2005 Location: Just south of the Big Chicken Posts: 2,212

The problem does not give you the 1/1/2018 Funding target. You must use the presumed AFTAP at 1/1/2018 and solve for the 1/1/2018 Presumed Funding Target (PFT).

Then you use that PFT to determine the amount of the deemed reduction at 1/1/2018, to get the PAFTAP equal to 80%. Then you do the deemed reduction again at 4/1/2018, due to the "10% haircut".
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#3
01-12-2019, 02:51 PM
 michaelj203 SOA Join Date: May 2012 Posts: 16

Quote:
 Originally Posted by Rick_G The problem does not give you the 1/1/2018 Funding target. You must use the presumed AFTAP at 1/1/2018 and solve for the 1/1/2018 Presumed Funding Target (PFT). Then you use that PFT to determine the amount of the deemed reduction at 1/1/2018, to get the PAFTAP equal to 80%. Then you do the deemed reduction again at 4/1/2018, due to the "10% haircut".
Thanks Rick!

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