SOCIETY OF ACTUARIES

AMERICAN SOCIETY OF PENSION ACTUARIES

JOINT BOARD FOR THE ENROLLMENT OF ACTUARIES

**ENROLLED ACTUARIES PENSION EXAMINATION, SEGMENT B**

**MAY 2001 EA-2, SEGMENT B, EXAMINATION**

[Data for Question 1]{.underline} (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 1^st^ of each calendar year and applicable to limitation years
beginning during that calendar year.

[Question 1]{.underline}

Is the above statement true or false?

\(A\) True

\(B\) False

[Data for Question 2]{.underline} (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, unless the spouse consents otherwise in writing.

[Question 2]{.underline}

Is the above statement true or false?

\(A\) True

\(B\) False

[Data for Question 3]{.underline} (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.

[Question 3]{.underline}

Is the above statement true or false?

(A) True

\(B\) False

[Data for Question 4]{.underline} (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.

[Question 4]{.underline}

Is the above statement true or false?

\(A\) True

\(B\) False

[Data for Question 5]{.underline} (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.

[Question 5]{.underline}

Is the above statement true or false?

\(A\) True

\(B\) False

[Data for Question 6]{.underline} (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.

[Question 6]{.underline}

Is the above statement true or false?

\(A\) True

\(B\) False

[Data for Question 7]{.underline} (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.

[Question 7]{.underline}

Is the above statement true or false?

\(A\) True

\(B\) False

[Data for Question 8]{.underline} (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.

[Question 8]{.underline}

Is the above statement true or false?

\(A\) True

\(B\) False

[Data for Question 9]{.underline} (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).

[Question 9]{.underline}

Is the above statement true or false?

\(A\) True

\(B\) False

[Data for Question 10]{.underline} (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.

[Question 10]{.underline}

Is the above statement true or false?

(A) True

\(B\) False

[Data for Question 11]{.underline} (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.

[Question 11]{.underline}

Is the above statement true or false?

\(A\) True

\(B\) False

[Data for Question 12]{.underline} (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.

[Question 12]{.underline}

Is the above statement true or false?

\(A\) True

\(B\) False

[Data for Question 13]{.underline} (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.

[Question 13]{.underline}

Is the above statement true or false?

(A) True

\(B\) False

[Data for Question 14]{.underline} (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.

[Question 14]{.underline}

Is the above statement true or false?

(A) True

(B) False

[Data for Question 15]{.underline} (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 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 Deemed             | PBGC                   | Plan            |
|                           |                        |                 |
| [Distribution             | [Factor]{.underline}   | [Fact           |
| Date]{.underline}         |                        | or]{.underline} |
+---------------------------+------------------------+-----------------+
| 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          | [Factor]{.underline} | [Factor]{.underline} |
| Date]{.underline}      |                      |                      |
+------------------------+----------------------+----------------------+
| 65                     | 116.8                | 126.3                |
+------------------------+----------------------+----------------------+

[Question 15]{.underline}

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

[Data for Question 16]{.underline} (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.

[Question 16]{.underline}

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.

[Data for Question 17]{.underline} (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
  ---------------------------------------------------- ------------------

[Question 17]{.underline}

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

[Data for Question 18]{.underline} (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.

[Question 18]{.underline}

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

[Data for Question 19]{.underline} (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:

  ------------------- ----------------------- ------------------ ------------------------
  [Age]{.underline}   Life                    [5                 Joint and 50% Survivor
                      [Annuity]{.underline}   C&C]{.underline}   

  60                                                             10.4982

  61                                                             10.3475

  62                                                             10.1894

  63                                                             10.0239

  64                                                             9.8514

  65                  8.6468                  8.8125             9.6723
  ------------------- ----------------------- ------------------ ------------------------

[Question 19]{.underline}

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

[Data for Question 20]{.underline} (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.

[Question 20]{.underline}

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.

[Data for Question 21]{.underline} (4 points)

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

+--------------------+---+--------------------+---+--------------------+
| Participant        |   | 417(e)\            |   | Value of           |
|                    |   | Value of           |   |                    |
|                    |   |                    |   | Current            |
|                    |   | Accrued 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          |   | [5,00              |   | [4,22              |
|                    |   | 0,000]{.underline} |   | 5,000]{.underline} |
+--------------------+---+--------------------+---+--------------------+
| Total              |   | \$6,515,000        |   | \$5,440,000        |
+--------------------+---+--------------------+---+--------------------+

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

All four highly compensated employees terminate employment on
12/31/2000.

[Question 21]{.underline}

Which HCE or HCEs can be paid a lump sum on 1/1/2001 equal to the value
of accrued benefits without violating the restrictions on distributions?

(A) HCE 1 only

(B) Either HCE 2 or HCE 3

(C) HCE 4 only

(D) Both HCE 3 and HCE 4

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

[Data for Question 22]{.underline} (3 points)

Plan effective date: 1/1/1990.

Plan termination date: 12/31/2001.

Benefit formula:

> Effective 1/1/1990: \$15 per month times all years of service.
>
> Effective 1/1/1999: \$20 per month times all years of service.
>
> Effective 4/1/2001: \$25 per month times all years of service.

Vesting: 100% after 3 years of service

Data for selected participants as of 12/31/2001:

  ----------------------------- --------------------- ---------------------
                                [Smith]{.underline}   [Brown]{.underline}

  Date of birth                 1/1/1950              1/1/1950

  Date of hire                  1/1/1993              1/1/1998

  Ownership                     50%                   5%
  ----------------------------- --------------------- ---------------------

[Question 22]{.underline}

In what range is the sum of the monthly benefits guaranteed by the PBGC
for Smith and Brown as of 12/31/2001?

(A) Less than \$70

(B) \$70 but less than \$95

(C) \$95 but less than \$120

(D) \$120 but less than \$145

(E) \$145 or more

[Data for Question 23]{.underline} (5 points)

Plan effective date: 1/1/1995.

Normal retirement benefit: 2% of highest 3-year average compensation for
each year of service.

Mandatory employee contributions: 3.5% of compensation, paid on 12/31
each year.

Vesting eligibility: Statutory 3 to 7 year graded vesting.

Lump sum actuarial equivalence: Applicable interest rate for the second
full month preceding the plan year and applicable mortality table.

Data for participant Smith:

  ----------------------------------------- -----------------------------
  Date of birth:                            1/1/1950

  Date of hire:                             1/1/1996
  ----------------------------------------- -----------------------------

Selected values:

+--------+-------------------+------------------+---------------------+
| [Year] | [Compensa         | 120% of Jan.     | November Average\   |
| {.unde | tion]{.underline} | Federal          | 30-year             |
| rline} |                   | Mid-[Term        |                     |
|        |                   | R                | [Treasury           |
|        |                   | ate]{.underline} | Rate]{.underline}   |
+--------+-------------------+------------------+---------------------+
| 1996   | \$32,000          | 6.89%            | 6.48%               |
+--------+-------------------+------------------+---------------------+
| 1997   | 34,000            | 7.34             | 6.11                |
+--------+-------------------+------------------+---------------------+
| 1998   | 36,000            | 7.13             | 5.25                |
+--------+-------------------+------------------+---------------------+
| 1999   | 38,000            | 5.59             | 6.15                |
+--------+-------------------+------------------+---------------------+
| 2000   | 40,000            | 7.47             | 6.50 assumed        |
+--------+-------------------+------------------+---------------------+

+--------------------------------+-------------------------------------+
| ###### Interest                | Lump Sum Actuarial Equivalence at   |
|                                | [Age 65]{.underline}                |
| ###### Rate                    |                                     |
+--------------------------------+-------------------------------------+
| 5.25                           | 11.30                               |
+--------------------------------+-------------------------------------+
| 6.11                           | 10.56                               |
+--------------------------------+-------------------------------------+
| 6.15                           | 10.52                               |
+--------------------------------+-------------------------------------+
| 6.48                           | 10.26                               |
+--------------------------------+-------------------------------------+
| 6.50                           | 10.25                               |
+--------------------------------+-------------------------------------+

Life annuity values are based on lump sum actuarial equivalence.

[Question 23]{.underline}

In what range is Smith's annual vested accrued benefit as of 1/1/2001?

(A) Less than \$2,350

(B) \$2,350 but less than \$2,650

(C) \$2,650 but less than \$2,950

(D) \$2,950 but less than \$3,250

(E) \$3,250 or more

[Data for Question 24]{.underline} (5 points)

Plans A and B are merged effective 1/1/2001. Each plan covers only 2
employees.

Plan A employee data as of 1/1/2001:

  --------------------- --------------------- --------------------- -- --------------------- ---------------------
  Priority category of  Annual Accrued                                 Present Value of      
  sec. 4044 of          Benefits                                       Accrued Benefits      
  [ERISA]{.underline}                                                                        

                        [Smith]{.underline}   [Brown]{.underline}      [Smith]{.underline}   [Brown]{.underline}

  3                     \$20,000                                       \$200,000             

  4                     5,000                 \$8,000                  50,000                \$64,000

  5                                           6,000                                          48,000
  --------------------- --------------------- --------------------- -- --------------------- ---------------------

Plan A actuarial (market) value of plan assets as of 1/1/2001:
\$320,000.

Plan B employee data as of 1/1/2001:

  -------------------- --------------------- --------------------- -- --------------------- ---------------------
  Priority category of Annual Accrued                                 Present Value of      
  Section 4044 [of     Benefits                                       Accrued Benefits      
  ERISA]{.underline}                                                                        

                       [Green]{.underline}   [Jones]{.underline}      [Green]{.underline}   [Jones]{.underline}

  3                    \$30,000                                       \$270,000             

  4                                          \$10,000                                       \$70,000

  5                                          12,000                                         84,000
  -------------------- --------------------- --------------------- -- --------------------- ---------------------

Plan B actuarial (market) value of plan assets as of 1/1/2001:
\$400,000.

[Question 24]{.underline}

In what range is the additional annual benefit included in the special
schedule of benefits for Jones as required by regulation 1.414(*l*)?

(A) Less than \$8,000

(B) \$8,000 but less than \$11,000

(C) \$11,000 but less than \$14,000

(D) \$14,000 but less than \$17,000

(E) \$17,000 or more

[Data for Question 25]{.underline} (5 points)

Plan A 2001 plan year data:

  ----------- --------------------------- -------------------------------
              Plan A\                     Controlled Group\
              [Benefiting                 [Non-excludable
              Employees]{.underline}      Employees]{.underline}

  HCEs        20                          200

  NHCEs       40                          1,800
  ----------- --------------------------- -------------------------------

Data for the four employees with normal accrual rates of 1.80% or
greater:

  ------------ -------------------------- --------------------------------
               [Normal Accrual            [Most Valuable Accrual
               Rate]{.underline}          Rate]{.underline}

  HCE          2.00%                      4.00%

  NHCE1        1.95%                      4.00%

  NHCE2        2.00%                      3.50%

  NHCE3        1.80%                      3.50%
  ------------ -------------------------- --------------------------------

The rate groups for all other HCEs comply with a general
nondiscrimination test on the basis of the ratio percentage test.

The employees benefiting under Plan A can be shown to fall within a
qualified separate line of business (QSLOB) separate from all other
employees in the controlled group.

The average benefit percentage test yields a result of 80%.

Consider the following methodologies that could be used in the
application of the general nondiscrimination test:

I.  Grouping of accrual rates around a central rate.

II. Demonstration that Plan A employees are in a QSLOB.

III. Use of an average benefit percentage test.

[Question 25]{.underline}

Which of the above methodologies will demonstrate that Plan A satisfies
the general nondiscrimination test?

\(A\) None

\(B\) I and II combined

\(C\) I and III combined

\(D\) II and III combined

\(E\) The correct answer is not given by (A), (B), (C), or (D) above

[Data for Question 26]{.underline} (5 points)

Type of plan: Multiemployer

History of contribution base units for Employer A:

  --------------------------------------- -------------------------------
                                          

  1988                                    350,000

  1989                                    265,000

  1990                                    280,000

  1991                                    180,000

  1992                                    275,000

  1993                                    170,000

  1994                                    150,000

  1995                                    80,000

  1996                                    70,000

  1997                                    60,000

  1998                                    80,000

  1999                                    90,000

  2000                                    70,000

  2001                                    45,000
  --------------------------------------- -------------------------------

[Question 26]{.underline}

In what range is the fraction used to prorate the liability Employer A
would have incurred upon a complete withdrawal in 2001?

\(A\) 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

[Data for Question 27]{.underline} (5 points)

Plan effective date: 1/1/1991

Plan termination date: 1/1/2001

+---+-----------------------------------+---------+---------+---------+
| D |                                   | [       | [       | [       |
| a |                                   | 1/1/199 | 1/1/199 | 1/1/199 |
| t |                                   | 1]{.und | 6]{.und | 9]{.und |
| e |                                   | erline} | erline} | erline} |
| o |                                   |         |         |         |
| f |                                   |         |         |         |
| p |                                   |         |         |         |
| r |                                   |         |         |         |
| o |                                   |         |         |         |
| v |                                   |         |         |         |
| i |                                   |         |         |         |
| s |                                   |         |         |         |
| i |                                   |         |         |         |
| o |                                   |         |         |         |
| n |                                   |         |         |         |
| s |                                   |         |         |         |
| ( |                                   |         |         |         |
| a |                                   |         |         |         |
| d |                                   |         |         |         |
| o |                                   |         |         |         |
| p |                                   |         |         |         |
| t |                                   |         |         |         |
| e |                                   |         |         |         |
| d |                                   |         |         |         |
| a |                                   |         |         |         |
| n |                                   |         |         |         |
| d |                                   |         |         |         |
| e |                                   |         |         |         |
| f |                                   |         |         |         |
| f |                                   |         |         |         |
| e |                                   |         |         |         |
| c |                                   |         |         |         |
| t |                                   |         |         |         |
| i |                                   |         |         |         |
| v |                                   |         |         |         |
| e |                                   |         |         |         |
| ) |                                   |         |         |         |
+---+-----------------------------------+---------+---------+---------+
|   |                                   |         |         |         |
+---+-----------------------------------+---------+---------+---------+
|   | Early retirement eligibility age  | 55      | 55      | 55      |
+---+-----------------------------------+---------+---------+---------+
|   | Early retirement eligibility      | 15      | 10      | 10      |
|   | service                           |         |         |         |
+---+-----------------------------------+---------+---------+---------+
|   | Early retirement reduction per    | 5%      | 5%      | 3%      |
|   | year prior to                     |         |         |         |
|   |                                   |         |         |         |
|   | normal retirement age 65          |         |         |         |
+---+-----------------------------------+---------+---------+---------+
|   | Accrued benefit per year of       | \$24    | \$28    | \$38    |
|   | service                           |         |         |         |
+---+-----------------------------------+---------+---------+---------+

Data for active non-owner participant Smith:

  ---------------------------------------- ------------------------------
  Date of birth                            1/1/1941

  Date of hire                             1/1/1987
  ---------------------------------------- ------------------------------

Smith's expected retirement age pursuant to PBGC regulations: 62.

Selected annuity values:

> ![](media/image1.wmf)

[Question 27]{.underline}

In what range is the PBGC category 4 liability for participant Smith as
of 1/1/2001?

(A) Less than \$10,000

(B) \$10,000 but less than \$20,000

(C) \$20,000 but less than \$30,000

(D) \$30,000 but less than \$40,000

(E) \$40,000 or more

[Data for Question 28]{.underline} (2 points)

Asset value on 12/31/2000 for the purpose of providing health benefits:
\$0.

Health benefits paid for retirees of the plan and their spouses in the
year 2001:

  ---------------------------------------- ------------------------------
  Retirees                                 \$575,000

  Spouses                                  475,000
  ---------------------------------------- ------------------------------

Selected pension valuation results as of 1/1/2001:

  ------------------------------------------------------ ----------------
  Accrued liability plus normal cost                     \$27,200,000

  Actuarial (market) value of assets                     28,150,000

  Current liability                                      22,000,000
  ------------------------------------------------------ ----------------

[Question 28]{.underline}

In what range is the maximum amount the plan sponsor could transfer to
the IRC section 401(h) account for 2001?

(A) Less than \$400,000

(B) \$400,000 but less than \$600,000

(C) \$600,000 but less than \$800,000

(D) \$800,000 but less than \$1,000,000

(E) \$1,000,000 or more

[Data for Question 29]{.underline} (4 points)

Normal retirement benefit: 1.5% of final 3-year average compensation for
each year of service.

Normal form of benefit: Life annuity with 120 months guaranteed (10
C&C).

Early retirement eligibility: Age 55.

Early retirement benefit: Normal retirement benefit reduced by 3% for
each year by which the benefit commencement date precedes age 65.

Plan conversion factor to a Qualified Joint and 50% Survivor Annuity
(QJ&50%S): 0.97

Selected annuity factors using normalization assumptions of 7.5% and a
standard mortality table:

  ---------------------------------------- ----------------- -----------------
                                           [Age              [Age
                                           55]{.underline}   65]{.underline}

  Life annuity                             11.30             9.50

  10 C&C                                   11.40             9.95

  QJ&50%S                                  11.95             10.40
  ---------------------------------------- ----------------- -----------------

Testing assumptions:

  ------------------------------------- ---------------------------------
  Date:                                 12/31/2001.

  Measurement period:                   Current and prior years.

  Interest:                             7.5% per year.

  Pre-retirement mortality              None

  Testing age:                          65\.
  ------------------------------------- ---------------------------------

Data for participant Smith:

  ------------------------------------------------ ----------------------
  Date of birth:                                   12/31/1946

  ------------------------------------------------ ----------------------

[Question 29]{.underline}

What are Smith's normal accrual rate and most valuable accrual rate
respectively, each rounded to the nearest 0.05%?

\(A\) 1.50% and 2.60%

\(B\) 1.50% and 2.65%

\(C\) 1.55% and 2.60%

\(D\) 1.55% and 2.65%

\(E\) The correct answer is not given by (A), (B), (C), or (D) above.

[Data for Question 30]{.underline} (3 points)

Benefit formula: \[1.30% times average annual compensation, less 0.65%
times average annual compensation up to covered compensation\],
multiplied by the lesser of years of service or 35.

There are no social security supplemental benefits.

Data for plan participant Smith:

  ------------------------------------------------- ---------------------
  Date of birth                                     12/31/1939

  Date of hire                                      12/31/1981

  Date of retirement                                12/31/2001

  Average annual compensation                       \$74,000

  Covered compensation                              \$45,000
  ------------------------------------------------- ---------------------

The plan complies with the safe harbor rules under IRC section 401(*l*).

[Question 30]{.underline}

In what range is the largest early retirement benefit that can be paid
to Smith at age 62?

(A) Less than \$12,250

(B) \$12,250 but less than \$12,650

(C) \$12,650 but less than \$13,050

(D) \$13,050 but less than \$13,450

(E) \$13,450 or more

[Data for Question 31]{.underline} (3 points)

Testing assumptions:

  ------------------------------------ ----------------------------------
  Date                                 12/31/2000.

  Measurement period                   Current and prior years.

  Testing age                          65\.

  Permitted disparity                  Imputed.
  ------------------------------------ ----------------------------------

Data for participant Smith:

  ------------------------------------------------ ----------------------
  Date of birth                                    12/31/1939

  Date of hire                                     12/31/1960

  Average annual compensation                      \$100,000

  Covered compensation                             45,000

  Annual accrued benefit                           57,600
  ------------------------------------------------ ----------------------

[Question 31]{.underline}

In what range is the greatest permissible value for the normal accrual
rate, after imputing disparity?

\(A\) Less than 1.70%

\(B\) 1.70% but less than 1.73%

\(C\) 1.73% but less than 1.76%

\(D\) 1.76% but less than 1.79%

\(E\) 1.79% or more

[Data for Question 32]{.underline} (3 points)

Data for sponsor of two defined benefit plans:

+--------------------------------------+----------+----------+---------+
|                                      | Highly   | No       | E       |
|                                      |          | n-Highly | mployee |
|                                      | Com      |          | Benefit |
|                                      | pensated | Com      | [       |
|                                      |          | pensated | Accrual |
|                                      | [Employ  |          | Rat     |
|                                      | ees]{.un | [Employ  | e]{.und |
|                                      | derline} | ees]{.un | erline} |
|                                      |          | derline} |         |
+--------------------------------------+----------+----------+---------+
| Total employees                      | 600      | 6,000    |         |
+--------------------------------------+----------+----------+---------+
| Excludable employees                 | 100      | 1,500    |         |
+--------------------------------------+----------+----------+---------+
| Non-excludable employees benefiting  | 150      | 1,500    | 2.00%   |
| under Plan A                         |          |          |         |
+--------------------------------------+----------+----------+---------+
| Non-excludable employees benefiting  | 250      |          | 1.75%   |
| under Plan B                         |          |          |         |
+--------------------------------------+----------+----------+---------+

Each plan satisfies the reasonable classification test.

The two plans have no employers in common.

[Question 32]{.underline}

In what range is the minimum number of non-highly compensated employees
who must benefit under Plan B in order to meet minimum coverage
requirements under IRC section 410(b) and the regulations thereunder?

(A) Less than 800

(B) 800 but less than 1,000

(C) 1,000 but less than 1,200

(D) 1,200 but less than 1,400

(E) 1,400 or more

[Data for Question 33]{.underline} (4 points)

Plan year for which the PBGC premium payment is due: 2001.

Participant count as of 1/1/2001: 750.

Valuation interest rate: 8.0% per year.

PBGC required interest rate as of 1/1/2001: 4.67%

The following values of adjusted vested benefits have been determined as
of 1/1/2000 using the Alternative Calculation Method formula:

  ----------------------------------------------- -----------------------
  Retirees/beneficiaries receiving payments       \$ 750,000

  Terminated participant                          250,000

  Participants not receiving payments             5,000,000
  ----------------------------------------------- -----------------------

Value of plan assets, (including 1999 receivable contribution), as of
12/31/1999: \$5,250,000.

Value of plan assets, (including 2000 receivable contribution), as of
12/31/2000: \$5,800,000.

Contribution for 1999 plan year paid 7/1/2000: \$250,000.

Contribution for 2000 plan year paid 7/1/2001: \$250,000.

Contribution for 2001 plan year paid 7/1/2001: \$250,000.

[Question 33]{.underline}

In what range is the total 2001 PBGC premium?

\(A\) Less than \$18,900

\(B\) \$18,900 but less than \$19,100

(C) \$19,100 but less than \$19,300

(D) \$19,300 but less than \$19,500

(E) \$19,500 or more

[Data for Question 34]{.underline} (3 points)

Eligibility: One year of service.

Employee data as of 12/31/2000:

  ------------------------ -------------------------- ------------------- ------------------- ------------------- -----------
  [Employee]{.underline}   Age on                     [Date of            Hours worked [in    Scheduled [hours    Months
                           [12/31/2000]{.underline}   hire]{.underline}   2000]{.underline}   per                 worked in
                                                                                              week]{.underline}   normal work
                                                                                                                  year

  Smith                    20                         01/01/1999          2080                40                  12

  Brown                    21                         02/01/2000          800                 20                  9

  Green                    22                         01/01/1999          800                 16                  12

  Jones                    23                         08/01/2000          1000                40                  12

  Black                    24                         01/01/1999          1000                40                  5
  ------------------------ -------------------------- ------------------- ------------------- ------------------- -----------

[Question 34]{.underline}

Which employees, if any, could be excluded in determining the number of
employees in the top-paid group during 2000 for the purpose of
determining highly compensated employees for 2001?

(A) All but Black

(B) All but Jones

(C) All but Green

(D) All but Brown

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

[Data for Question 35]{.underline} (5 points)

Plan effective date: 1/1/1993.

Normal retirement age: Age 61.

Benefit formula: 14% of final 5-year average compensation for each year
of participation up to 25 years.

.

Late retirement benefit: Greater of accrued benefit or actuarially
increased normal retirement benefit.

Pre-retirement death benefit: Present value of accrued benefit.

Actuarial equivalence:

+-------------------------------+--------------------------------------+
| Pre-retirement interest:      | 6% per year.                         |
+-------------------------------+--------------------------------------+
| Pre-retirement mortality:     | None.                                |
+-------------------------------+--------------------------------------+
| Post-retirement mortality:    | 1983 Individual Annuity Mortality    |
|                               |                                      |
|                               | (IAM) (male)                         |
+-------------------------------+--------------------------------------+

Applicable interest rate for the 2001 plan year is assumed to be 6.5%.

Data for sole participant Smith:

  ---------------------- ------------- ------------------- --------------
                                                           Annual
                                                           Compensation

  Date of birth:         1/1/1940      1990 through 1997   \$50,000

  Date of hire:          1/1/1990      1998                70,000

  Date of retirement:    1/1/2001      1999                80,000

                                       2000                90,000
  ---------------------- ------------- ------------------- --------------

  ---------- ---------------------------------------- ----------------------- -- -----------------------
  Selected                                            ![](media/image2.wmf)      ![](media/image3.wmf)
  annuity                                                                        
  values:                                                                        

             6.5% applicable mortality                11.185                     10.961

             6.0% 1983 IAM (male)                     11.552                     11.319

             5.0% applicable mortality                12.750                     12.456
  ---------- ---------------------------------------- ----------------------- -- -----------------------

[Question 35]{.underline}

In what range is the lump sum benefit payable to Smith as of 1/1/2001?

(A) Less than \$847,000

(B) \$847,000 but less than \$856,000

(C) \$856,000 but less than \$865,000

(D) \$865,000 but less than \$874,000

(E) \$874,000 or more

[Data for Question 36]{.underline} (3 points)

The employer sponsors two defined benefit plans, Plan A and Plan B.

Plan A:

> Valuation date: February 1^st^
>
> Plan year ends: January 31^st^

Plan B:

> Valuation date: November 30^th^
>
> Plan year ends: November 30^th^

The plans are a required aggregation group for top-heavy determination.

Present value of accrued benefits:

+---------------+----------+----------+----------+----------+----------+
|               | Plan A   | Plan A   | Plan A   | Plan B   | Plan B   |
|               |          |          |          |          |          |
|               | as of    | as of    | as of    | As of    | as of    |
+---------------+----------+----------+----------+----------+----------+
|               | [2/1/1   | [2/1/2   | [2/1/2   | [11/30/2 | [11/30/2 |
|               | 999]{.un | 000]{.un | 001]{.un | 000]{.un | 001]{.un |
|               | derline} | derline} | derline} | derline} | derline} |
+---------------+----------+----------+----------+----------+----------+
| Key employees | \        | \        | \        | \        | \        |
|               | $200,000 | $250,000 | $275,000 | $225,000 | $275,000 |
+---------------+----------+----------+----------+----------+----------+
| Non-key       | 160,000  | 180,000  | 190,000  | 125,000  | 150,000  |
| employees     |          |          |          |          |          |
+---------------+----------+----------+----------+----------+----------+

[Question 36]{.underline}

In what range is the top-heavy percentage of Plan B for the plan year
ending November 30, 2001?

(A) Less than 59%

(B) 59% but less than 60%

(C) 60% but less than 61%

(D) 61% but less than 62%

(E) 62% or more

[Data for Question 37]{.underline} (3 points)

Plan effective date: 1/1/1989.

Normal retirement benefit: 10% of final 3-year average compensation for
each year of service.

Plan amendment 1/1/2000: Repeal of IRC section 415(e) limitation.
Post-retirement cost of living increases consistent with increases in
the IRC Section 415(b) limit are provided.

Actuarial equivalence: Interest rate: Applicable rate.\
Mortality: Applicable table.

Assumed applicable interest rate for the month of December 2000: 6.5%.

Data for participant Smith:

  --------------------------------------------------- -------------------
  Date of birth                                       1/1/1934

  Date of hire                                        1/1/1990

  Retirement date                                     1/1/1999

  Final 3-year average compensation as of 1/1/99      \$160,000

  Defined benefit fraction as of 1/1/99               0.90
  --------------------------------------------------- -------------------

Selected annuity factors:

+---------------+--------------------------+--------------------------+
|               | 5%                       | 6.5%                     |
|               |                          |                          |
|               | Applicable               | Applicable               |
|               |                          |                          |
|               | [Mortality]{.underline}  | [Mortality]{.underline}  |
+---------------+--------------------------+--------------------------+
| ![](medi      | 11.53                    | 10.25                    |
| a/image4.wmf) |                          |                          |
+---------------+--------------------------+--------------------------+
| ![](medi      | 11.22                    | 10.00                    |
| a/image5.wmf) |                          |                          |
+---------------+--------------------------+--------------------------+
| ![](medi      | 10.89                    | 9.74                     |
| a/image6.wmf) |                          |                          |
+---------------+--------------------------+--------------------------+

[Question 37]{.underline}

In what range is the sum of all of Smith's benefit payments through
12/31/2001?

(A) Less than \$355,000

(B) \$355,000 but less than \$365,000

(C) \$365,000 but less than \$375,000

(D) \$375,000 but less than \$385,000

(E) \$385,000 or more

[Data for Question 38]{.underline} (3 points)

Early retirement age: Age 60.

Early retirement benefit: Normal retirement benefit reduced by 8% for
each year by which the benefit commencement date precedes the normal
retirement date.

Surviving spouse benefit: Qualified Joint and 50% Survivor Annuity
(QJ&50%S)

Actuarial equivalence:

Interest: 5.0% per year.

Pre-retirement mortality: None.

Post-retirement mortality: Applicable table.

Assumed applicable interest rate: 6.5% per year.

Data for participant Smith:

  ----------------------------------------------- ------------- ----------
  Date of birth                                   1/1/1941      

  Spouse\'s date of birth                         1/1/1941      

  Date of hire                                    1/1/1991      

  Date of death                                   1/1/2001      

  Annual accrued retirement benefit as of                       \$50,000
  1/1/2001 payable at 65                                        
  ----------------------------------------------- ------------- ----------

Selected annuity factors:

  ------------------- ---------------------- ------------------- -------------------
  [Age]{.underline}   [Form of               [Plan               [417(e)
                      Benefit]{.underline}   Rate]{.underline}   Rate]{.underline}

  60                  Life                   13.04               11.40

  65                  Life                   11.53               10.45

  60:60               QJ&50%S                14.03               12.17

  65:65               QJ&50%S                12.60               11.11
  ------------------- ---------------------- ------------------- -------------------

Smith's surviving spouse elects to receive benefits commencing on
1/1/2001.

[Question 38]{.underline}

In what range is the annual benefit paid to Smith's surviving spouse?

(A) Less than \$14,000

(B) \$14,000 but less than \$15,000

(C) \$15,000 but less than \$16,000

(D) \$16,000 but less than \$17,000

(E) \$17,000 or more

**MAY 2001 EA-2, SEGMENT B**

**ANSWER KEY**

1\. B 26. D

2\. B 27. C

3\. B 28. C

4\. A 29. D

5\. B 30. C

6\. A 31. B

7\. A 32. B

8\. B 33. C

9\. B 34. D

10\. B 35. D

11\. B 36. B

12\. B 37. B

13\. A 38. A

14\. B

15\. C

16\. D

17\. B

18\. B

19\. B

20\. A

21\. B

22\. D

23\. D

24\. A

25\. B

E2B-10-01