EA-2(B) Examination Questions
Spring, 2002
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.
Post-retirement mortality: 1983 Individual Annuity Mortality (female)
Amended to apply to all accrued benefits
effective 12/31/1999:
Interest: Applicable
interest rate.
Post-retirement mortality:
Applicable mortality table.
Applicable
interest rate: 5.5% per year.
Data
for participant Smith:
Date of birth: 12/31/1947
Date of hire: 12/31/1990
Retirement date: 12/31/2002
Compensation for each year:
$100,000
Selected
annuity value:
5.0% 1983 Individual Annuity Mortality
(female) 
= 15.32
In
what range is the lowest lump sum that can be paid to Smith on 12/31/2002?
[A] Less than $250,000
[B] $250,000 but less than $275,000
[C] $275,000 but less than $300,000
[D] $300,000 but less than $325,000
[E] $325,000 or more
Question 19 (2 points)
As of 12/31/2002, Plan
A is split into Plan B and Plan C. The
plan sponsor continues to maintain both Plans B and C.
Selected valuation results
as of 12/31/2002:
Plan A Plan B Plan C
Present value of accrued benefits
on a termination basis
$250,000 $160,000 $90,000
Current liability (including
current year’s accrual)
200,000
125,000
75,000
Accrued liability (including
normal cost)
280,000
180,000
100,000
Market value of assets 300,000
In what range is the
total market value of assets allocated to Plan B as of 12/31/2002?
[A] Less
than $124,000
[B] $124,000
but less than $147,000
[C] $147,000
but less than $170,000
[D] $170,000
but less than $193,000
[E] $193,000
or more
Question 20 (2 points)
Consider the following
events:
I.
A plan merger, consolidation, or spinoff that is
not de minimis pursuant to the regulation under IRC section 414(l).
II.
The offer by a plan, for a temporary period, to
permit participants to retire at benefit levels greater than that to which
they would otherwise be entitled.
III.
A cost-of-living increase for retirees resulting
in an increase of 5% or more in the plan’s liability for accrued benefits.
IV.
An increase in the plan’s actuarial costs (consisting
of the plan’s normal cost under IRC section 412(b)(2)(A), amortization charges
under IRC section 412(b)(2)(B), and amortization credits under IRC section
412(b)(3)(B) of the Code) attributable to a plan amendment unless the cost
increase attributable to the amendment is less than 5% of the actuarial costs
determined without regard to the amendment.
Which
of the above statements are Significant Events for PBGC variable premium calculations?
[A] All but I
[B] All but II
[C] All but III
[D] All but IV
[E] All
Question
21 (3 points)
Defined benefit plan
termination date: 12/31/2002.
Actuarial (market) value
of defined benefit plan assets as of 12/31/2002: $1,200,000.
The employer transfers
the required amount to a qualified replacement plan (profit sharing plan)
in order to reduce the excise tax on asset reversions.
Compensation for
Cost of
first year of
termination
qualified
Participant benefits
replacement plan
Smith $1,000,000 $120,000
Jones 100,000 55,000
There are no other participants.
There were no earnings
on the amount transferred before the allocation to participants. Contributions to the qualified replacement
plan are allocated in proportion to compensation.
In what range is the
minimum first year allocation to Jones of the transferred excess assets?
[A] Less
than $1,000
[B] $1,000
but less than $2,500
[C] $2,500
but less than $4,000
[D] $4,000
but less than $5,500
[E] $5,500 or more
Question 22 (5 points)
The employer sponsors
two safe harbor plans, both of which cover all employees.
Defined contribution
plan:
Allocation formula: 4% of compensation below the Taxable Wage
Base plus
5%
of compensation in excess of the Taxable Wage Base.
Defined benefit plan:
Benefit formula: 1.0% times [(final 3-year average compensation
below Covered
Compensation)
times service up to 40 years] plus
X%
times [(final 3-year average compensation over Covered
Compensation)
times service up to 40 years].
Permitted disparity factor: A single factor is used for all employees.
Early retirement benefit: Normal retirement benefit reduced
4% for each year benefits commence before age 65.
Early retirement eligibility: Age 62.
In what range is the
largest value of X%?
[A] Less than 1.38%
[B] 1.38%but less than 1.42%
[C] 1.42%but less than 1.46%
[D] 1.46%but less than 1.50%
[E] 1.50%or more
Question 23 (3 points)
Type of plan: Multiemployer
Plan provisions:
Eligibility: Entry after 1,000 hours of service in a 12 month period.
Vesting: 5 year cliff.
Companies A and B are
participating employers in Plan X.
Consider the following
statements regarding Smith and Jones:
I.
If Smith works for Company A for 3 years, terminates
employment and works for Company B for 4 years, and then returns to Company
A, then Smith first becomes vested in his Company A benefit upon his return
to Company A.
II.
Company A is only responsible for liabilities for
Company A employees.
III.
If Jones, initially hired in 2001, works for Company
A for 700 hours from January 1, 2002 to June 1, 2002 and works for Company
B for 400 hours from October 1, 2002 to December 31, 2002, then Jones is a
participant in Plan X in 2002.
Which, if any, of the
above statements is (are) true?
[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 24 (4 points)
A plan reflects the top
paid group election.
Consider the following
data for employees hired prior to 2001:
2001 2002 2001
2002
Compensation Compensation 5% owner 5% owner
EE1
$108,000 $112,000 Yes
Yes
EE2
105,000 100,000
EE3
104,000 110,000 Yes
Yes
EE4
100,000 101,000
EE5
90,000 60,000
EE6
89,000 93,000
EE7
87,000 100,000
EE8
86,000 115,000
EE9
70,000 101,000 Yes
EE10
65,000 90,000
Employees not included
above:
Date of hire Union Non-union
06/01/2001 5
10
10/01/2001 5
10
08/0102002 2
4
All employees are over the age of 21, work 40 hours
per week and unless otherwise indicated, have compensation less than $60,000. No employees terminated during 2001 or 2002.
How many employees are considered highly compensated
employees for the 2002 year?
[A] 5
[B] 6
[C] 7
[D] 8
[E] 9
Question 25 (4 points)
Selected valuation results
as of 12/31/2001:
Accrued liability (including current
year normal cost) $3,100,000
Actuarial value of assets
3,400,000
Market value of assets
3,300,000
Funding standard account credit balance
300,000
OBRA’87 current liability (including
current year increase) 4,000,000
RPA’94 current liability (including
current year increase) 4,250,000
In what range is the smallest employer contribution
for the 2001 plan year in order for the PBGC full funding exemption to apply
for determining the PBGC premium for the 2002 plan year?
[A] Less
than $110,000
[B] $110,000
but less than $210,000
[C] $210,000
but less than $310,000
[D] $310,000
but less than $410,000
[E] $410,000 or more.
Question 26 (4 points)
Multiemployer plan that
has never been insolvent.
Benefit formula:
$10 for all years of service prior to 1/1/1983.
$25 for all years of service from 1/1/1983 to 12/31/1992.
$65 for all years of service after 12/31/1992.
Data for active participant Smith:
Date
of birth
1/1/1938
Date
of entry
1/1/1973
Years
of accrual service as of 12/31/2002 30
In what range is the maximum benefit guaranteed
by the PBGC for participant Smith as of 12/31/2002?
[A] Less
than $500
[B] $500
but less than $600
[C] $600
but less than $700
[D] $700
but less than $800
[E] $800
or more
Employer A sponsors a
defined benefit plan for all employees.
Testing assumptions and
parameters:
Measurement period: Current year and all prior years.
Testing age: 65
Testing basis: Benefits basis.
Permitted disparity: Maximum imputed (simplified table not
used).
Consider the following
data:
Years
Unadjusted
of
Unadjusted most
testing Covered Average
annual normal valuable
Employee SSRA service Compensation compensation accrual rate accrual rate
HCE
1 65 45
$36,000 $160,000 1.20% 2.00%
NHCE
1 65 40
36,000
40,000 0.80%
1.50%
NHCE
2 66
30
60,000
65,000 0.80%
1.50%
NHCE
3 67 25
75,000
30,000 0.70%
1.40%
The employer has not elected to group accrual rates.
Which, if any, NHCEs
are included in the rate group formed by HCE 1?
[A] NHCE 1 only
[B] NHCE 2 only
[C] NHCE 3 only
[D] NHCE 1, NHCE 2, and NHCE 2
[E] The correct answer is not given by [A],
[B], [C], or [D] above.
Question 28 (4 points)
Plan effective date: 1/1/1974.
Eligibility requirements:
Participation: 1 year of service.
Benefit accrual: 1,000 hours of service for each year of plan
participation.
Entry date: January 1st nearest completion
of eligibility requirements.
Top-heavy ratio Smith’s
Plan year on valuation date compensation
1989
55% $20,000
1990
55% 20,000
1991
62% 20,000
1992
62% 25,000
1993
62% 30,000
1994
62% 30,000
1995
62% 25,000
1996
55% 25,000
1997
62% 30,000
1998
62% 25,000
1999
62% 20,000
2000
55% 30,000
2001
62% 45,000
Data for participant
Smith:
Date of birth: 1/1/1955
Date of hire: 10/1/1988
Termination of employment: 12/31/2001
In what range is the
minimum top-heavy accrued benefit as of 12/31/2001 for Smith?
[A] Less than $4,500
[B] $4,500 but less than $5,000
[C] $5,000 but less than $5,500
[D] $5,500 but less than $6,000
[E] $6,000 or more
Question 29 (4 points)
Plan
effective date: 1/1/1992.
Early
retirement eligibility: Age
55.
Optional
form of benefit: Lump sum distribution
of normal retirement benefit.
Death
benefit: Present
value of accrued benefit.
Actuarial equivalence:
Post-retirement interest: 6.0% per year.
Pre-retirement mortality: None.
Post-retirement mortality: Applicable mortality table.
Applicable interest rate:
5.5% per year.
Data for participant
Smith:
Date of birth: 1/1/1947
Date of hire: 1/1/1992
Date of benefit commencement: 1/1/2002
Average compensation: $200,000
Benefit prior to application of IRC
section 415 limits: 230,000
In what range is Smith’s
maximum lump sum benefit payable on 1/1/2002?
[A] Less than $1,200,000
[B] $1,200,000 but less than $1,250,000
[C] $1,250,000 but less than $1,300,000
[D] $1,300,000 but less than $1,350,000
[E] $1,350,000 or more
Question 30 (4 points)
Two
plans merge with the following schedules at merger.
Plan A Plan B
Assets
at Merger $250,000 $200,000
Schedule
of annual benefits:
Plan A Plan B__________
Priority
category EE1 EE2
EE3 EE4
EE5 EE6
3
$15,000 $10,000
$5,000
4
5,000 $4,000
2,000 $3,000
5
2,000 $1,000
Schedule
of present values:
Plan A Plan B__________
Priority
category EE1 EE2
EE3 EE4
EE5 EE6
3
$150,000 $120,000
$50,000
4
50,000 $44,000
20,000
$30,000
5
22,000 $15,000
In what range is the
total amount of benefits that must be scheduled for preservation in the special
schedule of benefits under the regulations to IRC section 414(l)?
[A] Less than $2,000
[B] $2,000 but less than $4,000
[C] $4,000 but less than $6,000
[D] $6,000 but less than $8,000
[E] $8,000 or more
Question 31 (3 points)
Plan effective date: 1/1/1980.
Plan termination date: 7/1/2001.
Data for participant
Smith:
Date of birth:
7/1/1940
Date of retirement:
7/1/2000
High 5 year average monthly compensation:
$4,000
Monthly benefit under formula effective
1/1/1996: $1,500
Monthly benefit under formula effective
1/1/1998: $2,100
Monthly benefit under formula effective
1/1/2000: $2,500
Form of annuity:
Joint & 50% contingent
Spouse’s date of birth:
7/1/1940
Smith is not a substantial
owner.
Maximum monthly PBGC
guaranteed benefit at 65: $3,392.05
In what range is Smith’s
monthly benefit guaranteed by the PBGC?
[A] Less than $1,700
[B] $1,700 but less than $1,800
[C] $1,800 but less than $1,900
[D] $1,900 but less than $2,000
[E] $2,000 or more
Question 32 (4 points)
The employer sponsors
a safe harbor floor offset plan and a profit sharing plan with a 401(k) provision.
Plan effective date: 01/01/1997
Defined benefit formula
before offset: 3% of average annual compensation times years of service.
Optional form of benefit:
Lump sum
Actuarial equivalence
(defined benefit plan and 401(k) profit sharing plan):
Pre-retirement interest 8.5%
Pre-retirement mortality None.
Post-retirement interest 7.5%
Post-retirement mortality
Applicable mortality table.
Applicable interest rate
for lump sum distributions during the 2002 plan year: 5.5%.
Data for participant
Smith:
Date of birth: 01/01/1950
Date of hire: 01/01/1997
Date of termination: 12/31/2001
Average annual compensation: $50,000
Vested profit sharing balance at 01/01/2002:
$10,000
401(k) balance at 01/01/2002: $6,000
In what range is the
lump sum benefit payable to Smith from the defined benefit plan as of 1/1/2002?
[A] Less than $15,000
[B] $15,000 but less than $25,000
[C] $25,000 but less than $35,000
[D] $35,000 but less than $45,000
[E] $45,000 or more