EA-2(B) Examination Questions

Spring, 2002

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Question 1 (1 point)

 

Consider the following statement:

 

The plan administrator of a defined benefit plan who has filed a required Schedule SSA (Form 5500) to report a deferred vested participant must provide a statement to this participant on or before the date the Schedule SSA is required to be filed, including extensions, that describes the deferred vested retirement benefit and includes the information filed with respect to the participant on the Schedule SSA.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 2 (1 point)

 

ABC Company sponsors a 401(k) plan that was effective 1/1/1990.  The ABC Company adopted a money purchase plan that was effective 1/1/2002.

 

Consider the following statement:

 

The money purchase plan may provide that service prior to 1/1/2002 is excluded for purposes of vesting.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 3 (1 point)

 

Consider the following statement:

 

A Schedule B must be filed with Form 5500 for all defined benefit plans.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 4 (1 point)

 

Smith and Jones, Inc. is owned 50% by Smith and 50% by Jones.  Smith’s daughter is married to Brown.  Brown is CEO of Smith and Jones, Inc. and has always earned $40,000 a year.

 

Consider the following statement:

 

Brown is a key employee for top-heavy purposes.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 5 (1 point)

                                                       

ABC Company sponsors a plan with a minimum funding requirement for the 2001 plan year of $20,000.  ABC Company receives multiple extensions for their 2001 tax return, extending the due date for their tax return past 12/31/2002.  The only contribution made during 2001 and 2002 is $25,000 of 11/1/2002.

 

Consider the following statement:

 

ABC Company will have no excise tax liability for a funding deficiency related to the 2001 plan year.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 6 (1 point)

 

Consider the following statement:

 

If the plan year is a calendar year, and the stability period is a calendar quarter, then the lookback month cannot be more than three months preceding the first day of the stability period.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

Question 7 (1 point)

 

Consider the following statement:

 

For purposes of the minimum funding requirement and the maximum deductible limit for the 2002 plan year, an amendment can be adopted by March 15, 2003 to change the projected benefit (but not less than the benefit accrued as of the date the amendment was adopted.)

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

Question 8 (1 point)

 

Employer A adopts an unreduced early retirement benefit upon attainment of age 55 and 25 years of service.

 

Consider the following statement:

 

The age and service requirement for this benefit are to be ignored when testing for current availability under IRC section 401(a)(4).

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 9 (1 point)

 

The plan credits a full year of benefit accrual service upon 1000 hours of employment during the computation period that commences with employment and each anniversary of that date.  Active participants under the plan are entitled to a pre-retirement death benefit of $5,000 upon employment.  Employee Smith is hired October 15, 2001.  As of December 31, 2001 (the snapshot date for the 2002 PBGC premium) Smith has worked 433 hours.

 

Consider the following statement:

 

Employee Smith is not counted as a participant for purposes of computing the plan’s 2002 PBGC premium.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 10 (1 point)

 

Employer A sponsors a 401(k) plan.  Employer B acquires Employer A and continues the 401(k) plan for the remainder of the plan year following the acquisition and then terminates the plan.  All employees of Employer A are then covered by Employer B’s existing defined benefit plan.

 

Consider the following statement:

 

The $10,000 floor for the defined benefit limitation under IRC section 415 does not apply for employees of Employer A who had participated in the 401(k) plan.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

Question 11 (1 point)

 

An employer maintains one defined benefit plan with a calendar plan year.  The number of active participants on certain dates was as follows:

 

            01/01/2001                    1000

            06/30/2001                      700

            01/01/2002                      900

 

Consider the following statement:

 

A PBGC reportable event occurred during the plan year beginning 1/1/2001.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 12 (1 point)

 

Two employers are members of the same controlled group.  Each employer is maintained as a qualified separate line of business, denoted QSLOB A and QSLOB B.  QSLOB A maintains a defined benefit plan.  QSLOB B maintains a 401(K) plan.

 

Consider the following statement:

 

The employer representing QSLOB B may be held liable for PBGC premiums on the defined benefit plan maintained by the employer representing QSLOB A.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 13 (1 point)

 

Consider the following statement:

 

The actuary for a multiemployer plan must include an attachment to the Schedule B (Form 5500) showing the funding standard account for each participating employer.

 

Is the above statement true or false?

 

[A]       True

[B]        False

 

 

Question 14 (3 points)

 

Data for all employees:

 

                                                Number of                  Normal                 Most Valuable

            NHCE                           Employees              Accrual Rate             Accrual Rate

            Group 1                                X                          1.25%                       2.20%

            Group 2                                Y                          1.60%                       2.70%

            Group 3                                Z                          1.80%                       2.95%

            Group 4                               15                          1.90%                       2.40%

            Total NHCEs                      300

 

            HCE

            Group 5                               35                          1.25%                       2.20%

            Group 6                               40                          1.50%                       2.50%

            Group 7                               50                          1.70%                       2.60%

            Total HCEs                         125

 

 

The result of the Average Benefits Percentage Test is 95%.

 

In what range is the minimum value for Z such that the plan passes the general nondiscrimination test under the regulations of IRC section 401(a)(4)?

 

[A]       Less than 40

[B]        40 but less than 50

[C]       50 but less than 60

[D]       60 but less than 70

[E]        70 or more

 

 

Question 15 (3 points)

 

Plan effective date:                     1/1/1993.

Normal retirement benefit:           100% of final 3-year average compensation.

Early retirement age:                   Age 60.

Early retirement benefit:              Normal retirement benefit reduced by 5% for each year benefits commence before age 65.

Death benefit:                             Present value of accrued benefit.

 

Data for participant Smith:

                                   

            Date of birth:                                         12/31/1942

            Date of hire:                                           12/31/1992

            Date of retirement:                                  12/31/2002

            Final 3-year average compensation:             $195,000

 

In what range is Smith’s annual retirement benefit?

 

[A]       Less than $95,000

[B]        $95,000 but less than $110,000

[C]       $110,000 but less than $125,000

[D]       $125,000 but less than $140,000

[E]        $140,000 or more

 

 

Question 16 (4 points)

 

Plan effective date:                     1/1/2002.

Benefit formula:              10% of final 3-year average compensation times years of service.

Early retirement benefit:              The plan provides for actuarial increases for retirements after normal retirement date.

Death benefit:                             Present value of accrued benefits.

 

Actuarial equivalence:

 

            Interest:             Applicable interest rate.

            Mortality:           Applicable mortality table.

 

Applicable interest rate:   5.5% per year.

 

Data for participant Smith:

 

            Date of birth:                                                     2/1/1932

            Date of hire:                                                       2/1/1990

            Date of death:                                                    2/1/2002

            Compensation for each year of service:                 $35,000

 

In what range is the annual life only benefit that Smith is entitled to receive commencing on 2/1/2002?

 

[A]       Less than $17,000

[B]        $17,000 but less than $24,000

[C]       $24,000 but less than $31,000

[D]       $31,000 but less than $38,000

[E]        $38,000 or more

 

 

Question 17 (2 points)

 

Valuation date:    12/31.

                                                               

Data for participant Smith:

 

            Date of birth                                          1/1/1935

            Date of hire                                           1/1/1990

            Normal retirement date                            1/1/1995

            Date of termination                                 7/1/2001

 

                                                       Present value of

                                                        accrued benefit

                         Annual                    as of 12/31/after

                         Pension                    annual pension

            Year      Payments                      payments

1995          $20,000

1996            20,000

1997            20,000

1998            20,000

1999            20,000

2000            20,000                        $100,000

2001            20,000                            85,000

2002            20,000                            70,000

 

In what range is the value of Smith’s benefit for determining if the plan is top-heavy for the 2002 plan year?

 

[A]       Less than $125,000

[B]        $125,000 but less than $150,000

[C]       $150,000 but less than $175,000

[D]       $175,000 but less than $200,000

[E]        $200,000 or more

 

 

Question 18 (4 points)

 

Plan effective date:                     1/1/1993.

Normal retirement benefit:           2% of final 3-year average compensation for each year of service with a maximum of 10 years.

Normal retirement age:                Age 55.

Optional form of benefit: Lump sum present value of normal retirement benefit.

 

Actuarial equivalence for lump sum distribution:

 

            Prior to 1/1/2000:

                        Interest:                                     5.0% per year.