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EA-2(A) Examination Questions

Fall, 2002

 

 

Question 1 (3 points)

 

Effective date: 1/1/1996.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2001:  $0.

 

Selected valuation results and other information as of 1/1/2002:

 

Actuarial value of assets                                     $2,100,000

Market value of assets                                          2,000,000

Accrued liability, entry age normal method              2,325,000

Normal cost, entry age normal method                      150,000

Expected benefit payments                                                  0

 

Net charges in funding standard account as of 12/31/2002:  $445,600.

Normal cost plus limit adjustment as of 12/31/2002:  $534,000.

Current liability as of 12/31/2002:  $1,625,000.

 

In what range is the deductible limit for 2002?

 

(A)              Less than $380,000

(B)              $380,000 but less than $430,000

(C)              $430,000 but less than $480,000

(D)              $480,000 but less than $530,000

(E)               $530,000 or more

 

 

Question 2 (5 points)

 

Plan effective date:  1/1/1995.
Actuarial cost method:  Frozen initial liability.
Valuation interest rate:  7% per year.

Initial accrued liability:  $500,000.

Credit balance in the funding standard account as of 12/31/2001: $0.

 

Selected valuation results and funding standard account items as of 1/1/2002:

 

Present value of future benefits                                     $1,460,000

Market value of assets                                                      610,000

Actuarial value of assets                                                    630,000

Present value of future compensation                               1,700,000

Expected compensation for 2002                                        200,000

 

Accrued liability, entry age normal method                          625,000

Normal cost, entry age normal method                                 50,000

Expected benefit payments for year                                             0

 

OBRA ’87 current liability (including expected increase due to benefits

     accruing during the plan year) projected to 12/31/2002:                                   $700,000

RPA ’94 current liability (including expected increase due to benefits

     accruing during the plan year) projected to 12/31/2002:                                   $750,000

.

In what range is the deductible limit for 2002?

 

(A)        Less than $55,000

(B)        $55,000 but less than $75,000

(C)        $75,000 but less than $95,000

(D)        $95,000 but less than $115,000

(E)         $115,000 or more

 

 

Question 3 (5 points)                                      

                                                           

Plan effective date: 1/1/1987.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2001:  $25,000.

The plan was amended to increase benefits effective 1/1/2002.

                                   

Selected valuation results as of 1/1/2002:

 

Present value of benefits after amendment             $4,000,000

Actuarial (market) value of assets                           2,200,000

Present value of future compensation                      8,800,000

2002 compensation                                                    780,000

 

Amortization charges for all bases in the funding standard account as of 1/1/2002:

 

Initial unfunded liability                                                                $86,000

1/1/1998 base due to a change in assumed retirement rates           (15,500)

1/1/2002 base due to benefit increase                                             35,000

 

In what range is the minimum required contribution for 2002 as of 1/1/2002?

 

(A)           Less than $132,000

(B)           $132,000 but less than $142,000

(C)           $142,000 but less than $152,000

(D)           $152,000 but less than $162,000

(E)            $162,000 or more


Question 4 (5 points)

                       

Plan effective date:  1/1/1975.

Valuation interest rate:  7% per year.                                                     

Current liability interest rate:  5.75% per year.

Credit balance in funding standard account as of 12/31/2001:  $20,000.

 

Selected valuation results and other information as of 1/1/2002:

           

Normal cost                                                                   $     75,000

Actuarial (market) value of assets                                     1,100,000

Amortization charges:    

   Due to initial accrued liability                                               75,000

   Due to net experience losses                                               30,000

   Due to change in actuarial assumptions                               (10,000)

RPA ’94 current liability                                                   1,850,000

Expected increase in RPA ‘94 current liability

            due to benefits accruing during the plan year                          60,000

Balance of unfunded old liability                                250,000

Remaining amortization period for

  unfunded old liability                                                             5 years

Applicable percentage of unfunded new liability                            30%

 

Highest number of participants: 

 

During 2001         145

During 2002         148

 

The plan is not exempt from the additional funding charge for 2002.

 

In what range is the additional funding charge for 2002 as of 12/31/2002?

 

(A)        Less than $91,800

(B)        $91,800 but less than $97,800

(C)        $97,800 but less than $103,800

(D)        $103,800 but less than $109,800

(E)         $109,800 or more


Question 5 (4 points)

 

Plan effective date:   1/1/1986.

Actuarial cost method:   Frozen initial liability.

Valuation interest rate:   7% per year.

 

All amortization bases in funding standard account:

 

Base                                Date established            Initial amount

Initial unfunded                 1/1/1986                        $600,000

Assumption change

     (charge base)              1/1/1996                            60,000

 

Credit balance in funding standard account as of 12/31/2001: $30,000.

 

Selected valuation results as of 1/1/2002:

 

Present value of benefits                            $  2,000,000

Actuarial value of assets                                   900,000

Present value of future compensation            20,000,000

Expected compensation for 2002                     1,000,000

 

In what range is the minimum required contribution for 2002 as of 12/31/2002?

 

(A)        Less than $60,000

(B)        $60,000 but less than $75,000

(C)        $75,000 but less than $90,000

(D)        $90,000 but less than $105,000

(E)         $105,000 or more

 

 

Question 6 (5 points)

 

Normal retirement benefit:  $100 per month times years of service.

Early retirement benefit:  None.

 

Vesting schedule: 

 

Years of service      Percent vested

   Less than 3                   0%

          3                         20%

          4                         40%

          5                         60%

          6                         80%

          7                       100%

 

Selected actuarial assumptions:

 

            Valuation interest rate                                                    7% per year

            Pre-retirement decrements other than turnover                None

 

Selected turnover rates, applied at the beginning of the year:

 

Age                Turnover

 63                     0.03

 64                     0.01

 

Data for participant Smith:

 

            Date of birth              1/1/1939

            Date of hire               1/1/1997

 

Selected annuity value:  = 9.24

 

In what range is the present value of Smith’s future benefits, including withdrawal benefits, as of 1/1/2002?

 

(A)           Less than $66,500

(B)           $66,500 but less than $69,300

(C)           $69,300 but less than $72,100

(D)           $72,100 but less than $74,900

(E)            $74,900 or more

 

 

Question 7 (5 points)

 

Normal retirement benefit:

 

1.2% × final salary for each year of service up to 15 years

plus

1.45% × final salary for each year of service in excess of 15 years

 

Actuarial cost method: Unit credit.

 

Selected valuation assumptions:

 

Valuation interest rate                          7% per year

Compensation increases:                     

Before 2002                               3% per year

After 2001                                  4% per year

Pre-retirement decrements                   None

 

Data for sole participant as of 1/1/2002:

 

Date of birth                   1/1/1962

Date of hire                    1/1/1982

2001 compensation          $20,000

 

Actuarial (market) value of assets as of 1/1/2002:  $8,000.

 

Credit balance in funding standard account as of 12/31/2001:  $0.

 

Selected annuity value: 

 

 = 9.24

 

In what range is the absolute value of the change in the 2002 minimum contribution as of 12/31/2002 due to the change in assumptions?

 

(A)       Less than $760

(B)       $760 but less than $850

(C)       $850 but less than $940

(D)       $940 but less than $1,030

(E)       $1,030 or more

 

Question 8 (4 points)

 

Participant entry dates:  January 1 and July 1.

Valuation interest rate:  7% per year.

Current liability interest rate:       5.75% per year.

Normal cost as of 1/1/2002:        $ 30,000.

 

Amortization charges in the funding standard account as of 1/1/2002:

 

Initial unfunded                                                 $25,000

Experience (gain)/loss                                       (15,000)

Plan amendments due to increase in benefits           5,000

Waived deficiency                                               20,000

Increase due to change in assumptions                 10,000

 

Deficit reduction contribution for 2002:  $270,000.

Amount necessary to increase funded current liability percentage to 100% for 2002:  $310,000.

 

Number of participants as of:

                               

         1/1/2001          143

         7/1/2001          146

         12/31/2001       144

         1/1/2002          148

         7/1/2002          149

 

The plan is not exempt from the additional funding charge for 2002.

 

In what range is the additional funding charge for 2002 as of 12/31/2002?

 

(A)        Less than $184,500

(B)        $184,500 but less than $191,500

(C)        $191,500 but less than $198,500

(D)        $198,500 but less than $205,500

(E)         $205,500 or more


Question 9 (4 points)

 

Plan effective date:  1/1/2002.                                               

Normal retirement benefit:  2% of highest three-year average compensation times years of service.

Actuarial cost method:      Level dollar entry age normal cost based on all years of service.

 

Actuarial assumptions:

 

Valuation interest rate                            7% per year

Annual compensation increases              4% per year

Pre-retirement decrements                     None

 

Data for sole participant as of 1/1/2002:

                                                                                   

Date of birth                 1/1/1952                       

            Date of hire                  1/1/1987                                   

            2002 compensation        $50,000                       

 

Selected annuity value:

 

 = 9.24

 

In what range is the minimum required contribution for 2002 as of 12/31/2002?

 

(A)        Less than $11,000

(B)        $11,000 but less than $14,000

(C)        $14,000 but less than $17,000

(D)        $17,000 but less than $20,000

(E)         $20,000 or more

 

 

Question 10 (3 points)

 

Plan effective date:  1/1/1995. 

 

Actuarial cost method first effective 1/1/1998:  Entry age normal.

Asset valuation method effective 1/1/1995:  Three-year smoothing of (gains)/losses.

                       

Selected valuation results as of January 1, 2002:

Accrued liability (entry age normal)                      $1,500,000                 

Accrued liability (unit credit)                                  1,350,000

Actuarial value of assets                                        1,300,000                             

Market value of assets                                           1,550,000

 

Credit balance in funding standard account as of 12/31/2001:  $0.

 

 

 

The following method changes are being considered for the 2002 valuation:

 

I.                    Changing the actuarial cost method to unit credit.

II.                 Changing the asset valuation method to market value.

III.               Changing the valuation date to December 31.

 

Restrictions on automatic approval under Revenue Procedure 2000-40 that are not addressed in the above data do not apply.

 

Which (if any) of the above changes are eligible for automatic approval pursuant to Revenue Procedure 2000-40?

 

(A)           None

(B)           I only

(C)           II only

(D)           III only

(E)            The correct answer is not given by (A), (B), (C), or (D) above.

 

 

Question 11 (2 points)

 

Each of questions 11 through 13 consists of an assertion in the left-hand column and a reason in the right-hand column.

 

 

ASSERTION                                                         REASON

 

Mortality experience for                                          If the definition of disability is “total and

disabled lives varies with                                         permanent disability” and it is strictly

the definition of disability                BECAUSE        administered, at least in the short term, the

and the manner in                                                   mortality experienced by disabled lives is

which it is administered.                                          expected to be lower than if a more liberal interpretation is used.

 

Which of the following statements is true?

 

(A)        Both the assertion and the reason are true statements and the reason is a correct explanation of the assertion.

(B)        Both the assertion and the reason are true statements, but the reason is NOT a correct explanation of the assertion.

(C)        The assertion is a true statement, but the reason is a false statement.

(D)        The assertion is a false statement, but the reason is a true statement.

(E)         Both the assertion and the reason are false statements.

 


Question 12 (2 points)

 

Each of questions 11 through 13 consists of an assertion in the left-hand column and a reason in the right-hand column.

 

ASSERTION                                                         REASON

         

When setting an assumption                                    Past expenses may have been affected by

for expenses paid from                                           extraordinary events, such as a change in

a pension plan, past expenses         BECAUSE        whether the PBGC variable rate premium

should not be considered.                                        applied or a change in the plan sponsor’s policy

                                                                             as to which expenses are paid by the plan.

 

Which of the following statements is true?

 

(A)        Both the assertion and the reason are true statements and the reason is a correct explanation of the assertion.

(B)        Both the assertion and the reason are true statements, but the reason is NOT a correct explanation of the assertion.

(C)        The assertion is a true statement, but the reason is a false statement.

(D)        The assertion is a false statement, but the reason is a true statement.

(E)         Both the assertion and the reason are false statements.

 

 

Question 13 (2 points)

                        

Each of questions 11 through 13 consists of an assertion in the left-hand column and a reason in the right-hand column.

 

ASSERTION                                                                     REASON

         

It is not necessary to consider the                                        Current liability cannot reflect the

number of participants electing a                BECAUSE        interest rate subsidy, if any, inherent

lump sum option when setting the                                        in lump sum distributions.

assumptions for determining

minimum funding requirements.

 

Which of the following statements is true?

 

(A)        Both the assertion and the reason are true statements and the reason is a correct explanation of the assertion.

(B)        Both the assertion and the reason are true statements, but the reason is NOT a correct explanation of the assertion.

(C)        The assertion is a true statement, but the reason is a false statement.

(D)        The assertion is a false statement, but the reason is a true statement.

(E)         Both the assertion and the reason are false statements.

 


Question 14 (4 points)

 

Plan effective date:  1/1/1990.

Normal retirement benefit:  1% of highest three-year average compensation times years of service.

Actuarial cost method:  Aggregate.

 

Selected actuarial assumptions:

 

Valuation interest rate                7% per year

Compensation increases             4% per year

Pre-retirement decrements         None

                                               

Data for sole participant as of 1/1/2002:

 

Date of birth                 1/1/1952      

Date of hire                  1/1/1995      

2002 Compensation       $30,000      

 

Credit balance in funding standard account as of 12/31/2001:  $500.

Actuarial (market) value of assets as of 1/1/2002:  $10,000.

 

Selected annuity factor:

 

          = 9.24

 

The full funding limitation does not apply.

 

In what range is the minimum required contribution for 2002 as of 1/1/2002?

 

(A)        Less than $1,675

(B)        $1,675 but less than $1,800

(C)        $1,800 but less than $1,925

(D)        $1,925 but less than $2,050

(E)         $2,050 or more

 

 

Question 15 (4 points)

 

Plan effective date:  1/1/1998.

 

Normal retirement benefit:

            Effective 1/1/1998         1.00% times final average earnings times years of service

            Effective 1/1/2002         1.15% times final average earnings times years of service

 

Actuarial cost method: Unit credit.

 

Valuation interest rate:  7% per year.

 

 

 

Information relating to all amortization bases in funding standard account as of 1/1/2001: 

 

            Net outstanding balance             $250,000

            Net amortization charge                 25,000

 

Selected valuation results as of 1/1/2002, reflecting plan amendment:

 

            Accrued liability                                    $1,025,000

            Actuarial (market) value of assets               710,000

 

Contribution for 2001:  Amount equal to the minimum required contribution for 2001 paid on 12/31/2001.

 

All participants were active employees as of 1/1/2002.

 

In what range is the absolute value of the experience (gain)/loss during 2001 as of 1/1/2002?

 

(A)              Less than $40,000

(B)              $40,000 but less than $55,000

(C)              $55,000 but less than $70,000

(D)              $70,000 but less than $85,000

(E)               $85,000 or more

 

Question 16 (4 points)

                       

Plan effective date:  1/1/1996.

 

Actuarial cost method:

 

Before 2002         Unit credit

After 2001           Entry age normal

 

Valuation interest rate:  7% per year.

Initial accrued liability:  $150,000.                                               

There were no experience gains or losses before 1/1/2001.

Credit balance in funding standard account as of 12/31/2001:  $0.

 

Selected valuation results as of 1/1/2002:

 

Accrued liability, unit credit method                       $540,000

Normal cost, entry age normal method                       75,000

Accrued liability, entry age normal method               600,000

Actuarial (market) value of assets                           380,000

 

In what range is the minimum required contribution for 2002 as of 12/31/2002?

 

(A)              Less than $101,000

(B)              $101,000 but less than $103,000

(C)              $103,000 but less than $105,000

(D)              $105,000 but less than $107,000

(E)               $107,000 or more


Question 17 (5 points)

 

Plan effective date:  1/1/2001.

Actuarial cost method:  Entry age normal.

Valuation interest rate:  7% per year.

175% Federal mid-term rate for 2002:  7.92% per year.

 

Selected valuation results as of:

 

                                    1/1/2001          1/1/2002

Normal cost               $   400,000         $500,000

Accrued liability           5,200,000    

 

Credit balance as of 12/31/2001:  $403,099.

Contribution for 2001:  Paid by 12/31/2001.

Contribution for 2002:  Deductible limit, paid on 12/31/2002.

There were no gains or losses during the 2001 plan year.

The plan is not exempt from quarterly contribution requirements for 2002.

 

In what range is the additional charge in the 2002 funding standard account for interest on late quarterly contributions?

 

(A)        $0

(B)        $1 but less than $400

(C)        $400 but less than $1,800

(D)        $1,800 but less than $3,200

(E)         $3,200 or more

 

 

Question 18 (5 points)

 

Plan effective date:  1/1/2001.

 

Normal retirement benefit: 

Before 1/1/2002         $50 per month for each year of service

After 12/31/2001        $60 per month for each year of service

 

Actuarial cost method:  Individual level premium.

 

Selected actuarial assumptions:

   

Valuation interest rate                   7% per year

Pre-retirement decrements            None

 

Data for sole participant as of 1/1/2002:

    

Date of birth        1/1/1950

Date of hire         1/1/1998

 

Credit balance in funding standard account as of 12/31/2001:  $0.

Actuarial (market) value of assets as of 1/1/2002:  $1,800.

Selected annuity factor:

 

             = 10.00

 

In what range is the minimum required contribution for 2002 as of 12/31/2002?

 

(A)              Less than $4,000

(B)              $4,000 but less than $5,000

(C)              $5,000 but less than $6,000

(D)              $6,000 but less than $7,000

(E)               $7,000 or more

 

Question 19 (3 points)

 

Plan effective date:  1/1/1980.

Actuarial cost method:  Frozen initial liability.

Valuation interest rate:  7% per year.

150% of Federal mid-term rate for 2002:  6.77% per year.

Initial unfunded liability:  $400,000.

 

A funding waiver was granted for 2001 in the amount of $47,800 which was the amount necessary to avoid a funding deficiency at the end of the plan year.

                                                                       

Normal cost for 2002 as of 1/1/2002:  $45,000.               

 

In what range is the minimum required contribution for 2002 as of 12/31/2002?    

 

(A)              Less than $85,000

(B)              $85,000 but less than $88,500

(C)              $88,500 but less than $92,000

(D)              $92,000 but less than $95,500

(E)               $95,500 or more

 

Question 20 (4 points)                                    

 

Mandatory employee contributions: 1% of compensation.

Actuarial cost method: Aggregate.

Valuation interest rate: 7% per year.

 

Selected valuation results as of 1/1/2002:

 

Present value of projected benefits provided by employer

  contributions                                                                                        $1,280,000

Present value of projected benefits provided by mandatory

  employee contributions                                                                   100,000

Actuarial (market) value of assets excluding accumulated

  employee contributions                                                                               195,000

Accumulated employee contributions                                                              30,000

Present value of future compensation                                                         5,400,000

2002 compensation                                                                                      600,000

 

Credit balance in funding standard account as of 12/31/2001:  $0.

 

In what range is the minimum required employer contribution for 2002 as of 12/31/2002?

 

(A)           Less than $124,000

(B)           $124,000 but less than $129,000

(C)           $129,000 but less than $134,000

(D)           $134,000 but less than $139,000

(E)            $139,000 or more                       

 

 

Question 21 (4 points)

 

Plan effective date:  1/1/1980.

Valuation interest rate:  7% per year.

 

Actuarial value of assets:

 

      Prior to 2002           Fair market value

      After 2001              Smoothed market value (without phase-in) with a 3-year smoothing period as defined in Revenue Procedure 2000-40 (smoothing of difference between expected and actual market value of assets)

 

Reconciliation of market value of assets:

 

                                                                              2000                2001

            Market value of assets, 1/1                    $6,900,000         $6,900,000

            Contributions                                              250,000             150,000

            Benefit payments                                       250,000             350,000

            Investment return                                                  0          (900,000)

            Market value of assets, 12/31                 $6,900,000         $5,800,000

 

Contributions and benefit payments are evenly distributed during each plan year.

All administrative expenses are paid directly by plan sponsor.

 

In what range is the actuarial value of assets as of 1/1/2002?

 

(A)       Less than $5,900,000

(B)       $5,900,000 but less than $6,200,000

(C)       $6,200,000 but less than $6,500,000

(D)       $6,500,000 but less than $6,800,000

(E)       $6,800,000 or more


Question 22 (4 points)

 

Normal retirement benefit:  50% of final compensation.

Actuarial cost method:  Aggregate.

 

Selected actuarial assumptions:

 

Valuation interest rate                         7% per year

Compensation increases                      4% per year

Pre-retirement decrements                  None

 

Data for only participants in the plan as of 1/1/2002:

 

                                                      Smith                Jones

Date of birth                                   1/1/1933            1/1/1947

Status                                             Retired             Active

2001 compensation                                                  $28,500

Monthly benefit (life annuity)            $1,000              

 

Actuarial (market) value of assets as of 1/1/2002:  $95,000.

Credit balance in the funding standard account as of 12/31/2001:  $1,500.

 

Selected annuity values:

 

              = 9.70

              = 7.83

 

In what range is the minimum required contribution for 2002 as of 12/31/2002?

 

(A)              Less than $10,900

(B)              $10,900 but less than $11,500

(C)              $11,500 but less than $12,100    

(D)              $12,100 but less than $12,700

(E)               $12,700 or more

 

 

Question 23 (5 points)

 

Effective date:  1/1/1995.

 

Normal retirement benefit:  1% of final 5-year average compensation for each year of service.

 

Actuarial cost method:  Frozen initial liability.

 

Valuation interest rate:  7% per year.

 

Assumed compensation increases:  4% per year.

 

 

 

Selected valuation results as of:

                                                                    1/1/2001            1/1/2002

Present value of benefits                          $  2,000,000      

Present value of future compensation          20,000,000      

2001 compensation                                       2,000,000     

Expected benefit payments                                       0     

Unfunded liability                                                                     615,000

Actuarial (market) value of assets                                          1,335,000

 

Credit balance in funding standard account as of 12/31/2001: $0.

 

During 2001, actual compensation increases were 2%.  There were no other gains or losses during the year.

 

All participants are active and under age 60.  There were no new entrants or terminations during 2001.

 

In what range is the 2002 normal cost as of 1/1/2002?

 

(A)           Less than $15,500

(B)           $15,500 but less than $16,000

(C)           $16,000 but less than $16,500

(D)           $16,500 but less than $17,000

(E)            $17,000 or more

 

 

Question 24 (5 points)

 

Plan effective date:  1/1/1980.

 

Actuarial cost method:  Frozen initial liability.

 

Valuation interest rate:

 

Before 2002         8.50% per year

After 2001           6.75% per year

 

All amortization charges in funding standard account as of 1/1/2001:

 

       Initial unfunded actuarial accrued liability     $50,000

       Plan amendment effective 1/1/1999                 8,500

 

Credit balance in funding standard account as of 12/31/2001:  $0.

 

Selected valuation results as of 1/1/2002:                       8.50%               6.75%

                                                                                                     

       Entry age normal actuarial accrued liability           $900,000         $1,100,000

       Actuarial (market) value of assets                         400,000              400,000

       Frozen initial liability normal cost                                                      60,000

 

 

 

In what range is the minimum required contribution for 2002 as of 12/31/2002?

 

(A)              Less than $138,500

(B)              $138,500 but less than $146,500

(C)              $146,500 but less than $154,500

(D)              $154,500 but less than $162,500

(E)               $162,500 or more

 

 

Question 25 (3 points)

 

Type of plan:  Multiemployer.

Plan effective date:  1/1/1990.
Actuarial cost method:  Unit credit.
Valuation interest rate:  7% per year.

Credit balance   in funding standard account as of 12/31/2000: $0.

 

Selected valuation results:

                                                                            1/1/2001            1/1/2002

Normal cost                                            $5,000,000         $7,000,000

Accrued liability                                    196,000,000       209,000,000

Actuarial (market) value of assets          202,000,000       205,000,000

 

ERISA and RPA’94 override full funding limitation for 2000 and 2001:  $0.

Contribution for 2001: $0.

 

In what range is the minimum required contribution for 2002 as of 12/31/2002?

 

(A)       Less than $8,000,000

(B)       $8,000,000 but less than $8,200,000

(C)       $8,200,000 but less than $8,400,000

(D)       $8,400,000 but less than $8,600,000

(E)        $8,600,000 or more

 

 

Question 26 (5 points)

 

Valuation date:  12/31/2002.

 

Actuarial cost method:  Aggregate.

 

Valuation interest rate:  7% per year.

 

Credit balance in funding standard account as of 12/31/2001:  $0.

 


Selected valuation results as of 12/31/2002:

 

Present value of projected benefits                                                          $2,000,000

Actuarial value of assets                                                                              880,000

Market value of assets                                                                                 850,000

Compensation for 2002                                                                                140,000

Present value of future compensation                                                         1,400,000

Entry age normal accrued liability (including normal cost for 2002)      950,000

OBRA ’87 current liability (including expected increase for 2002

   due to benefits accruing during the plan year)                                          1,025,000

RPA ’94 current liability (including expected increase for 2002

   due to benefits accruing during the plan year)                                          1,000,000

 

In what range is the deductible limit for 2002?

 

(A)        Less than $93,000

(B)        $93,000 but less than $113,000

(C)        $113,000 but less than $133,000

(D)        $133,000 but less than $153,000

(E)         $153,000 or more

 

 

Question 27 (5 points)

 

Normal retirement benefit:  1% times final salary for each year of service.

Actuarial cost method:  Aggregate.

 

Selected actuarial assumptions:

Valuation interest rate                   7% per year

Compensation increases                4% per year

Pre-retirement decrements            None

 

Credit balance in funding standard account as of 12/31/2000:  $20,000.

 

Selected valuation results as of 1/1/2001:

Present value of future benefits                    $   500,000

Actuarial (market) value of assets                     350,000

Present value of future compensation             2,000,000

Expected compensation for 2001                       300,000

Expected benefit payments for 2001                             0

 

Contribution for 2001: $7,000 paid on 12/31/2001.

 

Plan experience for 2001:

            Actual investment returns                      8.5% per year

            Actual compensation increases               8.0% per year

            All other experience was as expected

 

All participants are active and there were no retirements or new entrants during 2001 or 2002.

 

 

In what range is the minimum required contribution for 2002 as of 12/31/2002?

 

(A)     Less than $24,900

(B)     $24,900 but less than $27,900

(C)     $27,900 but less than $30,900

(D)     $30,900 but less than $33,900

(E)      $33,900 or more

 

 

Question 28 (4 points)

 

Plan year:  1/1 – 12/31.

Plan sponsor’s tax year:  10/1 – 9/30.

Actuarial cost method:  Aggregate.

Valuation interest rate:  7% per year.

Credit balance in the funding standard account as of 12/31/2001:  $75,000.

 

Selected valuation results under IRC section 412, as of 1/1/2002:

 

            Present value of future benefits                            $4,000,000

            Actuarial (market) value of assets                             750,000

            Present value of future compensation                      3,000,000

            Expected compensation for 2002                               250,000

 

The deductible limit for any tax year is based upon the valuation for the plan year beginning in that tax year.

 

Of the contribution for the 2002 plan year, $50,000 was paid on 6/15/2002 and deducted for the tax year ending 9/30/2001.

 

In what range is the deductible limit for the tax year ending 9/30/2002?

           

(A)                          Less than $280,000

(B)                          $280,000 but less than $284,000

(C)                          $284,000 but less than $288,000

(D)                          $288,000 but less than $292,000

(E)                           $292,000 or more

 

 


Question 29 (4 points)

 

Selected valuation results as of 1/1/2002:            

           

         Current liability                                   $800,000    

         Actuarial (market) value of assets     275,000

 

Selected information on plan assets:       

                                                                12/31/2001     3/31/2002

Value of marketable securities                      $245,000      $250,000

                                                                                     

                                                                      2001            2002

Monthly annuity payments from plan              $7,000           $7,100

Monthly expense payments from plan                  50                100

                                                                          

                3/01/2001      3/01/2002

Single sum distributions                                $9,000             $8,000

        

 

Quarterly contribution due 4/15/2002 without regard to liquidity requirement:  $5,000.

The plan has always had 250 participants.

 

In what range is the quarterly contribution due 4/15/2002?                                                           

                                   

(A)    Less than $18,700

(B)    $18,700 but less than $21,400

(C)    $21,400 but less than $24,100

(D)    $24,100 but less than $26,800

(E)    $26,800 or more

 

 

Question 30 (4 points)

 

Plan effective date:  1/1/1977.

Actuarial cost method:  Frozen initial liability.

Valuation interest rate:  7% per year.

Current liability interest rate:  6% per year.

Initial accrued liability:  $106,000.

Credit balance in funding standard account as of 12/31/2001:  $0.

           

Selected valuation results as of 1/1/2002:

 

Actuarial value of assets                                                            $  92,500

Market value of assets                                                       94,000

Normal cost                                                                        1,660

Entry age normal accrued liability                                     118,000

Entry age normal normal cost                                               2,000

Current liability                                                                  62,000

Expected increase in current liability

   due to benefits accruing during the plan year                      4,000

Expected benefit payments                                                        0

In what range is the deductible limit for 2002?

 

(A)            Less than $13,800

(B)           $13,800 but less than $14,800

(C)           $14,800 but less than $15,800

(D)           $15,800 but less than $16,800

(E)            $16,800 or more

 

 

Question 31 (5 points)

 

Plan effective date:  1/1/1996.

Actuarial cost method:  Frozen initial liability.

 

Assumed interest rates:

Valuation interest rate                   7% per year

Current liability interest rate          6% per year

 

Credit balance in funding standard account as of 12/31/2001:  $0.

 

Selected valuation results and other information as of 1/1/2002:

 

Actuarial (market) value of assets                                  $1,740,000

Expected benefit payments                                                           0

Normal cost                                                                       112,273

Accrued liability under entry age normal

    method (including normal cost for 2002)                        2,150,000

Current liability (including expected

    increase for 2002 due to benefits

    accruing during the plan year)                                                  2,180,000

 

Initial balance of all amortization bases in the funding standard account:

 

Initial accrued liability                                        $2,100,000

Increase in liability due to 1/1/2000

   change in assumed rates of withdrawal                             340,000

 

In what range is the deductible limit for 2002?

 

(A)              Less than $445,000

(B)              $445,000 but less than $455,000

(C)              $455,000 but less than $465,000

(D)              $465,000 but less than $475,000

(E)               $475,000 or more

 


Question 32 (4 points)

 

Normal retirement benefit:  $35 per month per year of service.

Early retirement eligibility:  Age 60.

Early retirement benefit:       Accrued benefit reduced by 6% for each year by which the benefit commencement date precedes the normal retirement date.

Actuarial cost method:  Unit credit.

 

Selected actuarial assumptions:

 

Valuation interest rate                    7% per year

Pre-retirement decrements             None

 

Retirements occur at the beginning of the year based on the following table:

 

           Probability of

Age       Retirement

63              0.20

64              0.40

65              1.00

 

Data for participant Smith as of 1/1/2002:

 

            Date of birth                             1/1/1939

            Date of hire                              1/1/1969

 

Selected annuity values:

 

  = 9.72               = 9.48               = 9.24

 

In what range is Smith’s accrued liability as of 1/1/2002?

 

(A)       Less than $115,000

(B)       $115,000 but less than $140,000

(C)       $140,000 but less than $165,000

(D)       $165,000 but less than $190,000

(E)        $190,000 or more

 

 

Question 33 (4 points)

 

Plan effective date: 1/1/1980.

 

Actuarial cost method:  Aggregate.

 

Valuation rate of interest:  7% per year.

 

Credit balance in funding standard account as of 12/31/2001:  $0.

 

 

Selected valuation results as of 1/1/2002:         

                                                                     

   Present value of future benefits                    $  8,500,000

   Actuarial value of assets                                  6,600,000

   Market value of assets                                     6,500,000

   Present value of future compensation              32,500,000

   Expected compensation for 2002                       2,700,000

   Expected benefit payments                                             0

                                                                     

Selected valuation results projected to 12/31/2002:              

                                                                     

   Entry age normal accrued liability (including normal cost)                $7,275,000

   Current liability (including expected increase due to benefits

        accruing during the plan year)                                                     4,300,000

 

In what range is the full funding credit for 2002?

 

(A)       $0

(B)       $1 but less than $29,000

(C)       $29,000 but less than $104,000

(D)       $104,000 but less than $179,000

(E)       $179,000 or more

 

 

Question 34 (3 points)                                    

 

Normal retirement benefit:  2.5% of final three-year average compensation for each year

of service.

 

Actuarial cost method: Unit credit.

 

Selected actuarial assumptions:

 

Valuation interest rate                7% per year

Compensation increases             5% per year

 

Selected valuation results as of 1/1/2001:

 

Unfunded accrued liability                      $195,000

Actuarial (market) value of assets            225,000

Normal cost                                              25,000

 

Actual compensation increases during 2001:  8.75%. 

 

All other actuarial assumptions were exactly realized.

 

All participants are active and are under age 60, and there are no new entrants as of 1/1/2002.

 

No distributions were made from the plan during 2001.

 

 

In what range is the actuarial loss as of 1/1/2002 due to compensation increases?

 

(A)              Less than $6,500

(B)              $6,500 but less than $16,500

(C)              $16,500 but less than $26,500

(D)              $26,500 but less than $36,500

(E)               $36,500 or more

 

 

Question 35 (5 points)

 

Plan effective date:  1/1/2002.

Accrued benefit:  1% times final three-year average compensation per year of service.

Termination benefit:  Accrued benefit, payable at age 65.

Actuarial cost method:  Unit credit.

Valuation interest:  7% per year.

Assumed compensation increases:  3% per year.

 

Assumed probabilities of death, termination and retirement:

 

                                         Probability of            Probability of              Probability of

                    Age                      Death                Termination                  Retirement

Prior to age 63              0.00                         0.00                            0.00

        63                         0.00                         0.10                            0.00

        64                         0.00                         0.15                            0.00

        65                         0.00                         0.00                            1.00

 

Decrements are assumed to apply at the beginning of the plan year.

 

Data for sole participant:

Date of birth                    1/1/1952

Date of hire                     1/1/1982

2001 compensation            $60,000

 

Selected annuity value: 

 = 10.0

 

In what range is the normal cost for 2002 as of 1/1/2002?

 

(A)           Less than $3,275

(B)           $3,275 but less than $3,500

(C)           $3,500 but less than $3,725

(D)           $3,725 but less than $3,950

(E)            $3,950 or more


Question 36  (3 points)

 

Normal retirement benefit:  $1,500 per month.

 

Normal form of payment:  Life annuity.

 

Optional form of payment:  Joint & survivor benefit paying:

(1)    a reduced benefit to the participant for life, plus

(2)    66 2/3% of the participant’s reduced benefit to the beneficiary for his/her remaining lifetime after the participant’s death. 

 

Reduction factor to adjust life annuity to the optional form of payment:  90%.

 

Data for participant Smith as of 1/1/2002:

 

            Date of birth                             1/1/1937           

            Spouse’s date of birth                1/1/1942

            Date of retirement                     1/1/2002

 

Selected annuity values:

           

 = 9.815                 = 8.736                 = 11.117

 

For valuation purposes, the actuary assumes all participants will take the life annuity form of payment.  However, Smith elects the optional form of payment upon retirement.

 

In what range is the absolute value of the (gain)/loss in the total present value of benefits due to Smith’s election of the only optional form of payment?

           

(A)           Less than $1,000

(B)           $1,000 but less than $9,500

(C)           $9,500 but less than $18,000

(D)           $18,000 but less than $26,500

(E)            $26,500 or more

 

 

Question 37  (5 points)

                                       

Plan effective date:  1/1/1996.

Actuarial cost method:  Frozen initial liability.

Valuation interest rate:  7% per year.

Initial accrued liability:  $250,000.

Credit balance in funding standard account as of 12/31/2000:  $0.

 

Normal cost as of:

           

1/1/2001         $40,000

1/1/2002           35,000

 

Contribution for 2001 plan year:  $40,000 paid on 8/1/2001.

Change in entry age normal accrued liability due to 1/1/2002 plan amendment:  ($30,000).

Contributions for 2002 plan year are paid after 12/31/2002.

 

In what range is the deductible limit for 2002?

 

(A)        Less than $70,000

(B)        $70,000 but less than $73,000

(C)        $73,000 but less than $76,000

(D)        $76,000 but less than $79,000

(E)         $79,000 or more

 

Question 38 (4 points)

 

Normal retirement benefit:  $30 per month for each year of service.

 

Normal retirement age:

 

            Before 2002         65

            After 2001           64

 

Actuarial cost method:  Aggregate.

Valuation interest rate:  7% per year.

Assumed retirement age is equal to the normal retirement age.

No pre-retirement decrements are assumed.

 

Data for sole participant:

                       

            Date of birth        1/1/1947

            Date of hire         1/1/1972

 

Credit balance in the funding standard account as of 12/31/2001: $0.

 

 Actuarial (market) value of assets as of 1/1/2002:  $45,000.

 

Selected annuity values:   = 9.48                  = 9.24

 

In what range is the increase in normal cost for 2002 as of 1/1/2002 due to the change in normal retirement age?

 

(A)           Less than $200

(B)           $200 but less than $500

(C)           $500 but less than $800

(D)           $800 but less than $1,100

(E)            $1,100 or more

 

Question 39 (3 points)                                    

 

Plan effective date:  1/1/1995.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Selected valuation results as of 1/1/2002:

 

Present value of benefits                              $1,500,000

Actuarial (market) value of assets                     250,000

Present value of future compensation             1,800,000

Expected compensation for 2002                       180,000

Normal cost                                                       55,000

 

Credit balance   in funding standard account as of 12/31/2001:  $7,500.                

 

In what range is the 2002 minimum required contribution as of 12/31/2002?

 

(A)        Less than $106,000

(B)        $106,000 but less than $113,000

(C)        $113,000 but less than $120,000

(D)        $120,000 but less than $127,000

(E)         $127,000 or more

 

 

Question 40 (3 points)

 

Normal retirement benefit:  2% of final 3-year average compensation for each year of service.

Actuarial cost method:  Unit credit.

 

Selected actuarial assumptions:

 

Valuation interest rate                 7% per year

Compensation increases              6% per year

Pre-retirement decrements          None

           

Data for sole participant in the plan as of 1/1/2002:

 

Date of birth                    1/1/1942        

Date of hire                     1/1/1982        

2002 compensation           $35,000

           

Selected annuity value: 

 

 = 9.70

 

In what range is the normal cost as of 1/1/2002?

 

(A)              Less than $5,450

(B)              $5,450 but less than $5,750

(C)              $5,750 but less than $6,050

(D)              $6,050 but less than $6,350

(E)               $6,350 or more