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present value of the future working life of an employee is
comparable to the present value of an annuity (computed with the
actuarial interest rate used by the plan) that pays $1 each year
until the employee is expected to retire.
3. Mercer’s Actuarial Assumptions for the 1991-94
Contributions to the Postretirement Medical Trust
In order to compute the present value of future benefits in
the 1991-94 valuation reports, Mercer made certain actuarial
assumptions, including investment rates, the number of employees
who would “retire, die, terminate their services or become
disabled, their ages at termination, and their expected benefits.”
Mercer requested Norwest to provide an estimate of Norwest’s
effective tax rates for years 1991-94. Norwest advised Mercer that
those tax rates would be approximately 39 percent in 1991-92 and 40
percent in 1993-94.
The pretax and after-tax investment rates Mercer used in the
1991-94 valuation reports were as follows:
1991 1992 1993 1994
Pretax investment rate 9.00% 8.00% 6.00% 6.00%
After-tax investment rate 5.50 4.90 3.60 3.60
The following chart illustrates the various factors disclosed
in the 1991-94 valuation reports (minor computational discrepancies
are unexplained):
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