EA-2(B) Examination Questions

Spring, 2001

 

 

Question 1 (1 point)

 

Consider the following statement:

 

When the maximum benefit limitation of IRC section 415(b) is adjusted for cost of living increases, the adjusted figure is effective as of January 1st of each calendar year and applicable to limitation years beginning during that calendar year.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 2 (1 point)

 

A defined benefit plan provides a qualified pre-retirement survivor benefit.

 

Consider the following statement:

 

When a participant gets married, under the law, the plan is required to provide that the spouse immediately becomes the beneficiary for this benefit.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 3 (1 point)

 

Plan year:          Calendar year

 

An employer offers an early retirement window to certain plan participants who retire between October 1, 2000 and March 31, 2001.  The employer performs a discrimination test for the plan in both 2000 and 2001.

 

Consider the following statement:

 

Each participant’s additional accrual of benefits resulting from the acceptance of this early retirement window will be recognized for the purpose of discrimination testing in the year in which the participant retires.

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 4 (1 point)

 

Consider the following statement:

 

When determining the value of current liabilities for purposes of the pre-termination restriction on distributions under regulation 1.401(a)(4)-5(b), any reasonable and consistent method may be used.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 5 (1 point)

                                                       

Consider the following statement:

 

In a plan that does not credit vesting service on elapsed time, the plan may give less than a full year vesting credit to an employee who works over 1,500 hours during a plan year.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 6 (1 point)

 

Consider the following statement:

 

A former employee shall be treated as a highly compensated employee if the former employee was either:

 

(1)    a highly compensated employee when such employee separated from service; or

(2)    a highly compensated employee at any time after attaining age 55.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

Question 7 (1 point)

 

Consider the following statement:

 

The $10,000 limitation in IRC section 415(b)(4) is not adjusted for the commencement of payments prior to the Social Security Retirement Age.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

Question 8 (1 point)

 

Participant Smith terminated employment on December 31, 1997, and received a lump sum distribution on December 31, 1998.  This benefit was less than the benefit otherwise computed under the plan formula due to the application of IRC section 415(e) then in effect.

 

Consider the following statement:

 

Solely due to the repeal of IRC section 415(e), additional benefits may be paid to Smith in 2000.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 9 (1 point)

 

Consider the following statement:

 

For plan years beginning after December 31, 1999, a plan must determine lump sums solely on the “applicable interest rate” and “applicable mortality table” defined in IRC section 417(e).

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 10 (1 point)

 

Consider the following statement:

 

An excise tax of 20% on plan reversions applies if a portion of the excess assets is transferred to a qualified replacement plan and allocated no more rapidly than ratably over the 7-year period beginning with the year of transfer.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

Question 11 (1 point)

 

Consider the following statement:

 

The sponsor of a defined benefit plan subject to Title IV of ERISA must notify the PBGC when a required quarterly contribution is missed.

 

Is the above statement true or false?

 

[A]       True

[B]        False

Question 12 (1 point)

 

Consider the following statement regarding multiemployer withdrawal liability:

 

In determining the withdrawal liability for an employer in a multiemployer plan, the actuary must use the PBGC actuarial assumptions as set forth in the regulations.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 13 (1 point)

 

Consider the following statement regarding multiemployer withdrawal liability:

 

The de minimis rule under ERISA section 4209 does not apply to an employer who withdraws in a plan year in which substantially all employers withdraw from the plan.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 14 (1 point)

 

Consider the following statement:

 

A defined benefit plan may never have more than 10% of plan assets invested in qualified securities of the plan sponsor.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 15 (4 points)

 

Date of plan termination:             1/1/2001

Optional forms of payment:                     Lump sum for distributions less than $10,000.

 

Conversion to Qualified Joint

and 50% Survivor Annuity

(QJ&50%S):                                          7% reduction to life annuity.

 

Data for missing participant Smith:

 

            Date of birth:                                                     1/1/1936

            Monthly benefit payable at age 65 for life: $75.00

            Assumed marital status:                                       Single.

 

Lump sum factors under PBGC missing participant assumptions and plan assumptions for monthly benefit of $1.

                                       

                                 Age at                       PBGC                           Plan

                        Distribution Date                 Factor                          Factor

                                    65                           125.0                           120.7

                                 

PBGC present value factors for a monthly single life annuity and a monthly joint and 50% survivor annuity of $1 as of the deemed distribution date:

                                       

                                 Age at                  Life Annuity                   QJ&50%S

                        Distribution Date                 Factor                          Factor

                                    65                           116.8                           126.3

In what range is the value of the designated benefit for missing participant Smith as of the deemed distribution date?

 

[A]       Less than $8,900

[B]        $8,900 but less than $9,100

[C]       $9,100 but less than $9,300

[D]       $9,300 but less than $9,500

[E]        $9,500 or more

 

 

Question 16 (2 points)

 

Consider the following benefit formulas:

 

I.                    $300 for each year of participation, not to exceed 25 years.  Amended effective 1/1/2001 to increase the $300 to $600 for each year of participation after 1/1/2001.

II.                 $300 for each year of participation up to 25 years, then $400 for each year thereafter.

III.               $300 for each year of participation up to 20 years, then $100 for each of the next 15 years of participation.

 

Which, if any, of the above benefit formulas comply with the 133 1/3% rule for benefit accruals?

 

[A]       I and II only

[B]        I and III only

[C]       II and III only

[D]       I, II, and III

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

 

 

Question 17 (3 points)

 

Plan effective date:                     1/1/1976.

Normal retirement benefit:           1% of final average compensation times years of service.

Early retirement eligibility:            Age 55 and 10 years of service.

Early retirement reduction:           5% for each year prior to age 65.

 

Data for participant Smith:

            Date of birth:                                             1/1/1954

            Date of hire:                                               1/1/1976

            Date of death:                                        12/31/2000

            Spouse’s date of birth:                                1/1/1964

            Date of marriage:                                        1/1/1999

            Final average compensation:                         $40,500

 

The minimum qualified pre-retirement spouse annuity under IRC section 417 is paid beginning at the latest date allowed under the law.

 

The plan specifies the following factors to convert the normal form of benefit to a joint and survivor annuity:

 

            Joint and 33 1/3% survivor          0.90

            Joint and 50% survivor               0.85

            Joint and 100% survivor             0.72

 

In what range is the monthly benefit payable to Smith’s spouse at the earliest commencement date allowed under the plan?

 

[A]       Less than $150

[B]        $150 but less than $250

[C]       $250 but less than $350

[D]       $350 but less than $450

[E]        $450 or more

 

 

Question 18 (3 points)

 

Plan effective date:                     1/1/1970

Plan termination date:                  12/31/2000

Normal retirement benefit:           4% of 3-year final average compensation times service.

Normal form of benefit:              Joint & 100% survivor annuity

Early retirement benefit:              None

 

Data for participant Smith (not a substantial owner):

 

                        Date of birth:                             1/1/1955

                        Date of hire:                               1/1/1976

                        Spouse’s date of birth:                1/1/1955

 

                                                                        Compensation

1996                                                                                            $32,000

1997                                                                                              34,000

1998                                                                                              36,000

1999                                                                                              38,000

2000                                                                                              40,000

 

Maximum monthly benefit guaranteed by PBGC at age 65 in life only form of payment: $3,221.59

In what range is Smith’s PBGC guaranteed benefit payable monthly?

 

[A]       Less than $2,200

[B]        $2,200 but less than $2,500

[C]       $2,500 but less than $2,800

[D]       $2,800 but less than $3,100

[E]        $3,100 or more

 

 

Question 19 (4 points)

 

Normal form:                             Life annuity with 60 payments guaranteed (5 C&C).

Early retirement eligibility:            Age 60 and 10 years of service.

Early retirement benefit:              Normal retirement benefit reduced by 6% for each year by which the benefit commencement date precedes age 62.

Plan conversion factor to Joint and 50% Survivor: 0.95

 

Testing assumptions:

 

            Date:                                         12/31/2001.

            Measurement period:                   Current and prior years.

            Interest:                                     8% per year.

            Pre-retirement mortality:              None.

            Testing age:                               65.

 

Data for participant Smith:

 

            Date of birth      12/31/1940                    Accrued annual benefit                $  18,640

            Date of hire       12/31/1993                    Testing compensation                 $130,000

 

Annuity factors for normalization:

 

                          Life                                         Joint and 50%

            Age       Annuity             5C&C                  Survivor

             60                                                            10.4982

             61                                                            10.3475

             62                                                            10.1894

             63                                                            10.0239

             64                                                              9.8514

             65        8.6468              8.8125                    9.6723

 

In what range is the difference between Smith’s most valuable accrual rate and normal accrual rate?

 

[A]       Less than 0.40%

[B]        0.40% but less than 0.50%

[C]       0.50% but less than 0.60%

[D]       0.60% but less than 0.70%

[E]        0.70% or more

 

 

Question 20 (2 points)

 

Consider the following statements regarding PBGC reportable events:

 

I.                    A reportable event occurs for a plan when any member of the controlled group commences a bankruptcy case (under the Bankruptcy Code).

II.                 A reportable event occurs when the number of active participants in a plan during a plan year is reduced to less than 80 percent of the number of active participants at the beginning of the plan year.

III.               A reportable event occurs when an amendment to a plan is adopted that reduces the rate of future benefit accruals.

 

Which, if any, of these statements are true?

 

[A]       I and II only

[B]        I and III only

[C]       II and III only

[D]       I, II, and III

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

                

 

Question 21 (4 points)

 

Data for all plan participants and beneficiaries as of 1/1/2001:

 

                                                                  417(e)

                                                                Value of                        Value of

                                                                Accrued                         Current

                         Participant                        Benefits                        Liabilities   

                        HCE 1                           $1,100,000                   $   900,000

                        HCE 2                                 275,000                         240,000

HCE 3                                   80,000                          60,000

HCE 4                                   60,000                          15,000

All NHCEs                        5,000,000                      4,225,000

Total                             $6,515,000                   $5,440,000

 

Market (actuarial) value of plan assets as of 1/1/2001:                    $6,000,000.