Page 92 - Group Insurance and Retirement Benefit IC 83 E- Book

Results of a poor year by reducing or eliminating the contributions to the pension fund.

This was brought to the public's attention not long ago in the case of a large company. In
a particular year this corporation substantially reduced its contributions to the pension

plan and thereby increased the after-tax earnings by approximately $46.6 million.

Controlled Funding Methods:

THE costing technique known variously as Controlled Funding, Stabilized Costing and

Aggregate Costing, is a comparatively recent development in the field of Life Office
group pension schemes.

Before explaining and discussing the methods used, it may be helpful to outline the
principal types of Life Office group pension scheme, and to examine the more traditional

methods of costing employed. It should be made clear at the outset that the term 'group
pension scheme' relates to schemes insured by means of group deferred annuity contracts

and approved under section 388(1) or section 379(3) of the Income Tax Act, 1952—

endowment assurance schemes and group life assurance schemes are not within the scope
of this paper.

Types of scheme

Group pension schemes fall into the following principal catagories:
(1) Graded schemes

Employees are graded according to pensionable salary and/or status (e.g. monthly paid

staff, hourly paid works, etc.), and accrue a fixed amount of pension for each year of
service in the grade. Contributions by employees, where payable, are usually related to

the rate of pension accrual—e.g. are. per week for each £1 per annum of annual pension
accrual—and the employer pays the balance of the cost. Past service at the inception of

the scheme is usually recognized, on a non-contributory basis, at a proportion of the

employee's grade units at entry for each year of pensionable past service.