EA-2A Examination

Fall, 2004

 

Data for Question 1 (1 point)

 

Consider the following statement with respect to the actuarial value of assets:

 

A change in the date used for determining the value of assets is a change in funding method.

 

 

Question 1

 

Is the above statement true or false?

 

(A)     True

 

(B)      False

 

 

 

Data for Question 2 (1 point)

 

A single employer plan had more than 100 participants in 2003.

 

The planÕs gateway funded current liability percentages for 2004 and each of the three preceding years are as follows:

 

          Plan Year              Gateway %

              2004                        85%

              2003                        92%

              2002                        89%

              2001                        95%

 

Consider the following statement:

 

The plan is subject to the additional required funding charge for the 2004 plan year.

 

 

Question 2

 

Is the above statement true or false?

 

(A)      True

 

(B)       False

Data for Question 3 (1 point)

 

A single employer plan has funded current liability percentages of 98% for 2003 and 105% for 2004.

 

Consider the following statement:

 

The plan is exempt from the quarterly contribution requirement for 2004.

 

 

 

Question 3

 

Is the above statement true or false?

 

(A)      True

 

(B)       False

 

Data for Question 4 (3 points)

 

Normal retirement benefit:     

 

Prior to 2004      $30 per month for each year of service.

After 2003         $30 per month for each year of service as of 1/1/2004, plus $33 per month for each year of service after 1/1/2004.

 

Actuarial cost method:  Attained age normal.

 

Selected valuation results as of 1/1/2004 before plan change:

 

Present value of future benefits                   $2,900,000

Unit credit accrued liability                           1,500,000

 

Present value of future service                            16,000

Number of active participants                              1,000

 

All participants are active employees.

 

 

 

Question 4

 

In what range is the increase in the normal cost as of 1/1/2004 as a result of the plan amendment?

 

(A)      Less than $9,000

 

(B)       $9,000  but less than $12,000

 

(C)       $12,000  but less than $15,000

 

(D)      $15,000  but less than $18,000

 

(E)       $18,000 or more

Data for Question 5 (3 points)

 

Normal retirement benefit:    $40 per month for each year of service.

 

Early retirement benefit:        None.

 

Plan vesting schedule:

Years of service

Percent vested

 

Less than 3

    0%

 

3

  20%

 

4

  40%

 

5

  60%

 

6

  80%

 

7 or more

100%

 

Actuarial cost method:           Unit credit.

 

Selected actuarial assumptions:

Valuation interest rate

7% per year

Pre-retirement turnover rates

Age

Rate

 

63

0.06

 

64

0.00

 

65

1.00

Other pre-retirement decrements

None

 

 

Decrements are assumed to occur at the beginning of the year.

 

Data for participant Smith as of 1/1/2004:

Date of birth

1/1/1941

 

Date of hire

1/1/1999

 

Selected annuity value:

             = 9.24

 

 

Question 5

 

In what range is the total normal cost for Smith as of 1/1/2004?

 

(A)   Less than $3,600

 

(B)    $3,600 but less than $3,700

 

(C)    $3,700 but less than $3,800

 

(D)   $3,800 but less than $3,900

 

(E)    $3,900 or more

Data for Question 6 (4 points)

 

Actuarial cost method:  Aggregate.

 

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

 

Valuation interest rate:  7% per year.

 

Assumed compensation increases:  4% per year.

 

All participants are active and under age 60 on 1/1/2003.

 

Credit balance as of 12/31/2002:  $0.

 

Selected valuation results as of 1/1/2003:

Present value of future benefits                      $200,000

Compensation                                                   100,000

Present value of future compensation           1,500,000

Actuarial (market) value of assets                      50,000

 

During 2003, the following occurred:

Compensation increases for all participants were 3%

Return on assets was 5%

The minimum required contribution for 2003 was paid on 12/31/2003

There were no deaths, terminations, or new entrants

 

 

 

Question 6

 

In what range is the normal cost for 2004 as of 1/1/2004?

 

(A)   Less than $10,000

 

(B)    $10,000 but less than $10,100

 

(C)    $10,100 but less than $10,200

 

(D)   $10,200 but less than $10,300

 

(E)    $10,300 or more

Data for Question 7 (3 points)

 

Actuarial cost method:  Aggregate.

 

Valuation interest rate:  7% per year.

 

Current liability interest rate:  6.55% per year.

 

Credit balance in the funding standard account as of 12/31/2003:  $0.

 

Selected valuation results as of 1/1/2004:

 

Normal cost                                                            $12,000

Entry age normal cost                                               10,000

Entry age normal accrued liability                          105,000

Current liability                                                        75,000

Expected increase in current liability for 2004         11,000

Actuarial value of assets                                         108,000

Market value of assets                                              90,000

Benefit payments expected to be paid in 2004                 0

 

 

 

 

Question 7

 

In what range is the full funding limitation under IRC section 412 for 2004?

 

(A)   Less than $12,500

 

(B)    $12,500 but less than $17,500

 

(C)    $17,500 but less than $22,500

 

(D)   $22,500 but less than $27,500

 

(E)    $27,500 or more

Data for Question 8 (5 points)

 

Plan effective date:  1/1/2003.

 

Normal retirement benefit:  $30 per month for each of the first 10 years of service, plus

                                             $35 per month for each year of service thereafter.

 

Actuarial cost method:  Unit credit.

 

Valuation interest rate:

 

            Prior to 2004

7% per year

            After 2003

5% per year

 

Credit balance in funding standard account as of 12/31/2003:  $0.

 

There have been no experience gains or losses.

 

Data for sole participant:

 

Date of birth   1/1/1964

Date of hire     1/1/1988

 

Selected annuity values:

 

7%

9.75

5%

11.50

 

 

 

Question 8

 

In what range is the minimum required contribution for 2004 as of 12/31/2004?

 

(A)       Less than $3,150

(B)       $3,150 but less than $3,250

(C)       $3,250 but less than $3,350

(D)       $3,350 but less than $3,450

(E)       $3,450 or more

Data for Question 9 (4 points)

 

Plan effective date:  1/1/1998.

 

Actuarial cost method:  Frozen initial liability.

 

Valuation interest rate:  7% per year.

 

Selected valuation results and funding standard account entries as of 1/1/2004:

 

Outstanding amortization base for initial unfunded liability

$2,850,000

Present value of projected benefits

9,750,000

Present value of future compensation

22,675,000

2004 compensation

2,000,000

Actuarial value of assets

2,850,000

 

At the end of each plan year, a contribution is made equal to the normal cost plus amortization of the initial unfunded liability over 25 years.

 

 

 

Question 9

 

In what range is the minimum required contribution for 2004 as of 12/31/2004?

 

(A)     Less than $475,000

 

(B)      $475,000 but less than $525,000

 

(C)      $525,000 but less than $575,000

 

(D)     $575,000 but less than $625,000

 

(E)      $625,000 or more

Data for Question 10 (4 points)

 

Plan effective date:  1/1/2002.

 

Actuarial cost method:  Unit credit.

 

Initial accrued liability:  $450,000.

 

Valuation interest rate:

Prior to 2004   7% per year

After 2003      6% per year

 

Credit balance in funding standard account as of 12/31/2003:  $5,200.

 

Normal cost as of 1/1/2004:  $30,000.

 

Experience (gain) in 2002:  ($40,000).

 

Experience loss in 2003:  $70,000.

 

Increase in liability due to assumption change effective 1/1/2004:  $80,000.

 

Contribution for 2004:  $90,000 paid on 6/30/2004.

 

 

 

Question 10

 

In what range is the credit balance in the funding standard account as of 12/31/2004?

 

(A)   Less than $13,650

 

(B)    $13,650 but less than $15,650

 

(C)    $15,650 but less than $17,650

 

(D)   $17,650 but less than $19,650

 

(E)    $19,650 or more

Data for Question 11 (3 points)

 

Actuarial cost method:  Unit credit.

 

Valuation interest rate:  7% per year.

 

Selected valuation results:

 

 

1/1/2003

1/1/2004

Accrued liability

$120,000

$125,000

Normal cost

10,000

12,000

Actuarial (market) value of
   assets

120,000

110,000

Benefits paid (mid-year)

20,000

20,000

 

Contribution for 2003 plan year: $50,000 paid 12/31/2003.

 

x = Total experience loss for 2003.

y = Asset loss for 2003.

 

 

 

Question 11

 

In what range is y/x?

 

(A)   Less than 77.0%

 

(B)    77.0% but less than 82.0%

 

(C)    82.0% but less than 87.0%

 

(D)   87.0% but less than 92.0%

 

(E)    92.0% or more

Data for Question 12 (3 points)

 

Plan effective date:  1/1/1990.

 

Actuarial cost method:  Entry age normal.

 

Normal retirement benefit:  5% of final pay per year of service (maximum of 20 years).

 

Selected actuarial assumptions:

 

Valuation interest rate                7% per year

Compensation increases            3.5% per year

 

Data for participant Smith:

 

Date of birth   1/1/1942

Date of hire     1/1/2003

 

Projected retirement benefit at age 65:  $1,000 per month.

 

Selected annuity value:

 = 12.41

 

 

 

Question 12

 

In what range is SmithÕs normal cost as of 1/1/2004?

 

(A)      Less than $31,000

 

(B)       $31,000 but less than $36,000

 

(C)       $36,000 but less than $41,000

 

(D)      $41,000 but less than $46,000

 

(E)       $46,000 or more

Data for Question 13 (5 points)

 

Normal retirement benefit:  $50 per month for each year of service.

 

Early retirement benefit:  Immediate unreduced benefit.

 

Early retirement eligibility:  30 years of service.

 

Vesting schedule:  5-year cliff.

 

Actuarial cost method:  Entry age normal.

 

Valuation interest rate:  7% per year.

 

Assumed retirement age:  65.

 

Data for all plan participants:

 

Name

Date of birth

Date of hire

Smith

1/1/1944

1/1/1974

Jones

1/1/1959

1/1/1989

 

Jones terminated effective 10/1/2003.

 

Lump sum distribution paid to Jones on 12/31/2003:  $50,000.

 

Smith retired on 12/31/2003 and began receiving annuity benefits immediately.

 

Selected annuity values:

 

 = 10.38

 =   9.24

 

Question 13

 

In what range is the liability loss for 2003 as of 1/1/2004?

 

(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

Data for Question 14 (4 points)

 

Actuarial cost method:  Aggregate.

 

Normal retirement benefit:   50% of final compensation, reduced pro rata for years of service less than 20.

 

Selected actuarial assumptions:

 

         Valuation interest rate                7% per year

         Compensation increases            0% per year

 

Credit balance in funding standard account as of 12/31/2003:  $5,000.

 

Actuarial (market) value of assets as of 1/1/2004:  $50,000.

 

Data for all plan participants as of 1/1/2004:

 

 

Smith

Jones

Compensation for 2003

$25,000

$150,000

Age

25

51

Years of service

2

5

 

Selected annuity value:

 

             = 10.00

 

 

 

Question 14

 

In what range is the normal cost for IRC section 412 as of 12/31/2004?

 

(A)   Less than $21,000

 

(B)    $21,000 but less than $23,000

 

(C)    $23,000 but less than $25,000

 

(D)   $25,000 but less than $27,000

 

(E)    $27,000 or more

Data for Question 15 (3 points)

 

Valuation interest rate:  7% per year.

 

Credit balance in the funding standard account as of 12/31/2002:  $50,000.

 

Funding standard account entries:

 

 

2003

2004

Normal cost as of 1/1

$70,000

$105,000

Net amortization charges as of 1/1

150,000

360,000

Additional funding charge as of 12/31

80,000

0

Full funding credit as of 12/31

0

100,000

Late interest charges as of 12/31

20,000

 

 

The minimum required contribution for 2003 was paid 9/15/2004.

 

 

 

Question 15

 

In what range is the required quarterly installment for 2004?

 

(A)      Less than $80,750

 

(B)      $80,750 but less than $81,750

 

(C)      $81,750 but less than $82,750

 

(D)     $82,750 but less than $83,750

 

(E)      $83,750 or more

 

 

Data for Question 16 (5 points)

 

Plan effective date:  1/1/1980.

 

Valuation interest rate:  7% per year.

 

Current liability interest rate for 1/1/2003:  6% per year.

 

Accumulated funding deficiency as of 12/31/2002:  $30,000.

 

Reconciliation account balance as of 1/1/2003:  $75,000.

 

Selected valuation results as of 1/1/2003:

           

Normal cost

$110,000

Net amortization charges in funding standard account

20,000

Actuarial (market) value of assets

1,100,000

Current liability

1,375,000

Expected increase in current liability for 2003

114,000

Current liability at maximum interest rate

1,325,000

 

The applicable percentage of unfunded new liability is defined by the following formula, where FCL% is the funded current liability percentage:

            30% - [(FCL% - 60%, not less than 0%) x 0.4]

 

Additional interest charge for late quarterly contributions for 2003:  $5,000.

 

Maximum number of participants during 2002:  140.

Maximum number of participants during 2003:  130.

 

The funded current liability percentage has never been greater than 90%.

 

Question 16

 

In what range is the accumulated reconciliation account as of 1/1/2004?

 

(A)     Less than $116,000

 

(B)      $116,000 but less than $121,000

 

(C)      $121,000 but less than $126,000

 

(D)     $126,000 but less than $131,000

 

(E)      $131,000 or more

Data for Question 17 (4 points)

 

Actuarial cost method:  Unit credit.

 

Valuation interest rate:  7% per year.

 

Credit balance in the funding standard account as of 12/31/2003:  $15,000.

 

Selected valuation results as of 1/1/2004:

 

Accrued liability                                                         $800,000

Actuarial (market) value of assets                                600,000

 

Amortization charges and (credits) for all bases in funding standard account as of 1/1/2004:

 

Actuarial (gain)/loss during 2001 plan year                          $X

Plan amendment effective 1/1/2002                                  4,200

Actuarial (gain)/loss during 2002 plan year                    25,000

Actuarial (gain)/loss during 2003 plan year                    33,000

 

Total reconciliation account balance as of 1/1/2004:  $20,000.

 

 

 

Question 17

 

In what range is the absolute value of $X?

 

(A)   Less than $10,000

 

(B)    $10,000 but less than $15,000

 

(C)    $15,000 but less than $20,000

 

(D)   $20,000 but less than $25,000

 

(E)    $25,000 or more

Data for Question 18 (3 points)

 

Plan effective date:  1/1/1994.

 

Actuarial cost method:  Frozen initial liability.

 

Valuation interest rate:

 

            Before 2004          6% per year

After 2003            7% per year

 

Credit balance in the funding standard account as of 12/31/2003:  $40,000.

 

Selected valuation results as of 1/1/2004:

                                                          6%                    7%

Normal cost                       $80,000           $60,000

Unfunded liability             240,000           160,000

 

 

 

Question 18

 

In what range is the minimum required contribution for 2004 as of 12/31/2004?

 

(A)   Less than $33,000

 

(B)    $33,000 but less than $34,000

 

(C)    $34,000 but less than $35,000

 

(D)   $35,000 but less than $36,000

 

(E)    $36,000 or more

Data for Question 19 (4 points)

 

Plan effective date:  1/1/2003.

 

Actuarial cost method:  Entry age normal.

 

Valuation interest rate:  7% per year.

 

Selected valuation results:

 

                                  1/1/2003         1/1/2004

Normal cost               $45,000          $35,000

Accrued liability        350,000          370,000

 

There were no benefit payments during 2003.

 

A contribution equal to the deductible limit for 2003 was made on 12/31/2003.

 

 

 

Question 19

 

In what range is the minimum required contribution for 2004 as of 12/31/2004?

 

(A)   Less than $25,000

 

(B)    $25,000 but less than $30,000

 

(C)    $30,000 but less than $35,000

 

(D)   $35,000 but less than $40,000

 

(E)    $40,000 or more

Data for Question 20 (3 points)

 

Actuarial cost method:  Frozen initial liability.

 

Valuation interest rate:  7% per year.

 

Credit balance in funding standard account as of 12/31/2003:  $2,000.

 

Selected valuation results for IRC section 412 purposes as of 1/1/2004:

 

Normal cost                                                   $55,000

Unfunded actuarial liability                           275,000

Actuarial value of assets                                200,000

Market value of assets                                   185,000

Entry age normal cost                                      59,000

Entry age normal accrued liability                288,000

 

Contribution for 2004 minimum funding purposes paid on 1/1/2004 (not reflected in the above asset values):  $20,000.

 

Portion of the 1/1/2004 contribution deducted for calendar year 2003:  $12,000.

 

 

 

Question 20