Question 1

Consider the following statement: Upon the plan administrator's request, an enrolled actuary must provide supplemental advice or explanation relative to an actuarial report certified by the enrolled actuary.Is the above statement true or false?

Accepted Answer

An enrolled actuary is indeed required to provide supplemental advice or explanation related to an actuarial report they have certified if requested by the plan administrator. This is part of their professional responsibilities to ensure clarity and understanding of their actuarial assessments.

Question 2

A plan provides a pre-retirement death benefit equal to the minimum qualified pre-retirement survivor annuity under IRC section 417 plus a $10,000 immediate lump sum. These benefits are provided at no charge to the participants. Consider the following statement with regard to the PBGC Premium Funding Target: The full value of the pre-retirement death benefit is included in the Premium Funding Target for each participant who has completed the plan's vesting requirements on the Unfunded Vested Benefit valuation date. Is the above statement true or false?

Accepted Answer

The PBGC Premium Funding Target includes the present value of all benefits under the plan except for ancillary benefits that are not directly related to retirement, such as certain pre-retirement death benefits, unless they are provided at the participant's election and with an actuarial reduction. Since the described pre-retirement death benefit is provided at no charge to participants and is not an elected benefit with an actuarial reduction, it would not be included in the Premium Funding Target.

Question 3

Plan effective date: 1/1/1990 Consider the following statement: The plan administrator must provide each participant with a copy of the summary plan description no later than 90 days after an employee becomes a participant in the plan. Is the above statement true or false?

Accepted Answer

Under ERISA (Employee Retirement Income Security Act of 1974), plan administrators are required to provide a summary plan description (SPD) to participants no later than 90 days after the employee becomes covered by the plan.

Question 4

Normal retirement age: 62Plan assumptions: Interest 4.0% Mortality 1994 GARDeath benefit prior to retirement is the present value of accrued benefits. Benefit at late retirement is the greater of continued accruals and an actuarial increase. Selected data for Smith: Date of birth 12/31/1942 Date of hire 1/1/2000 Date of participation 1/1/2006 Date of retirement 12/31/2012 Compensation for each year of service $225,000Selected commutation functions:5% and applicable mortalityx N(12)x D x N(12)X Dx62 598,284 46,091 1,466,321 82,76965 470,592 38,961 1,232,637 72,90070 301,642 28,773 904,410 58,535In what range is Smith's annual IRC section 415 limit as of 12/31/2012?
A)Less than $175,000
B)$175,000 but less than $190,000
C)$190,000 but less than $205,000
D)$205,000 but less than $220,000
E)$220,000 or more

Accepted Answer

The answer of Normal retirement age: 62Plan assumptions: Interest 4.0%...

Question 5

Employer A is a contributing employer to a multiemployer plan. Method for calculating withdrawal liability: Rolling-5 with mandatory de minimis rule.Employer A completely withdraws from the plan on 12/31/2011. Total Total 12/31 Total contributions Total unfunded contributions withdrawn contributions vested benefits OutstandingYear all employers employers Employer A (all employers) claims*2005 $19,600,000 $500,000 $760,000 $0 $0 2006 23,400,000 450,000 650,000 0 0 2007 25,300,000 350,000 870,000 0 0 2008 28,900,000 625,000 905,000 60,200,000 0 2009 29,100,000 800,000 805,000 70,900,000 1,200,000 2010 25,200,000 1,225,000 725,000 75,200,000 2,500,000 2011 27,800,000 1,500,000 225,000 78,000,000 2,750,000 * For withdrawal liability that can reasonably be expected to be collected with respect to employers who withdrew before the end of the plan year. In what range is the withdrawal liability for Employer A?
A)Less than $2,100,000
B)$2,100,000 but less than $2,150,000
C)$2,150,000 but less than $2,200,000
D)$2,200,000 but less than $2,250,000
E)$2,250,000 or more

Accepted Answer

The answer of Employer A is a contributing employer to...

Question 6

Data for a plan in 2012: Location A B C D Number of employees 41 19 15 XThe plan covers all employees of locations B and D only. Location C is collectively bargained.No employees terminated during 2012 and none are statutorily excludable from the plan. The plan covers at least one HCE. What is the minimum number of employees that must be in Location D so that the plan will pass the participation requirement of IRC section 401(a)(26)?
A)Less than 9
B)9 but less than 14
C)14 but less than 19
D)19 but less than 24
E)24 or more

Accepted Answer

To satisfy IRC section 401(a)(26), a plan must cover the lesser of 50 employees or 40% of employees. Locations B and D have 19 + X employees. To meet the 40% requirement, (19 + X) * 0.4 must be at least 15 (since 41 + 19 + 15 + X = 75 + X total employees). Solving for X gives a minimum of 9 employees in Location D.

Question 7

A defined benefit plan terminates with excess assets and is amended within the 60 day period prior to the plan termination date to provide a 5% pro-rata increase of participant benefits as of the termination date. The plan sponsor establishes a defined contribution plan as a qualified replacement plan and transfers into this plan the minimum amount necessary to lower the excise tax rate on any reversion to less than 50%. Selected data as of the asset distribution date: Market value of assets $2,100,000 Termination liability prior to 5% pro-rata increase $1,600,000X= the amount of the actual excise tax due from the employer. Y = the amount of the excise tax that would have been due had the qualified replacement plan not been established. In what range is X - Y ?
A)Less than $132,000
B)$132,000 but less than $150,000
C)$150,000 but less than $168,000
D)$168,000 but less than $186,000
E)$186,000 or more

Accepted Answer

The answer of A defined benefit plan terminates with excess...

Question 8

Type of plan: Statutory hybrid planAccount balance: The sum of pay credits and interest creditsPay credits: 3% of annual pay, credited at the end of the yearInterest credits: Equal to the actual annual rate of return on plan assets multiplied by the beginning of year account balance Vesting: The minimum vesting schedule allowedData for participant Smith: Date of hire 1/1/2008 Date of termination 12/31/2011 Compensation (each year) $50,000 Historical returns on plan assets: 2008 8% 2009 6% 2010 2% 2011 ?22% The plan provides for a lump sum in the amount of the vested account balance.In what range is Smith's lump sum payable at 1/1/2012?
A)Less than $3,650
B)$3,650 but less than $4,450
C)$4,450 but less than $5,250
D)$5,250 but less than $6,050
E)$6,050 or more

Accepted Answer

Smith's account balance is calculated by adding pay credits (3% of annual pay) and interest credits (based on the plan's actual annual rate of return) for each year of employment. With an annual compensation of $50,000, the pay credit each year is $1,500. The interest credits are calculated based on the returns and the beginning balance each year. For 2008, the interest credit is 8% of the initial balance (which starts at $0, so $0 for 2008). For subsequent years, the interest credits are added based on the returns and the updated balance. The negative return in 2011 reduces the account balance but does not bring it below zero. Considering the contributions and the fluctuating returns, including the significant loss in 2011, the account balance at the end of 2011, before considering vesting, would be calculated as follows:1. 2008: $1,500 pay credit + ($0 * 8% interest) = $1,5002. 2009: $1,500 pay credit + ($1,500 * 6% interest) = $1,590 + $1,500 = $3,0903. 2010: $1,500 pay credit + ($3,090 * 2% interest) = $61.8 + $1,500 = $4,651.84. 2011: $1,500 pay credit - ($4,651.8 * 22% loss) = $1,500 - $1,023.396 = $5,128.404Given the negative return in 2011, the account balance would decrease, but considering the contributions and the positive returns in the earlier years, the balance would likely fall in the range of "D) $5,250 but less than $6,050," even after the significant loss in 2011. This calculation assumes full vesting, as the question specifies the lump sum is based on the vested account balance and mentions the plan follows the minimum vesting schedule allowed, which typically would result in full vesting by the end of the period described.

Question 9

An employer sponsors two plans: Plan A for Division A and Plan B for Division BPlan A eligibility: 12 months of service Plan B eligibility: 6 months of service All employees are eligible to participate on the 1/1 or 7/1 coincident with or following the completion of eligibility requirements. Plans A and B require 1,000 hours of service to benefit in the plan (however, eligibility is determined on an elapsed time basis). Otherwise excludable employees are not tested separately.No employee is in more than one plan and none are collectively bargained. The plan sponsor does not aggregate Plans A and B for purposes of the coverage requirement of IRC section 410(b). Data for all employees during 2011:Number of Date of Hours End ofemployees hire worked Division year status 20 1/1/2010 2,000 A active HCE40 1/1/2010 2,000 A active NHCE 5 1/1/2010 250 A terminated NHCE10 1/1/2010 2,000 B active HCE25 1/1/2010 2,000 B active NHCE15 9/1/2010 2,000 B active NHCE10 1/1/2010 250 B terminated NHCEIn what range is the ratio percentage for Plan A for the 2011 plan year?
A)Less than 72.00%
B)72.00% but less than 79.00%
C)79.00% but less than 86.00%
D)86.00% but less than 93.00%
E)93.00% or more

Accepted Answer

The ratio percentage for Plan A is calculated by dividing the number of non-highly compensated employees (NHCEs) benefiting under the plan by the total number of NHCEs eligible to benefit. For Plan A, there are 40 NHCEs benefiting and 45 NHCEs eligible (40 active + 5 terminated). The ratio is 40/45, which is approximately 88.89%, falling in the range of 79.00% but less than 86.00%.

Question 10

Type of plan: MultiemployerMethod for determining withdrawal liability: Rolling-5 with maximum permissible deductible under the optional de minimis ruleEmployer A completely withdraws from the plan on 12/31/2011. No other employers have ever withdrawn from the plan. Total 12/31Total base Total Total unfundedunits all contributions Total base units contributions vested benefitsYear employers all employers Employer A Employer A (all employers)2004 2,025,000 $13,162,000 37,000 $240,000 $0 2005 2,150,000 13,975,000 41,000 266,000 0 2006 2,300,000 16,100,000 45,000 315,000 0 2007 2,225,000 16,687,000 48,000 360,000 12,850,000 2008 2,150,000 17,200,000 47,000 376,000 16,200,000 2009 2,300,000 19,550,000 45,000 382,000 24,500,000 2010 2,350,000 21,150,000 41,000 369,000 10,750,000 2011 2,425,000 21,825,000 34,000 306,000 9,650,000 In what range is the withdrawal liability for Employer A?
A)Less than $137,500
B)$137,500 but less than $157,500
C)$157,500 but less than $177,500
D)$177,500 but less than $197,500
E)$197,500 or more

Accepted Answer

The answer of Type of plan: MultiemployerMethod for determining withdrawal...

Question 11

A plan pays mandatory lump sums less than or equal to $1,000. Elective lump sums are allowed in any amount in excess of $1,000. The plan terminated in a standard termination. Data for missing participant Smith, not in pay status, as of deemed distribution date: Lump sum based on plan provisions $5,600 Present value based on PBGC lump sum assumptions 5,900 Present value based on PBGC missing participant annuity assumptions 5,500 Values do not include any expense loads.In what range is the Designated Benefit for Smith?
A)Less than $5,610
B)$5,610 but less than $5,720
C)$5,720 but less than $5,830
D)$5,830 but less than $5,940
E)$5,940 or more

Accepted Answer

The Designated Benefit for Smith is the greater of the lump sum based on plan provisions ($5,600) or the present value based on PBGC lump sum assumptions ($5,900), which is $5,900. Since this amount does not fall into the ranges given in options A, B, D, or E, it must be in the range of $5,720 but less than $5,830.

Question 12

Data for the only nine participants that have ever been in the plan: Stock Present value of DistributionsParticipant ownership 2012 accrued benefit asnumber percentage compensation 2011 2012 of 12/31/20121 50.0 $200,000 $0 $50,000 $200,0002 0.5 200,000 0 0 30,0003 3.0 160,000 0 0 80,0004 3.0 125,000 0 0 50,0005 6.0 100,000 0 0 60,0006 0 70,000 40,000 20,000 20,0007 0 50,000 0 40,000 40,0008 0 30,000 0 0 30,0009 0 0 0 0 100,000 Participant 9 terminated employment on 11/1/2011. All others were employed for the entire 2011 and 2012 plan years. Participants 1 and 5 are the only officers. The stock ownership percentages and officer statuses have never changed since the company's inception. Present values of accrued benefits as of 12/31/2012 do not include the value of any distributions received. No distributions were ever paid from the plan prior to 2011.In what range is top-heavy ratio for 2013?
A)Less than 0.51
B)0.51 but less than 0.56
C)0.56 but less than 0.61
D)0.61 but less than 0.66
E)0.66 or more

Accepted Answer

The answer of Data for the only nine participants that...

Question 13

A plan provides a preretirement death benefit equal to the present value of the accrued benefit. Plan's actuarial equivalence assumptions: Interest rate 7.5% Pre-commencement mortality table None Post-commencement mortality table Applicable mortality under IRC section 417(e) Early retirement benefit is based on plan actuarial equivalence. Selected data for participant Smith: Date of birth 12/31/1952 Date of hire 1/1/2005 Date of participation 1/1/2006 Date of retirement 12/31/2012 Compensation for each year $150,000 Form of benefit elected Life annuitySingle life annuity factors based on the applicable mortality table at selected retirement ages and interest rates: Age 5.0% 7.5%60 13.56 10.84 62 12.98 10.50In what range is Smith's IRC section 415 limit as of 12/31/2012?
A)Less than $118,000
B)$118,000 but less than $121,000
C)$121,000 but less than $124,000
D)$124,000 but less than $127,000
E)$127,000 or more

Accepted Answer

The answer of A plan provides a preretirement death benefit...

Question 14

Information as of 1/1/2012: Standard Premium Funding Target $100,000,000Actuarial (market) value of assets before reflecting contributions receivable 76,000,000Funding standard carryover balance 2,000,000Prefunding balance 0Contributions paid during 2012:Date paid Amount For plan year3/31/2012 $800,000 20114/15/2012 1,000,000 20127/15/2012 1,000,000 20129/15/2012 4,500,000 201110/15/2012 1,000,000 2012Effective interest rates:Plan year 2011 6.25% Plan year 2012 5.50% The plan administrator has not made an election to use the Alternative Premium Funding Target.In what range is the PBGC Variable-rate premium for 2012?
A)Less than $150,000
B)$150,000 but less than $160,000
C)$160,000 but less than $170,000
D)$170,000 but less than $180,000
E)$180,000 or more

Accepted Answer

The answer of Information as of 1/1/2012: Standard Premium Funding...

Question 15

Consider the following plans that are sponsored by four unrelated companies: Non-excludable employees Benefiting employees HCE NHCE NCE NHCEPlan I 5 100 1 40 Plan II 10 50 10 0 Plan III 5 95 5 35 Plan IV 50 100 0 40 How many of these plans satisfy the participation requirement of IRC section 401(a)(26)?
A)0
B)1
C)2
D)3
E)4

Accepted Answer

Plans I, III, and IV satisfy the participation requirement of IRC section 401(a)(26), which generally requires that a minimum of 50 employees or 40% of employees (whichever is less) benefit under the plan. Plan II does not meet this requirement as no NHCEs benefit.

Question 16

Eligibility: 1 year of service (elapsed time) Entry dates: 1/1 and 7/1 Excluded employees: Hourly employees and non-resident aliensHours needed for accrual: 1,000 Employee Category Date of hire Date of termination Hours in 20121 Salaried 4/1/2010 1,000 2 Hourly 4/1/2010 1,0003 Non-resident alien 4/1/2010 1,0004 Salaried 4/1/2011 1,000 5 Salaried 9/1/2011 1,0006 Salaried 4/1/2010 6/30/2012 1,000 7 Salaried 4/1/2010 6/30/2012 4008 Hourly 4/1/2010 6/30/2012 1,0009 Hourly 4/1/2010 6/30/2012 400The simplified testing method is not used. How many employees may be treated as excludable for purposes of IRC section 401(a)(26) for 2012?
A)Fewer than 3
B)3
C)4
D)5
E)6 or more

Accepted Answer

Based on the eligibility criteria provided, employees who are hourly workers or non-resident aliens are excluded. From the list, employees 2, 3, 8, and 9 are either hourly employees or non-resident aliens, making them excludable for the purposes of IRC section 401(a)(26) for 2012.

Quiz 1: Enrolled Actuary

Consider the following statement: Upon the plan administrator's request, an enrolled actuary must provide supplemental advice or explanation relative to an actuarial report certified by the enrolled actuary.Is the above statement true or false?

Plan effective date: 1/1/1990 Consider the following statement: The plan administrator must provide each participant with a copy of the summary plan description no later than 90 days after an employee becomes a participant in the plan. Is the above statement true or false?