EA-2(A) Examination Questions
Fall, 2001
Question 1 (2 points)
Actuarial
cost method: Unit Credit.
Valuation
interest rate: 7% per year.
Selected
valuation results:
1/1/2000 1/1/2001
Actuarial (market) value of assets $400,000 $500,000
Accrued liability 800,000 950,000
Normal cost 50,000
Contribution
for 2000: $54,000 paid 12/31/2000.
Benefit
payments during 2000: $13,000 paid on
12/31/2000.
In
what range is the absolute value of the experience (gain)/loss during 2000 as
of 1/1/2001?
[A] Less than $25,000
[B] $25,000 but less than $45,000
[C] $45,000 but less than $65,000
[D] $65,000 but less than $85,000
[E] $85,000 or more
Question 2 (4 points)
Actuarial
cost method: Unit Credit.
Valuation
interest rate: 7% per year.
Selected
valuation results as of 1/1/2001:
Accrued liability $1,700,000
Actuarial (market) value of assets
1,600,000
Amortization
charges and (credits) for all bases in funding standard account as of 1/1/2001:
Change in funding method effective
1/1/1999 $20,000
Actuarial (gain)/loss during 1999
plan year 5,000
Actuarial (gain)/loss during 2000
plan year (4,000)
Total
reconciliation account balance as of 1/1/2000: $0.
Interest
charge due to late quarterly payments for 2000 plan year: $4,200.
In
what range is the credit balance as of 1/1/2001?
[A] Less than $24,000
[B] $24,000 but less than $25,500
[C] $25,500 but less than $27,000
[D] $27,000 but less than $28,500
[E] $28,500 or more
Question 3 (4 points)
Valuation
interest rate: 7%
per year.
Credit
balance as of 12/31/1999: $0.
Minimum
contribution for 2000 as of 12/31/2000: $120,000.
Credit
balance as of 12/31/2000: $0.
Market
value of assets as of 3/31/2001: $420,000.
Selected
valuation results as of 1/1/2001:
Current liability $900,000
Actuarial (market) value of assets
400,000
Minimum contribution for 2001 as of
1/1/2001 125,000
Distributions
paid from trust:
Value of
Periodic Annuities Administrative
Payments Lump Sums Purchased
Expenses
4/1/1998 – 3/31/1999
$175,000 $25,000 $0 $10,000
4/1/1999 – 3/31/2000
160,000 0 75,000 10,000
4/1/2000 – 3/31/2001
150,000 25,000 10,000 10,000
All
assets are “liquid assets” as defined in IRC section 412(m).
The
plan is subject to the liquidity requirement of IRC section 412(m)(5).
In what range is the
quarterly contribution payable 4/15/2001, including liquidity shortfall
payment?
[A] Less than $90,000
[B] $90,000 but less than $110,000
[C] $110,000 but less than $130,000
[D] $130,000 but less than $150,000
[E] $150,000
or more
Question 4 (3 points)
Plan effective date: 1/1/1995.
Actuarial
cost method: Frozen initial
liability.
Valuation
interest rate: 7% per
year.
Credit balance as of
12/31/2000: $150,000.
Selected
valuation results as of 1/1/2001:
Actuarial (market) value of assets $1,750,000
Present value of future benefits 8,500,000
Present value of future compensation 30,000,000
Expected compensation for 2001 1,500,000
IRC section 412 amortization charge
for the initial unfunded liability 100,000
In
what range is the deductible limit for 2001?
[A] Less than $400,000
[B] $400,000 but less than $430,000
[C] $430,000 but less than $460,000
[D] $460,000 but less than $490,000
[E] $490,000 or more
Question 5 (4 points)
Plan effective date: 1/1/1990.
Actuarial cost method: Frozen initial liability.
Valuation
interest rate: 7% per year.
Plan
A is split into Plans B and C effective 12/31/2000. The sponsors of Plans B and C are members of the same controlled
group of corporations.
Selected
valuation results as of 1/1/2001:
Plan A Plan B Plan C
Entry age normal accrued liability $600,000 $250,000 $350,000
Current liability 330,000 130,000 200,000
Present value of accrued benefits on
plan
termination basis 480,000 160,000 320,000
Funding standard account credit
balance 20,000 8,300 11,700
Allocation of actuarial (market)
value of
assets reduced by credit balance 385,000 128,000 257,000
Outstanding
amortization bases as of 1/1/2001:
Initial unfunded liability $150,000
Increase due to 1/1/1995 assumption change
60,000
In what range is the
total amortization payment for 2001 allocated to Plan C as of 1/1/2001?
[A] Less
than $11,700
[B] $11,700
but less than $13,000
[C] $13,000
but less than $14,300
[D] $14,300
but less than $15,600
[E] $15,600
or more
Question 6 (2 points)
Consider the following
descriptions for determining the actuarial value of assets of a pension
plan. For each description, the
actuarial value of assets is adjusted when necessary to be between 80% and 120%
of current fair market value.
I.
60% of the current year fair market value plus
40% of the previous year actuarial value, adjusted for contributions and
payments from the plan during the previous year.
II.
The fair market value of the assets at the prior
valuation date plus contributions less disbursements of the prior year,
adjusted for interest at the valuation interest rate.
III.
The current year fair market value of assets
less 2/3 of the prior year capital appreciation and less 1/3 of the capital
appreciation in the year before the prior year.
Which,
if any, of the above asset valuation methods are considered reasonable pursuant
to IRC section 412 and regulations thereunder?
[A] None
[B] I and II only
[C] I and III only
[D] II and III only
[E] The correct answer is not given by [A],
[B], [C], or [D] above.
Question
7 (5 points)
Normal
retirement benefit: 1% of final
three-year average compensation for each year of service.
Actuarial
cost method: Unit credit.
Actuarial (market)
value of plan assets as of 1/1/2000: $225,000.
Actuarial (market)
value of plan assets as of 1/1/2001: $226,000.
Actuarial assumptions:
Valuation interest rate 7% per year
Retirement age 65
Annual compensation
increases 6%
per year
Pre-retirement decrements None
Data for only
participants in the plan:
Smith Jones
Participant status as of 1/1/2000
and 1/1/2001 Active
Retired
Age as of 1/1/2000 56 65
Service as of 1/1/2000 20
Expected compensation for 2000 $75,000
Annual retirement benefit $20,000
Accrued liability as of 1/1/2001 119,500 164,000
Retirement benefits
are paid annually on the first day of the plan year.
Contribution for
2000: $8,000 paid on 12/31/2000.
Selected annuity
value: 
= 8.578
Rank, from smallest to
largest, the absolute value of experience (gains)/losses during 2000 due to
compensation increases, mortality, and assets.
[A] Assets, compensation, mortality
[B] Mortality, assets, compensation
[C] Assets, mortality, compensation
[D] Compensation, assets, mortality
[E] The correct answer is not given by [A],
[B], [C], or [D] above.
Question 8 (3 points)
Plan effective
date: 1/1/1993.
Valuation interest
rate: 7% per year.
Actuarial cost method:
Before 2001 Aggregate
After 2000 Frozen initial liability
Credit balance in the
funding standard account as of 12/31/2000:
$5,000.
Selected
valuation results as of 1/1/2001:
Present value of future benefits $241,000
Entry age normal accrued liability
202,000
Actuarial (market) value of assets 123,000
Present
value of future compensation 494,000
2001 compensation 60,000
In what range is the
minimum contribution for 2001 as of 12/31/2001?
[A] Less than $8,500
[B] $8,500 but less than $11,500
[C] $11,500 but less than $14,500
[D] $14,500 but less than $17,500
[E] $17,500 or more
Question 9 (3 points)
Plan effective
date: 1/1/1990.
Accrued
benefit: $40 per month times years of
service.
Vesting: 100% vested in accrued benefit after five
years of service; benefit commences at
normal
retirement date.
Actuarial
cost method: Unit credit.
Selected
actuarial assumptions:
Valuation interest rate 7% per year
Withdrawal (assumed to occur at the
beginning of each year):
Before age 41 5% per year
Age 41 and later None
Retirement age 65
Preretirement decrements
other than withdrawal None
Selected annuity
value:
= 10.00
On 1/1/2000 there are
200 participants, all active, age 40 with 10 years of service.
Three participants
terminated employment on 1/2/2000, there were no benefits paid and there were
no new participants.
In what range is the
absolute value of the experience (gain)/loss associated with withdrawal during
2000 as of 1/1/2001?
[A] Less than $5,000
[B] $5,000 but less than $15,000
[C] $15,000 but less than $25,000
[D] $25,000 but less than $35,000
[E] $35,000 or more
Question 10 (3 points)
Plan effective date
(all plans): 1/1/1990.
Selected valuation
results as of 1/1/2001 for the following plans maintained by the same employer:
Plan A Plan B
Plan C Plan D
Number of participants on each
day of the plan year 110 110
110 9
Current liability using maximum
permitted interest rate $1,000,000 $1,000,000 $1,040,000 $100,000
Current liability using rate
selected for the valuation 1,020,000
1,000,000 1,075,000 102,000
Actuarial value of assets 790,000
890,000 850,000 74,000
Market value of assets 830,000 930,000
810,000 77,000
Credit balance in funding
standard account as of 12/31/2000 0 0 30,000
0
Selected funded
current liability percentages from gateway test for past valuations:
Valuation date Plan A Plan B Plan C Plan D
1/1/2000 93% 93% 78% 95%
1/1/1999 92% 88% 92% 91%
1/1/1998 88% 92% 93% 93%
How many of these plans are exempt from the
requirement to calculate an additional funding charge for 2001?
[A] 0
[B] 1
[C] 2
[D] 3
[E] 4
Question 11 (2 points)
Actuarial
cost method: Aggregate.
Valuation
interest rate: 7% per year.
Actuarial
(market) value of assets as of 1/1/2000:
$385,000.
Contribution
for 2000: $3,000 paid on 1/1/2000.
Credit
balance in funding standard account as of 12/31/2000: $0.
Actual
investment return during 2000: 4%.
Selected valuation
results as of 1/1/2001:
Present value of future benefits $1,400,000
Present value of future compensation 12,000,000
Expected compensation for 2001
1,000,000
There were no benefit
payments during 2000.
In what range is the
increase in the 2001 minimum contribution as of 12/31/2001 due to the
experience loss on investments?
[A] Less than $1,000
[B] $1,000 but less than $2,000
[C] $2,000 but less than $3,000
[D] $3,000 but less than $4,000
[E] $4,000 or more
Question 12 (4 points)
Plan effective date: 1/1/1985.
Normal retirement benefit: $50 per month per year of service.
Actuarial
cost method: Aggregate.
Actuarial
assumptions:
Valuation interest rate 7% per year
Retirement age 65
Pre-retirement decrements None
Data
for sole participant:
Date of birth: 1/1/1947
Date of hire: 1/1/1985
Credit
balance in funding standard account as of 12/31/2000: $0
Selected
valuation results and other data as of 1/1/2001:
Market value of assets $57,000
Actuarial value of assets 60,000
OBRA ’87 current liability projected
to 12/31 72,000
RPA ’94 current liability projected
to 12/31 75,000
Selected annuity
value:
= 10.00
In what range is the full funding limitation for
2001 as of 12/31/2001?
[A] Less
than $1,700
[B] $1,700
but less than $3,200
[C] $3,200
but less than $4,700
[D] $4,700
but less than $6,200
[E] $6,200
or more
Question 13 (5 points)
Plan effective
date: 1/1/1996.
Normal retirement
benefit before amendment: $50 per month
for each year of service.
Actuarial cost
method: Attained age normal.
Valuation interest
rate: 7% per year.
Credit balance in
funding standard account as of 12/31/2000:
$0.
Selected valuation
results as of 1/1/2001 under the above benefit formula:
Present value of all future benefits $7,000,000
Present value of accrued benefits 5,000,000
Entry age normal accrued liability 6,800,000
Actuarial (market) value of plan
assets 4,950,000
Amortization payment for initial
unfunded liability 16,000
Present value of future service 2,500
years
The plan sponsor has
requested the actuary to prepare a cost study for the following proposals so
that the 2001 minimum required contribution for “A” and “B” are equal:
Normal retirement benefit, formula “A”: $65 per month for each year of service
Normal retirement benefit, formula “B”: $50 per month for each year of service
prior to 2001, plus
$X
per month for each year of service
after 2000.
As of 1/1/2001 there
were 300 active participants, all under age 64, and no inactive participants.
In what range is $X?
[A] Less
than $86.00
[B] $86.00
but less than $90.00
[C] $90.00
but less than $94.00
[D] $94.00
but less than $98.00
[E] $98.00 or more
Question 14 (5 points)
Plan effective
date: 1/1/1982.
Valuation interest
rate: 7% per year.
Current liability
interest rate for 1/1/2001: 6.1% per
year.
Credit balance in
funding standard account as of 12/31/2000:
$25,000.
Reconciliation account
balance as of 12/31/2000: $50,500.
Selected valuation
results and funding standard account items as of 1/1/2001:
Normal cost $45,000
Net amortization charges 50,400
Actuarial value of assets 975,000
Market value of assets 925,000
Current liability 1,300,000
Expected increase in current
liability 60,000
Current liability at maximum
interest rate 1,250,000
Benefits expected to be paid during
2001 0
Unfunded new liability 240,000
Additional interest
charge for late quarterly contributions for 2001: $800
There have always been
140 participants in the plan.
In what range is the
reconciliation account balance as of 1/1/2002?
[A] Less than $79,000
[B] $79,000 but less than $86,000
[C] $86,000 but less than $93,000
[D] $93,000 but less than $100,000
[E] $100,000 or more
Question 15 (5 points)
Plan effective
date: 1/1/1990.
Actuarial cost
method: Unit credit.
Valuation interest
rate: 7% per year.
There were no
actuarial gains or losses from any source prior to 1/1/2000.
Credit balance in
funding standard account as of 12/31/1999:
$0.
The minimum required
contribution for 2000 was made on 12/31/2000.
Effective 1/1/2001,
the plan sponsor retained a new enrolled actuary from another firm. The new enrolled actuary uses the same
assumptions and substantially the same methods as the prior actuary. The deemed change in funding method
resulting from the change in enrolled actuary is made pursuant to Rev. Proc.
2000-40.
Selected
valuation results:
Prior New
Actuary Actuary
Valuation date 1/1/2000 1/1/2000
1/1/2001
Actuarial accrued liability $2,400,000 $2,375,000 $2,650,000
Actuarial value of assets 1,500,000 1,500,000 1,850,000
Normal cost
162,000 165,000 177,000
In what range is the
minimum required contribution for 2001 as of 12/31/2001?
[A] Less than $253,000
[B] $253,000 but less than $255,000
[C] $255,000 but less than $257,000
[D] $257,000 but less than $259,000
[E] $259,000 or more
Question 16 (4 points)
Plan
effective date: 1/1/1978.
Normal
retirement benefit: 50% of final
three-year average compensation.
Accrued
benefit: Normal retirement benefit
prorated on service to normal retirement.
Pre-retirement
death benefit: Accrued benefit
beginning immediately without reduction for early commencement, payable for the
lifetime of the spouse.
Actuarial
cost method: Unit credit.
Assumed
compensation increases: 0% per year.
Selected
actuarial functions:
n x qx vn(np62) 
0 62 0.015 1.000 9.80
1 63 0.017 0.928 9.64
2 64 0.019 0.860 9.47
Decrements
are applied at the beginning of the plan year.
For
funding purposes, the participant and spouse are assumed to be the same age and
90% of active participants are assumed to be married at the time of death.
Data
for participant Smith:
Date of birth 1/1/1939
Date of hire 1/1/1978
Compensation for each of the last
three years $45,000
In what range is the
accrued liability as of 1/1/2001 for Smith’s death benefit?
[A] Less than $8,200
[B] $8,200 but less than $8,500
[C] $8,500 but less than $8,800
[D] $8,800 but less than $9,100
[E] $9,100 or more
Question 17 (5 points)
Plan effective
date: 1/1/1996.
Valuation date: 12/31.
Actuarial cost
method: Aggregate.
Valuation interest
rate: 7% per year.
Current liability
interest rate for 1/1/2001: 6% per
year.
Credit balance in
funding standard account as of 12/31/1999:
$0.
Selected valuation
results as of 12/31/2001:
Normal cost $50,000
Actuarial (market) value of assets,
excluding
2001 contributions 870,000
Entry age normal accrued liability,
including 2001
normal cost 935,000
Current liability, excluding 2001
expected increase in
current liability 1,000,000
2001 expected increase in current
liability 40,000
Contributions for
2001: Four quarterly contributions of
$40,000 each, paid on quarterly contribution due dates.
Gateway funded current
liability percentage for prior years:
1998
91%
1999
88%
2000
92%
Number of participants
on each day of the 2000 plan year: 200.
In what range is the
credit balance in the funding standard account as of 12/31/2001, including all
contributions for the 2001 plan year?
[A] Less than $96,000
[B] $96,000 but less than $103,000
[C] $103,000 but less than $110,000
[D] $110,000 but less than $117,000
[E] $117,000 or more
Question 18 (5 points)
Normal retirement
benefit: 1% of final three-year average
pay for each year of service.
Actuarial cost
method: Aggregate.
Actuarial assumptions:
Valuation interest rate 7% per year
Retirement age 65
Compensation increases 5% per year
Pre-retirement decrements None
Data for sole
participants Smith and Jones:
Years of
2001
Age on Service on
Compensation 1/1/2001 1/1/2001
Smith $30,000 35 5
Jones 100,000 55 20
Credit balance in
funding standard account as of 12/31/2000:
$20,000.
Actuarial (market)
value of assets as of 1/1/2001:
$50,000.
Selected annuity
value:
= 10.00
Following completion
of the 2001 valuation, it was discovered that Smith’s 2001 compensation was
$60,000 and that his age on 1/1/2001 was 45.
IRC section 401(a)(17)
limitation for 2001: $170,000.
In what range is the
absolute value of the change in the minimum required contribution for 2001 as
of 12/31/2001 that results from correcting Smith’s data?
[A] Less than $3,700
[B] $3,700 but less than $3,900
[C] $3,900 but less than $4,100
[D] $4,100 but less than $4,300
[E] $4,300 or more
