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Question 1

 

The expected unfunded liability is:

 

            eUL = (AL1/1/2000 + Normal cost1/1/2000 – Actuarial assets1/1/2000) Χ 1.07

 – Contribution2000

                   = (800,000 + 50,000 – 400,000) Χ 1.07 – 54,000

                   = 427,500

 

The actual unfunded liability is:

 

            UL = AL1/1/2001 – Actuarial assets1/1/2001

                   = 950,000 – 500,000

                   = 450,000

 

Experience Loss = 450,000 – 427,500 = 22,500

 

Answer is A.

 

 

Question 6

 

Under IRC section 412(c)(2)(A), any reasonable actuarial method of asset valuation must take into account fair market value.  Regulation 1.412(c)(2)-1(b)(4) requires that the actuarial value of assets take into account fair market value of the assets.  Regulation 1.412(c)(2)-1(b)(5) requires that the method of determining the actuarial value of assets must not consistently result in a value either above or below fair market value.  Regulation 1.412(c)(2)-1(b)(6) requires that the actuarial value of assets be within 80% and 120% of fair market value.  Regulation 1.412(c)(2)-1(b)(9) provides examples of methods that can be used in the determination of actuarial value of assets.  Each of the three descriptions given in the question can be compared to these examples.

 

I.                    This method is similar to that of example (7).  It takes into account fair market value and will not necessarily return values always above or below fair market value.  This is an acceptable method.

II.                 This method is similar to that of example (2).   This is an acceptable method.

III.               This method is a variation of the method described in example (6) and is an acceptable method.

 

Answer is E.

 

Question 8

 

The initial unfunded liability under the frozen initial liability method is equal to the difference between the entry age normal accrued liability and the actuarial value of assets (unadjusted by the credit balance).

                                                                         

            Initial unfunded liability = 202,000 – 123,000 = 79,000

 

The normal cost (as of 1/1/2001) is equal to:

 

            NC =

                  =

                  = 4,737

 

In order to determine the minimum funding requirement, it is necessary to look at the balance equation:

 

Unfunded balance = Outstanding balance – Credit balance

-          Reconciliation account balance

                                                                       

Substituting,

 

            79,000 = Outstanding balance – 5,000

            Outstanding balance = 84,000

 

The outstanding balance of the amortization base attributable to the change in funding method must be amortized over 10 years for minimum funding purposes, per Revenue Procedure 2000-40.

 

The minimum required contribution for 2001 as of 12/31/2001 is:

 

            (4,737 + 84,000/ - 5,000) Χ 1.07 = (4,737 + 11,177 – 5,000) Χ 1.07 = 11,678

 

Answer is C.

 

Question 16

 

The accrued liability for Smith’s death benefit under the unit credit method is simply the present value of future death benefit payments based upon the accrued benefit as of 1/1/2001.

 

            Accrued benefit1/1/2001 = 50% ΄ 45,000 ΄ (23/26) = 19,904

 

At age 62, death is assumed to occur at the beginning of the year.  An annuity to the spouse begins immediately, so there would be no interest adjustment in the present value.  If death occurs at the beginning of the second year, the participant and the spouse must survive to age 63, and then the participant must die.  If death occurs at the beginning of the third year, the participant and the spouse must survive to age 64, and then the participant must die.

 

The present value of the death benefit is:

 

            PV = 19,904 ΄ (q62 + vp62p62 q63 + v2 2p62 2p62 q64)

                  = 19,904 ΄ [(.015)(9.80) + (.928)(1 - .015)(.017)(9.64)

+ (.860)(1 - .015)(1 - .017)(.019)(9.47)]

                  = 19,904 ΄ .446627

                  = 8,890

 

Since it is assumed that only 90% of the active participants are married at the time of death,

                  

            Accrued liability = 8,890 ΄ .9 = 8,001

                                                     

Answer is A.

 

Question 29

 

Note that for multiemployer plans, experience gains and losses are amortized over 15 years, and changes in the accrued liability due to assumption changes are amortized over 30 years.  The outstanding balance of the amortization bases as of 1/1/2001 is:

 

            Outstanding balance = 90,000 + 30,000 + 50,000

+ 40,000 - 20,000

                                              = 1,122,240 + 379,607 + 641,289 + 374,306 – 20,000

                                              = 2,497,442

 

The accrued liability as of 1/1/2001 can be determined using the balance equation.

 

Unfunded balance = Outstanding balance – Credit balance

-          Reconciliation account balance

Accrued liability – Actuarial assets = 2,497,442 – 55,000

Accrued liability – 700,000 = 2,497,442 – 55,000

            Accrued liability = 3,142,442

                   

Answer is C.