UNIVERSITY OF ELDORET

NAME:ANTONY KIPKORIR RUTO

REG NO:ACS/O26/19

SCHOOL OF SCIENCE

DEPARTMENT OF MATHEMATICS &COMPUTER SCIENCE

COURSE CODE:ACSC213

COURSE TITLE:PRINCIPLES OF ACTURIAL VALUATION

ASSIGNMENT 1
1.Describe 4 methods of financing social security schemes (4mks)

i. Pay as you go/assessment. The workers pay social security taxes into the program and
money immediately flows back out as monthly income to beneficiaries. the benefits are paid
from the contributions of current contributors or funded schemes, where contributions are
invested with the aim growing the value of the invested funds. This method provide more
predictable rates to individuals as benefits are less dependent on economic
performance thus are less vulnerable to bad economic policies

ii. General Average premium-in this financing method there are a number of possible
variants which one extreme possibility is to determine the outset of a constant rate of
resources as a percentage of the insured wage bill which on the assumption made can
ensure the financial viability of the scheme.

iii. Scaled premium-in this financing system the rate at which current resources are raised
is fixed at a certain percentage of the insured wage bill so that there should be a balance
between receipts and expenditure over a certain period of equilibrium.

iv. Assessment of constituent capitals system-in this financing system each years income
is equated to the pensions awarded in that year. it finance the increase in number of new
pensions awarded each year. resources required will rise only if there is an increase in
the average amount of the pensions awarded

2.A company wound up its defined benefits scheme 3yrs ago and replaced with defined
contribution which aimed to target a similar level of benefit for each current employee. You
are the actuarial advisor of the company .with reference to actuarial control cycle discuss
how you will carry the review on regular basis to determine whether the objectives are met .

i. Identify the original level of contribution benefits objectives.

This will help to provide guidance in establishing the selection and design of the benefits
program.this process will provide an overview of the organizations objectives of offering
benefits which will reflect both the employer and employee needsthe original level of
contribution will help to to determine budget available for spending on benefits.

ii. Conducting needs assessment

This is done to determine the best benefit selection based on needs of employees.it may
include tax laws and regulation,employers perception on employee benefits.conducting review
of each plan will help to determine actual employee use.they may also help in understanding
and advising on whether the funding strategy is consistent with the funding objectives such as
if the funding strategy meet or exceed regulatory requirements.

iii. Formulating a benefits plan program.

When the needs assessment is done,the employer will need to formulate the new benefits plan
using data collected from the resources in the order of priority which the employer will
determine the cost of prioritized benefits and evaluate it against benefits budget. Many factors
are taken into consideration in this step such as administrative costs for the benefits, whether
changes can be made into the current plan are among evaluation the employer will make in
determining whether changes can be made or eliminate benefits offerings

iv. Communication of benefits plan to employees.

This is a key component as employee understanding of the benefits is critical to employee buy
in of plan or benefits offered thus encouraging wise use of benefits..

v. Determining effectiveness of benefits by developing periodic evaluation process’

This is also a key step to determine if the benefits are meeting organizations objectives and
employees needs therefore emoloyers should consider developing goals and measurements to
assess the benefits programs and make adjustments as necessary.