SOCIETY OF ACTUARIES

AMERICAN SOCIETY OF PENSION ACTUARIES

JOINT BOARD FOR THE ENROLLMENT OF ACTUARIES

# ENROLLED ACTUARIES PENSION EXAMINATION, SEGMENT A

**NOVEMBER 2002 EA-2, SEGMENT A, EXAMINATION**

**E2A-10-02 Printed in U.S.A.**

# 

[Data for Question 1]{.underline} (3 points)

Effective date: 1/1/1996.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2001: \$0.

Selected valuation results and other information as of 1/1/2002:

  ----------------------------------------------------- -----------------
  Actuarial value of assets                             \$2,100,000

  Market value of assets                                2,000,000

  Accrued liability, entry age normal method            2,325,000

  Normal cost, entry age normal method                  150,000

  Expected benefit payments                             0
  ----------------------------------------------------- -----------------

Net charges in funding standard account as of 12/31/2002: \$445,600.

Normal cost plus limit adjustment as of 12/31/2002: \$534,000.

Current liability as of 12/31/2002: \$1,625,000.

[Question 1]{.underline}

In what range is the deductible limit for 2002?

(A) Less than \$380,000

(B) \$380,000 but less than \$430,000

(C) \$430,000 but less than \$480,000

(D) \$480,000 but less than \$530,000

(E) \$530,000 or more

[Data for Question 2]{.underline} (5 points)

Plan effective date: 1/1/1995.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Initial accrued liability: \$500,000.

Credit balance in the funding standard account as of 12/31/2001: \$0.

Selected valuation results and funding standard account items as of
1/1/2002:

## 

## Present value of future benefits \$1,460,000

Market value of assets 610,000

Actuarial value of assets 630,000

Present value of future compensation 1,700,000

Expected compensation for 2002 200,000

### Accrued liability, entry age normal method 625,000

Normal cost, entry age normal method 50,000

Expected benefit payments for year 0

+-------------------------------------------------------+--------------+
| ## OBRA '87 current li                                | \$700,000    |
| ability (including expected increase due to benefits  |              |
|                                                       |              |
| ##  acc                                               |              |
| ruing during the plan year) projected to 12/31/2002:  |              |
+-------------------------------------------------------+--------------+
| RPA '94 current liability (including expected         | \$750,000    |
| increase due to benefits                              |              |
|                                                       |              |
| accruing during the plan year) projected to           |              |
| 12/31/2002:                                           |              |
+-------------------------------------------------------+--------------+

.

[Question 2]{.underline}

In what range is the deductible limit for 2002?

(A) Less than \$55,000

(B) \$55,000 but less than \$75,000

(C) \$75,000 but less than \$95,000

(D) \$95,000 but less than \$115,000

(E) \$115,000 or more

[Data for Question 3]{.underline} (5 points)

Plan effective date: 1/1/1987.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2001: \$25,000.

The plan was amended to increase benefits effective 1/1/2002.

Selected valuation results as of 1/1/2002:

  ----------------------------------------------------- -----------------
  Present value of benefits after amendment             \$4,000,000

  Actuarial (market) value of assets                    2,200,000

  Present value of future compensation                  8,800,000

  2002 compensation                                     780,000
  ----------------------------------------------------- -----------------

Amortization charges for all bases in the funding standard account as of
1/1/2002:

  ---------------------------------------------------------- ------------
  Initial unfunded liability                                 \$86,000

  1/1/1998 base due to a change in assumed retirement rates  (15,500)

  1/1/2002 base due to benefit increase                      35,000
  ---------------------------------------------------------- ------------

## Question 3

## In what range is the minimum required contribution for 2002 as of 1/1/2002?

(A) Less than \$132,000

(B) \$132,000 but less than \$142,000

(C) \$142,000 but less than \$152,000

(D) \$152,000 but less than \$162,000

(E) \$162,000 or more

[Data for Question 4]{.underline} (5 points)

Plan effective date: 1/1/1975.

Valuation interest rate: 7% per year.

Current liability interest rate: 5.75% per year.

Credit balance in funding standard account as of 12/31/2001: \$20,000.

Selected valuation results and other information as of 1/1/2002:

+------------------------------------------------------+---------------+
| Normal cost                                          | \$75,000      |
+------------------------------------------------------+---------------+
| Actuarial (market) value of assets                   | 1,100,000     |
+------------------------------------------------------+---------------+
| Amortization charges:                                |               |
+------------------------------------------------------+---------------+
| Due to initial accrued liability                     | 75,000        |
+------------------------------------------------------+---------------+
| Due to net experience losses                         | 30,000        |
+------------------------------------------------------+---------------+
| Due to change in actuarial assumptions               | (10,000)      |
+------------------------------------------------------+---------------+
|                                                      |               |
+------------------------------------------------------+---------------+
| RPA '94 current liability                            | 1,850,000     |
+------------------------------------------------------+---------------+
| Expected increase in RPA '94 current liability       | 60,000        |
|                                                      |               |
| due to benefits accruing during the plan year        |               |
+------------------------------------------------------+---------------+
| Balance of unfunded old liability                    | 250,000       |
+------------------------------------------------------+---------------+
| Remaining amortization period for unfunded old       | 5 years       |
| liability                                            |               |
+------------------------------------------------------+---------------+
| Applicable percentage of unfunded new liability      | 30%           |
+------------------------------------------------------+---------------+

Highest number of participants:

  ------------------------------------------------- ---------------------
  During 2001                                       145

  During 2002                                       148
  ------------------------------------------------- ---------------------

# 

The plan is not exempt from the additional funding charge for 2002.

# 

# Question 4

In what range is the additional funding charge for 2002 as of
12/31/2002?

(A) Less than \$91,800

(B) \$91,800 but less than \$97,800

(C) \$97,800 but less than \$103,800

(D) \$103,800 but less than \$109,800

(E) \$109,800 or more

[Data for Question 5]{.underline} (4 points)

Plan effective date: 1/1/1986.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

All amortization bases in funding standard account:

+-------------------------+-----------------------+--------------------+
| # Base                  | [Date                 | [Initial           |
|                         | est                   | a                  |
|                         | ablished]{.underline} | mount]{.underline} |
+-------------------------+-----------------------+--------------------+
| Initial unfunded        | 1/1/1986              | \$600,000          |
+-------------------------+-----------------------+--------------------+
| Assumption change       | 1/1/1996              | 60,000             |
|                         |                       |                    |
| (charge base)           |                       |                    |
+-------------------------+-----------------------+--------------------+

Credit balance in funding standard account as of 12/31/2001: \$30,000.

Selected valuation results as of 1/1/2002:

  ---------------------------------------------- ------------------------
  Present value of benefits                      \$2,000,000

  Actuarial value of assets                      900,000

  Present value of future compensation           20,000,000

  Expected compensation for 2002                 1,000,000
  ---------------------------------------------- ------------------------

# Question 5

In what range is the minimum required contribution for 2002 as of
12/31/2002?

(A) Less than \$60,000

(B) \$60,000 but less than \$75,000

(C) \$75,000 but less than \$90,000

(D) \$90,000 but less than \$105,000

(E) \$105,000 or more

[Data for Question 6]{.underline} (5 points)

Normal retirement benefit: \$100 per month times years of service.

Early retirement benefit: None.

Vesting schedule:

+------------------------------------+---------------------------------+
| ## Years of service                | ## Percent vested               |
+------------------------------------+---------------------------------+
| Less than 3                        | 0%                              |
+------------------------------------+---------------------------------+
| 3                                  | 20%                             |
+------------------------------------+---------------------------------+
| 4                                  | 40%                             |
+------------------------------------+---------------------------------+
| 5                                  | 60%                             |
+------------------------------------+---------------------------------+
| 6                                  | 80%                             |
+------------------------------------+---------------------------------+
| 7                                  | 100%                            |
+------------------------------------+---------------------------------+

Selected actuarial assumptions:

Valuation interest rate 7% per year

Pre-retirement decrements

other than turnover None

Selected turnover rates, applied at the beginning of the year:

+-------------------------------------+--------------------------------+
| ## Age                              | ## Turnover                    |
+-------------------------------------+--------------------------------+
| 63                                  | 0.03                           |
+-------------------------------------+--------------------------------+
| 64                                  | 0.01                           |
+-------------------------------------+--------------------------------+

Data for participant Smith:

Date of birth 1/1/1939

Date of hire 1/1/1997

Selected annuity value: $ä_{\text{65}}^{(\text{12})}$ = 9.24

## Question 6

In what range is the present value of Smith's future benefits, including
withdrawal benefits, as of 1/1/2002?

(A) Less than \$66,500

(B) \$66,500 but less than \$69,300

(C) \$69,300 but less than \$72,100

(D) \$72,100 but less than \$74,900

(E) \$74,900 or more

[Data for Question 7]{.underline} (5 points)

Normal retirement benefit:

#### 1.2% × final salary for each year of service up to 15 years

#### plus

1.45% × final salary for each year of service in excess of 15 years

Actuarial cost method: Unit credit.

Selected valuation assumptions:

  ---------------- ----------------------------------------- ---------------------
  Valuation                                                  7% per year
  interest rate                                              

  Compensation                                               
  increases:                                                 

                   Before 2002                               3% per year

                   After 2001                                4% per year

  Pre-retirement                                             None
  decrements                                                 
  ---------------- ----------------------------------------- ---------------------

Data for sole participant as of 1/1/2002:

  --------------------------------------------- -------------------------
  Date of birth                                 1/1/1962

  Date of hire                                  1/1/1982

  2001 compensation                             \$20,000
  --------------------------------------------- -------------------------

Actuarial (market) value of assets as of 1/1/2002: \$8,000.

Credit balance in funding standard account as of 12/31/2001: \$0.

Selected annuity value:

$ä_{\text{65}}^{(\text{12})}$ = 9.24

##### Question 7

In what range is the absolute value of the change in the 2002 minimum
contribution as of 12/31/2002 due to the change in assumptions?

\(A\) Less than \$760

\(B\) \$760 but less than \$850

\(C\) \$850 but less than \$940

\(D\) \$940 but less than \$1,030

\(E\) \$1,030 or more

[Data for Question 8]{.underline} (4 points)

Participant entry dates: January 1 and July 1.

Valuation interest rate: 7% per year.

Current liability interest rate: 5.75% per year.

Normal cost as of 1/1/2002: \$ 30,000.

Amortization charges in the funding standard account as of 1/1/2002:

  ---------------------------------------------------- ------------------
  Initial unfunded                                     \$ 25,000

  Experience (gain)/loss                               (15,000)

  Plan amendments due to increase in benefits          5,000

  Waived deficiency                                    20,000

  Increase due to change in assumptions                10,000
  ---------------------------------------------------- ------------------

Deficit reduction contribution for 2002: \$270,000.

Amount necessary to increase funded current liability percentage to 100%
for 2002: \$310,000.

Number of participants as of:

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

                1/1/2001                       143

                7/1/2001                       146

                12/31/2001                     144

                1/1/2002                       148

                7/1/2002                       149
  ------ ------ ------------------------------ ----------------------------

The plan is not exempt from the additional funding charge for 2002.

[Question 8]{.underline}

In what range is the additional funding charge for 2002 as of
12/31/2002?

(A) Less than \$184,500

(B) \$184,500 but less than \$191,500

(C) \$191,500 but less than \$198,500

(D) \$198,500 but less than \$205,500

(E) \$205,500 or more

[Data for Question 9]{.underline} (4 points)

Plan effective date: 1/1/2002.

Normal retirement benefit: 2% of highest three-year average compensation
times years of service.

Actuarial cost method: Level dollar entry age normal cost based on all
years of service.

Actuarial assumptions:

Valuation interest rate 7% per year

Annual compensation increases 4% per year

Pre-retirement decrements None

Data for sole participant as of 1/1/2002:

> Date of birth 1/1/1952

Date of hire 1/1/1987

2002 compensation \$50,000

Selected annuity value:

$ä_{\text{65}}^{(\text{12})}$ = 9.24

## Question 9

In what range is the minimum required contribution for 2002 as of
12/31/2002?

(A) Less than \$11,000

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

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

(D) \$17,000 but less than \$20,000

(E) \$20,000 or more

# Data for Question 10 (3 points)

Plan effective date: 1/1/1995.

Actuarial cost method first effective 1/1/1998: Entry age normal.

Asset valuation method effective 1/1/1995: Three-year smoothing of
(gains)/losses.

Selected valuation results as of January 1, 2002:

## Accrued liability (entry age normal) \$1,500,000 

## Accrued liability (unit credit) 1,350,000

Actuarial value of assets 1,300,000

Market value of assets 1,550,000

Credit balance in funding standard account as of 12/31/2001: \$0.

The following method changes are being considered for the 2002
valuation:

I.  Changing the actuarial cost method to unit credit.

II. Changing the asset valuation method to market value.

III. Changing the valuation date to December 31.

Restrictions on automatic approval under Revenue Procedure 2000-40 that
are not addressed in the above data do not apply.

[Question 10]{.underline}

Which (if any) of the above changes are eligible for automatic approval
pursuant to Revenue Procedure 2000-40?

(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.

[Data for Question 11]{.underline} (2 points)

Each of questions 11 through 13 consists of an [assertion]{.underline}
in the left-hand column and a [reason]{.underline} in the right-hand
column.

  --------------------------- -------------- ----------------------------
  [ASSERTION]{.underline}     BECAUSE        [REASON]{.underline}

  Mortality experience for                   If the definition of
  disabled lives varies with                 disability is "total and
  the definition of                          permanent disability" and it
  disability and the manner                  is strictly administered, at
  in which it is                             least in the short term, the
  administered.                              mortality experienced by
                                             disabled lives is expected
                                             to be lower than if a more
                                             liberal interpretation is
                                             used.
  --------------------------- -------------- ----------------------------

## 

[Question 11]{.underline}

Which of the following statements is true?

(A) Both the assertion and the reason are true statements and the reason
    is [a correct explanation]{.underline} of the assertion.

(B) Both the assertion and the reason are true statements, but the
    reason is [NOT a correct explanation]{.underline} of the assertion.

(C) The assertion is a true statement, but the reason is a false
    statement.

(D) The assertion is a false statement, but the reason is a true
    statement.

(E) Both the assertion and the reason are false statements.

## Data for Question 12 (2 points)

Each of questions 11 through 13 consists of an [assertion]{.underline}
in the left-hand column and a [reason]{.underline} in the right-hand
column.

  --------------------------- -------------- ----------------------------
  [ASSERTION]{.underline}     BECAUSE        [REASON]{.underline}

  When setting an assumption                 Past expenses may have been
  for expenses paid from a                   affected by extraordinary
  pension plan, past expenses                events, such as a change in
  should not be considered.                  whether the PBGC variable
                                             rate premium applied or a
                                             change in the plan sponsor's
                                             policy as to which expenses
                                             are paid by the plan.
  --------------------------- -------------- ----------------------------

[Question 12]{.underline}

Which of the following statements is true?

(A) Both the assertion and the reason are true statements and the reason
    is [a correct explanation]{.underline} of the assertion.

(B) Both the assertion and the reason are true statements, but the
    reason is [NOT a correct explanation]{.underline} of the assertion.

(C) The assertion is a true statement, but the reason is a false
    statement.

(D) The assertion is a false statement, but the reason is a true
    statement.

(E) Both the assertion and the reason are false statements.

## Data for Question 13 (2 points)

Each of questions 11 through 13 consists of an [assertion]{.underline}
in the left-hand column and a [reason]{.underline} in the right-hand
column.

  --------------------------- -------------- ----------------------------
  [ASSERTION]{.underline}     BECAUSE        [REASON]{.underline}

  It is not necessary to                     Current liability cannot
  consider the number of                     reflect the interest rate
  participants electing a                    subsidy, if any, inherent in
  lump sum option when                       lump sum distributions.
  setting the assumptions for                
  determining minimum funding                
  requirements.                              
  --------------------------- -------------- ----------------------------

[Question 13]{.underline}

Which of the following statements is true?

(A) Both the assertion and the reason are true statements and the reason
    is [a correct explanation]{.underline} of the assertion.

(B) Both the assertion and the reason are true statements, but the
    reason is [NOT a correct explanation]{.underline} of the assertion.

(C) The assertion is a true statement, but the reason is a false
    statement.

(D) The assertion is a false statement, but the reason is a true
    statement.

(E) Both the assertion and the reason are false statements.

#  Data for Question 14 (4 points)

Plan effective date: 1/1/1990.

Normal retirement benefit: 1% of highest three-year average compensation
times years of service.

Actuarial cost method: Aggregate.

Selected actuarial assumptions:

  ----------------------------------------------- -----------------------
  Valuation interest rate                         7% per year

  Compensation increases                          4% per year

  Pre-retirement decrements                       None
  ----------------------------------------------- -----------------------

Data for sole participant as of 1/1/2002:

  ---------------------------------- ------------------ ------------------
  Date of birth                      1/1/1952           

  Date of hire                       1/1/1995           

  2002 Compensation                  \$30,000           
  ---------------------------------- ------------------ ------------------

Credit balance in funding standard account as of 12/31/2001: \$500.

Actuarial (market) value of assets as of 1/1/2002: \$10,000.

Selected annuity factor:

$ä_{\text{65}}^{(\text{12})}$ = 9.24

## 

The full funding limitation does not apply.

## Question 14

In what range is the minimum required contribution for 2002 as of
1/1/2002?

(A) Less than \$1,675

(B) \$1,675 but less than \$1,800

(C) \$1,800 but less than \$1,925

(D) \$1,925 but less than \$2,050

(E) \$2,050 or more

# Data for Question 15 (4 points)

Plan effective date: 1/1/1998.

Normal retirement benefit:

Effective 1/1/1998 1.00% times final average earnings times years of
service

Effective 1/1/2002 1.15% times final average earnings times years of
service

Actuarial cost method: Unit credit.

Valuation interest rate: 7% per year.

Information relating to all amortization bases in funding standard
account as of 1/1/2001:

Net outstanding balance \$250,000

Net amortization charge 25,000

Selected valuation results as of 1/1/2002, reflecting plan amendment:

Accrued liability \$1,025,000

Actuarial (market) value of assets 710,000

Contribution for 2001: Amount equal to the minimum required contribution
for 2001 paid on 12/31/2001.

All participants were active employees as of 1/1/2002.

[Question 15]{.underline}

In what range is the absolute value of the experience (gain)/loss during
2001 as of 1/1/2002?

(A) Less than \$40,000

(B) \$40,000 but less than \$55,000

(C) \$55,000 but less than \$70,000

(D) \$70,000 but less than \$85,000

(E) \$85,000 or more

[Data for Question 16]{.underline} (4 points)

Plan effective date: 1/1/1996.

Actuarial cost method:

  ------------------------------- ---------------------------------------
  Before 2002                     Unit credit

  After 2001                      Entry age normal
  ------------------------------- ---------------------------------------

Valuation interest rate: 7% per year.

Initial accrued liability: \$150,000.

There were no experience gains or losses before 1/1/2001.

Credit balance in funding standard account as of 12/31/2001: \$0.

Selected valuation results as of 1/1/2002:

  -------------------------------------------------------- --------------
  Accrued liability, unit credit method                    \$540,000

  Normal cost, entry age normal method                     75,000

  Accrued liability, entry age normal method               600,000

  Actuarial (market) value of assets                       380,000
  -------------------------------------------------------- --------------

# Question 16

In what range is the minimum required contribution for 2002 as of
12/31/2002?

(A) Less than \$101,000

(B) \$101,000 but less than \$103,000

(C) \$103,000 but less than \$105,000

(D) \$105,000 but less than \$107,000

(E) \$107,000 or more

[Data for Question 17]{.underline} (5 points)

Plan effective date: 1/1/2001.

# 

# Actuarial cost method: Entry age normal.

Valuation interest rate: 7% per year.

175% Federal mid-term rate for 2002: 7.92% per year.

Selected valuation results as of:

  ------------------------------- ------------------------ ------------------------
                                  [1/1/2001]{.underline}   [1/1/2002]{.underline}

  Normal cost                     \$400,000                \$500,000

  Accrued liability               5,200,000                
  ------------------------------- ------------------------ ------------------------

Credit balance as of 12/31/2001: \$403,099.

Contribution for 2001: Paid by 12/31/2001.

Contribution for 2002: Deductible limit, paid on 12/31/2002.

There were no gains or losses during the 2001 plan year.

The plan is not exempt from quarterly contribution requirements for
2002.

## Question 17

# In what range is the additional charge in the 2002 funding standard account for interest on late quarterly contributions?

(A) \$0

(B) \$1 but less than \$400

(C) \$400 but less than \$1,800

(D) \$1,800 but less than \$3,200

(E) \$3,200 or more

# Data for Question 18 (5 points)

Plan effective date: 1/1/2001.

Normal retirement benefit:

> Before 1/1/2002 \$50 per month for each year of service
>
> After 12/31/2001 \$60 per month for each year of service

Actuarial cost method: Individual level premium.

Selected actuarial assumptions:

  ------------------------------------------------ ----------------------
  Valuation interest rate                          7% per year

  Pre-retirement decrements                        None
  ------------------------------------------------ ----------------------

Data for sole participant as of 1/1/2002:

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

  Date of hire                            1/1/1998
  --------------------------------------- -------------------------------

Credit balance in funding standard account as of 12/31/2001: \$0.

Actuarial (market) value of assets as of 1/1/2002: \$1,800.

Selected annuity factor:

$ä_{\text{65}}^{(\text{12})}$ = 10.00

[Question 18]{.underline}

In what range is the minimum required contribution for 2002 as of
12/31/2002?

(A) Less than \$4,000

(B) \$4,000 but less than \$5,000

(C) \$5,000 but less than \$6,000

(D) \$6,000 but less than \$7,000

(E) \$7,000 or more

# Data for Question 19 (3 points)

Plan effective date: 1/1/1980.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

150% of Federal mid-term rate for 2002: 6.77% per year.

Initial unfunded liability: \$400,000.

A funding waiver was granted for 2001 in the amount of \$47,800 which
was the amount necessary to avoid a funding deficiency at the end of the
plan year.

Normal cost for 2002 as of 1/1/2002: \$45,000.

[Question 19]{.underline}

In what range is the minimum required contribution for 2002 as of
12/31/2002?

(A) Less than \$85,000

(B) \$85,000 but less than \$88,500

(C) \$88,500 but less than \$92,000

(D) \$92,000 but less than \$95,500

(E) \$95,500 or more

[Data for Question 20]{.underline} (4 points)

Mandatory employee contributions: 1% of compensation.

Actuarial cost method: Aggregate.

Valuation interest rate: 7% per year.

Selected valuation results as of 1/1/2002:

+---------------------------------------------------------+------------+
| Present value of projected benefits provided by         | \          |
| employer                                                | $1,280,000 |
|                                                         |            |
| contributions                                           |            |
+---------------------------------------------------------+------------+
| Present value of projected benefits provided by         | 100,000    |
| mandatory                                               |            |
|                                                         |            |
| employee contributions                                  |            |
+---------------------------------------------------------+------------+
| Actuarial (market) value of assets excluding            | 195,000    |
| accumulated                                             |            |
|                                                         |            |
| employee contributions                                  |            |
+---------------------------------------------------------+------------+
| Accumulated employee contributions                      | 30,000     |
+---------------------------------------------------------+------------+
| Present value of future compensation                    | 5,400,000  |
+---------------------------------------------------------+------------+
| 2002 compensation                                       | 600,000    |
+---------------------------------------------------------+------------+

Credit balance in funding standard account as of 12/31/2001: \$0.

[Question 20]{.underline}

In what range is the minimum required employer contribution for 2002 as
of 12/31/2002?

(A) Less than \$124,000

(B) \$124,000 but less than \$129,000

(C) \$129,000 but less than \$134,000

(D) \$134,000 but less than \$139,000

(E) \$139,000 or more

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

Plan effective date: 1/1/1980.

Valuation interest rate: 7% per year.

Actuarial value of assets:

####  Prior to 2002 Fair market value

####  After 2001 Smoothed market value (without phase-in) with a 3-year smoothing period as defined in Revenue Procedure 2000-40 (smoothing of difference between expected and actual market value of assets)

+------------------------------+---+---------+------------+-----+-------+
| Reconciliation of market     |   |         |            |     |       |
| value of assets:             |   |         |            |     |       |
+------------------------------+---+---------+------------+-----+-------+
| ###                          |   |         |            |     |       |
+------------------------------+---+---------+------------+-----+-------+
| ###                          |   | [200    | [2001]{.   |     |       |
|                              |   | 0]{.und | underline} |     |       |
|                              |   | erline} |            |     |       |
+------------------------------+---+---------+------------+-----+-------+
| ###                          |   | \$6,    | \          |     |       |
|  Market value of assets, 1/1 |   | 900,000 | $6,900,000 |     |       |
+------------------------------+---+---------+------------+-----+-------+
| Contributions                |   | 250,000 | 150,000    |     |       |
+------------------------------+---+---------+------------+-----+-------+
| Benefit payments             |   | 250,000 | 350,000    |     |       |
+------------------------------+---+---------+------------+-----+-------+
| Investment return            |   | 0       | (900,000)  |     |       |
+------------------------------+---+---------+------------+-----+-------+
| Market value of assets,      |   | \$6,    | \          |     |       |
| 12/31                        |   | 900,000 | $5,800,000 |     |       |
+------------------------------+---+---------+------------+-----+-------+

Contributions and benefit payments are evenly distributed during each
plan year.

All administrative expenses are paid directly by plan sponsor.

##### Question 21

In what range is the actuarial value of assets as of 1/1/2002?

\(A\) Less than \$5,900,000

\(B\) \$5,900,000 but less than \$6,200,000

\(C\) \$6,200,000 but less than \$6,500,000

\(D\) \$6,500,000 but less than \$6,800,000

\(E\) \$6,800,000 or more

[Data for Question 22]{.underline} (4 points)

Normal retirement benefit: 50% of final compensation.

Actuarial cost method: Aggregate.

Selected actuarial assumptions:

  ------------------------------------------------ ----------------------
  Valuation interest rate                          7% per year

  Compensation increases                           4% per year

  Pre-retirement decrements                        None
  ------------------------------------------------ ----------------------

Data for only participants in the plan as of 1/1/2002:

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

  Date of birth                         1/1/1933              1/1/1947

  Status                                Retired               Active

  2001 compensation                                           \$28,500

  Monthly benefit (life annuity)        \$1,000               
  ------------------------------------- --------------------- ---------------------

Actuarial (market) value of assets as of 1/1/2002: \$95,000.

Credit balance in the funding standard account as of 12/31/2001:
\$1,500.

Selected annuity values:

$ä_{\text{65}}^{(\text{12})}$ = 9.70

$ä_{\text{69}}^{(\text{12})}$ = 7.83

# 

# Question 22

In what range is the minimum required contribution for 2002 as of
12/31/2002?

(A) Less than \$10,900

(B) \$10,900 but less than \$11,500

(C) \$11,500 but less than \$12,100

(D) \$12,100 but less than \$12,700

(E) \$12,700 or more

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

Effective date: 1/1/1995.

Normal retirement benefit: 1% of final 5-year average compensation for
each year of service.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Assumed compensation increases: 4% per year.

Selected valuation results as of:

  -------------------------------------- ------------------------ ------------------------
                                         [1/1/2001]{.underline}   [1/1/2002]{.underline}

  Present value of benefits              \$2,000,000              

  Present value of future compensation   20,000,000               

  2001 compensation                      2,000,000                

  Expected benefit payments              0                        

  Unfunded liability                                              615,000

  Actuarial (market) value of assets                              1,335,000
  -------------------------------------- ------------------------ ------------------------

Credit balance in funding standard account as of 12/31/2001: \$0.

During 2001, actual compensation increases were 2%. There were no other
gains or losses during the year.

All participants are active and under age 60. There were no new entrants
or terminations during 2001.

# Question 23

In what range is the 2002 normal cost as of 1/1/2002?

(A) Less than \$15,500

(B) \$15,500 but less than \$16,000

(C) \$16,000 but less than \$16,500

(D) \$16,500 but less than \$17,000

(E) \$17,000 or more

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

Plan effective date: 1/1/1980.

Actuarial cost method: Frozen initial liability.

Valuation interest rate:

  --------------------------------- -------------------------------------
  Before 2002                       8.50% per year

  After 2001                        6.75% per year
  --------------------------------- -------------------------------------

  -------------- --------- ----------------------------------------- ---------- --
  All                                                                           
  amortization                                                                  
  charges in                                                                    
  funding                                                                       
  standard                                                                      
  account as of                                                                 
  1/1/2001:                                                                     

                                                                                

  Initial                                                            \$50,000   
  unfunded                                                                      
  actuarial                                                                     
  accrued                                                                       
  liability                                                                     

  Plan amendment                                                     8,500      
  effective                                                                     
  1/1/1999                                                                      
  -------------- --------- ----------------------------------------- ---------- --

Credit balance in funding standard account as of 12/31/2001: \$0.

  ----------- -------- ----------------------------- --------------------- ---------------------
  Selected                                           [8.50%]{.underline}   [6.75%]{.underline}
  valuation                                                                
  results as                                                               
  of                                                                       
  1/1/2002:                                                                

                                                                           

  Entry age                                          \$900,000             \$1,100,000
  normal                                                                   
  actuarial                                                                
  accrued                                                                  
  liability                                                                

  Actuarial                                          400,000               400,000
  (market)                                                                 
  value of                                                                 
  assets                                                                   

  Frozen                                                                   60,000
  initial                                                                  
  liability                                                                
  normal cost                                                              
  ----------- -------- ----------------------------- --------------------- ---------------------

##### 

##### Question 24

In what range is the minimum required contribution for 2002 as of
12/31/2002?

(A) Less than \$138,500

(B) \$138,500 but less than \$146,500

(C) \$146,500 but less than \$154,500

(D) \$154,500 but less than \$162,500

(E) \$162,500 or more

# Data for Question 25 (3 points)

Type of plan: Multiemployer.

Plan effective date: 1/1/1990.

Actuarial cost method: Unit credit.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2000: \$0.

Selected valuation results:

##  1/1/2001 1/1/2002

## Normal cost \$5,000,000 \$7,000,000

Accrued liability 196,000,000 209,000,000

Actuarial (market) value of assets 202,000,000 205,000,000

ERISA and RPA'94 override full funding limitation for 2000 and 2001:
\$0.

Contribution for 2001: \$0.

[Question 25]{.underline}

In what range is the minimum required contribution for 2002 as of
12/31/2002?

(A) Less than \$8,000,000

(B) \$8,000,000 but less than \$8,200,000

(C) \$8,200,000 but less than \$8,400,000

(D) \$8,400,000 but less than \$8,600,000

(E) \$8,600,000 or more

# Data for Question 26 (5 points)

Valuation date: 12/31/2002.

Actuarial cost method: Aggregate.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2001: \$0.

Selected valuation results as of 12/31/2002:

+-----------------------------------------------------------+----------+
| Present value of projected benefits                       | \$2      |
|                                                           | ,000,000 |
+-----------------------------------------------------------+----------+
| Actuarial value of assets                                 | 880,000  |
+-----------------------------------------------------------+----------+
| Market value of assets                                    | 850,000  |
+-----------------------------------------------------------+----------+
| Compensation for 2002                                     | 140,000  |
+-----------------------------------------------------------+----------+
| Present value of future compensation                      | 1        |
|                                                           | ,400,000 |
+-----------------------------------------------------------+----------+
| Entry age normal accrued liability (including normal cost | 950,000  |
| for 2002)                                                 |          |
+-----------------------------------------------------------+----------+
| OBRA '87 current liability (including expected increase   | 1        |
| for 2002                                                  | ,025,000 |
|                                                           |          |
| due to benefits accruing during the plan year)            |          |
+-----------------------------------------------------------+----------+
| RPA '94 current liability (including expected increase    | 1        |
| for 2002                                                  | ,000,000 |
|                                                           |          |
| due to benefits accruing during the plan year)            |          |
+-----------------------------------------------------------+----------+

# Question 26

In what range is the deductible limit for 2002?

(A) Less than \$93,000

(B) \$93,000 but less than \$113,000

(C) \$113,000 but less than \$133,000

(D) \$133,000 but less than \$153,000

(E) \$153,000 or more

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

Normal retirement benefit: 1% times final salary for each year of
service.

Actuarial cost method: Aggregate.

Selected actuarial assumptions:

  ------------------------------------------------ ----------------------
  Valuation interest rate                          7% per year

  Compensation increases                           4% per year

  Pre-retirement decrements                        None
  ------------------------------------------------ ----------------------

Credit balance in funding standard account as of 12/31/2000: \$20,000.

Selected valuation results as of 1/1/2001:

  --------------------------------------------------- -------------------
  Present value of future benefits                    \$500,000

  Actuarial (market) value of assets                  350,000

  Present value of future compensation                2,000,000

  Expected compensation for 2001                      300,000

  Expected benefit payments for 2001                  0
  --------------------------------------------------- -------------------

Contribution for 2001: \$7,000 paid on 12/31/2001.

Plan experience for 2001:

Actual investment returns 8.5% per year

Actual compensation increases 8.0% per year

All other experience was as expected

All participants are active and there were no retirements or new
entrants during 2001 or 2002.

[Question 27]{.underline}

In what range is the minimum required contribution for 2002 as of
12/31/2002?

(A) Less than \$24,900

(B) \$24,900 but less than \$27,900

(C) \$27,900 but less than \$30,900

(D) \$30,900 but less than \$33,900

(E) \$33,900 or more

[Data for Question 28]{.underline} (4 points)

Plan year: 1/1 -- 12/31.

Plan sponsor's tax year: 10/1 -- 9/30.

Actuarial cost method: Aggregate.

Valuation interest rate: 7% per year.

Credit balance in the funding standard account as of 12/31/2001:
\$75,000.

Selected valuation results under IRC section 412, as of 1/1/2002:

Present value of future benefits \$4,000,000

Actuarial (market) value of assets 750,000

Present value of future compensation 3,000,000

Expected compensation for 2002 250,000

The deductible limit for any tax year is based upon the valuation for
the plan year beginning in that tax year.

Of the contribution for the 2002 plan year, \$50,000 was paid on
6/15/2002 and deducted for the tax year ending 9/30/2001.

[Question 28]{.underline}

In what range is the deductible limit for the tax year ending 9/30/2002?

(A) Less than \$280,000

(B) \$280,000 but less than \$284,000

(C) \$284,000 but less than \$288,000

(D) \$288,000 but less than \$292,000

(E) \$292,000 or more

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

Selected valuation results as of 1/1/2002:

Current liability \$800,000

Actuarial (market) value of assets 275,000

Selected information on plan assets:

  ------------------------------------------- -------------------------- -------------------------
                                              [12/31/2001]{.underline}   [3/31/2002]{.underline}

  Value of marketable securities              \$245,000                  \$250,000

                                                                         

                                              [2001]{.underline}         [2002]{.underline}

  Monthly annuity payments from plan          \$7,000                    \$7,100

  Monthly expense payments from plan          50                         100

                                                                         

                                              [3/01/2001]{.underline}    [3/01/2002]{.underline}

  Single sum distributions                    \$9,000                    \$8,000
  ------------------------------------------- -------------------------- -------------------------

Quarterly contribution due 4/15/2002 without regard to liquidity
requirement: \$5,000.

The plan has always had 250 participants.

[Question 29]{.underline}

In what range is the quarterly contribution due 4/15/2002?

\(A\) Less than \$18,700

\(B\) \$18,700 but less than \$21,400

\(C\) \$21,400 but less than \$24,100

\(D\) \$24,100 but less than \$26,800

\(E\) \$26,800 or more

[Data for Question 30]{.underline} (4 points)

Plan effective date: 1/1/1977.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Current liability interest rate: 6% per year.

Initial accrued liability: \$106,000.

Credit balance in funding standard account as of 12/31/2001: \$0.

Selected valuation results as of 1/1/2002:

+--------------------------------------------------------+-------------+
| Actuarial value of assets                              | \$92,500    |
+--------------------------------------------------------+-------------+
| Market value of assets                                 | 94,000      |
+--------------------------------------------------------+-------------+
| Normal cost                                            | 1,660       |
+--------------------------------------------------------+-------------+
| Entry age normal accrued liability                     | 118,000     |
+--------------------------------------------------------+-------------+
| Entry age normal normal cost                           | 2,000       |
+--------------------------------------------------------+-------------+
| Current liability                                      | 62,000      |
+--------------------------------------------------------+-------------+
| Expected increase in current liability                 | 4,000       |
|                                                        |             |
| due to benefits accruing during the plan year          |             |
+--------------------------------------------------------+-------------+
| Expected benefit payments                              | 0           |
+--------------------------------------------------------+-------------+

# Question 30

In what range is the deductible limit for 2002?

(A) Less than \$13,800

(B) \$13,800 but less than \$14,800

(C) \$14,800 but less than \$15,800

(D) \$15,800 but less than \$16,800

(E) \$16,800 or more

[Data for Question 31]{.underline} (5 points)

Plan effective date: 1/1/1996.

Actuarial cost method: Frozen initial liability.

Assumed interest rates:

  ------------------------------------------------ ----------------------
  Valuation interest rate                          7% per year

  Current liability interest rate                  6% per year
  ------------------------------------------------ ----------------------

Credit balance in funding standard account as of 12/31/2001: \$0.

Selected valuation results and other information as of 1/1/2002:

+-------------------------------------------------------+--------------+
| Actuarial (market) value of assets                    | \$1,740,000  |
+-------------------------------------------------------+--------------+
| Expected benefit payments                             | 0            |
+-------------------------------------------------------+--------------+
| Normal cost                                           | 112,273      |
+-------------------------------------------------------+--------------+
| Accrued liability under entry age normal              | 2,150,000    |
|                                                       |              |
| method (including normal cost for 2002)               |              |
+-------------------------------------------------------+--------------+
| Current liability (including expected                 | 2,180,000    |
|                                                       |              |
| increase for 2002 due to benefits                     |              |
|                                                       |              |
| accruing during the plan year)                        |              |
+-------------------------------------------------------+--------------+

Initial balance of all amortization bases in the funding standard
account:

+--------------------------------------------------+-------------------+
| Initial accrued liability                        | \$2,100,000       |
+--------------------------------------------------+-------------------+
| Increase in liability due to 1/1/2000            | 340,000           |
|                                                  |                   |
| change in assumed rates of withdrawal            |                   |
+--------------------------------------------------+-------------------+

## Question 31

In what range is the deductible limit for 2002?

(A) Less than \$445,000

(B) \$445,000 but less than \$455,000

(C) \$455,000 but less than \$465,000

(D) \$465,000 but less than \$475,000

(E) \$475,000 or more

[Data for Question 32]{.underline} (4 points)

Normal retirement benefit: \$35 per month per year of service.

Early retirement eligibility: Age 60.

Early retirement benefit: Accrued benefit reduced by 6% for each year by
which the benefit commencement date precedes the normal retirement date.

Actuarial cost method: Unit credit.

Selected actuarial assumptions:

> Valuation interest rate 7% per year
>
> Pre-retirement decrements None
>
> Retirements occur at the beginning of the year based on the following
> table:

+-------------------+--------------------------------------------------+
|                   | Probability of                                   |
+-------------------+--------------------------------------------------+
| ### Age           | ### Retirement                                   |
+-------------------+--------------------------------------------------+
| 63                | 0.20                                             |
+-------------------+--------------------------------------------------+
| 64                | 0.40                                             |
+-------------------+--------------------------------------------------+
| 65                | 1.00                                             |
+-------------------+--------------------------------------------------+

Data for participant Smith as of 1/1/2002:

Date of birth 1/1/1939

Date of hire 1/1/1969

Selected annuity values:

  ------------------------------- ------------------------------- -------------------------------
  $ä_{\text{63}}^{(\text{12})}$ = $ä_{\text{64}}^{(\text{12})}$ = $ä_{\text{65}}^{(\text{12})}$ =
  9.72                            9.48                            9.24

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

## Question 32

In what range is Smith's accrued liability as of 1/1/2002?

(A) Less than \$115,000

(B) \$115,000 but less than \$140,000

(C) \$140,000 but less than \$165,000

(D) \$165,000 but less than \$190,000

(E) \$190,000 or more

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

Plan effective date: 1/1/1980.

Actuarial cost method: Aggregate.

Valuation rate of interest: 7% per year.

Credit balance in funding standard account as of 12/31/2001: \$0.

+----------+---------+----+-----------+---------+----+---+-----------+
| Selected |         |    |           |         |    |   |           |
| v        |         |    |           |         |    |   |           |
| aluation |         |    |           |         |    |   |           |
| results  |         |    |           |         |    |   |           |
| as of    |         |    |           |         |    |   |           |
| 1        |         |    |           |         |    |   |           |
| /1/2002: |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
|          |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
| Present  |         |    |           | \$8,    |    |   |           |
| value of |         |    |           | 500,000 |    |   |           |
| future   |         |    |           |         |    |   |           |
| benefits |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
| A        |         |    |           | 6,      |    |   |           |
| ctuarial |         |    |           | 600,000 |    |   |           |
| value of |         |    |           |         |    |   |           |
| assets   |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
| Market   |         |    |           | 6,      |    |   |           |
| value of |         |    |           | 500,000 |    |   |           |
| assets   |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
| Present  |         |    |           | 32,     |    |   |           |
| value of |         |    |           | 500,000 |    |   |           |
| future   |         |    |           |         |    |   |           |
| comp     |         |    |           |         |    |   |           |
| ensation |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
| ###      |         |    |           | 2,      |    |   |           |
|   Expect |         |    |           | 700,000 |    |   |           |
| ed compe |         |    |           |         |    |   |           |
| nsation  |         |    |           |         |    |   |           |
| for 2002 |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
| ###  E   |         |    |           | 0       |    |   |           |
| xpected  |         |    |           |         |    |   |           |
| benefit  |         |    |           |         |    |   |           |
| payments |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
|          |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
| Selected |         |    |           |         |    |   |           |
| v        |         |    |           |         |    |   |           |
| aluation |         |    |           |         |    |   |           |
| results  |         |    |           |         |    |   |           |
| p        |         |    |           |         |    |   |           |
| rojected |         |    |           |         |    |   |           |
| to       |         |    |           |         |    |   |           |
| 12/      |         |    |           |         |    |   |           |
| 31/2002: |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
|          |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
| Entry    |         |    |           |         |    |   | \$        |
| age      |         |    |           |         |    |   | 7,275,000 |
| normal   |         |    |           |         |    |   |           |
| accrued  |         |    |           |         |    |   |           |
| l        |         |    |           |         |    |   |           |
| iability |         |    |           |         |    |   |           |
| (i       |         |    |           |         |    |   |           |
| ncluding |         |    |           |         |    |   |           |
| normal   |         |    |           |         |    |   |           |
| cost)    |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+
| Current  |         |    |           |         |    |   | 4,300,000 |
| l        |         |    |           |         |    |   |           |
| iability |         |    |           |         |    |   |           |
| (i       |         |    |           |         |    |   |           |
| ncluding |         |    |           |         |    |   |           |
| expected |         |    |           |         |    |   |           |
| increase |         |    |           |         |    |   |           |
| due to   |         |    |           |         |    |   |           |
| benefits |         |    |           |         |    |   |           |
|          |         |    |           |         |    |   |           |
| accruing |         |    |           |         |    |   |           |
| during   |         |    |           |         |    |   |           |
| the plan |         |    |           |         |    |   |           |
| year)    |         |    |           |         |    |   |           |
+----------+---------+----+-----------+---------+----+---+-----------+

##### Question 33

In what range is the full funding credit for 2002?

\(A\) \$0

\(B\) \$1 but less than \$29,000

\(C\) \$29,000 but less than \$104,000

\(D\) \$104,000 but less than \$179,000

\(E\) \$179,000 or more

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

Normal retirement benefit: 2.5% of final three-year average compensation
for each year

> of service.

Actuarial cost method: Unit credit.

Selected actuarial assumptions:

  ----------------------------------------------- -----------------------
  Valuation interest rate                         7% per year

  Compensation increases                          5% per year
  ----------------------------------------------- -----------------------

Selected valuation results as of 1/1/2001:

  ---------------------------------------------------- ------------------
  Unfunded accrued liability                           \$195,000

  Actuarial (market) value of assets                   225,000

  Normal cost                                          25,000
  ---------------------------------------------------- ------------------

Actual compensation increases during 2001: 8.75%.

All other actuarial assumptions were exactly realized.

All participants are active and are under age 60, and there are no new
entrants as of 1/1/2002.

No distributions were made from the plan during 2001.

[Question 34]{.underline}

In what range is the actuarial loss as of 1/1/2002 due to compensation
increases?

(A) Less than \$6,500

(B) \$6,500 but less than \$16,500

(C) \$16,500 but less than \$26,500

(D) \$26,500 but less than \$36,500

(E) \$36,500 or more

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

Plan effective date: 1/1/2002.

Accrued benefit: 1% times final three-year average compensation per year
of service.

Termination benefit: Accrued benefit, payable at age 65.

Actuarial cost method: Unit credit.

Valuation interest: 7% per year.

Assumed compensation increases: 3% per year.

Assumed probabilities of death, termination and retirement:

+------------------+----------------+----------------+----------------+
| ### Age          | Probability of | Probability of | Probability of |
|                  |                |                |                |
|                  | ### Death      | #              | ### Retirement |
|                  |                | ## Termination |                |
+------------------+----------------+----------------+----------------+
| Prior to age 63  | 0.00           | 0.00           | 0.00           |
+------------------+----------------+----------------+----------------+
| 63               | 0.00           | 0.10           | 0.00           |
+------------------+----------------+----------------+----------------+
| 64               | 0.00           | 0.15           | 0.00           |
+------------------+----------------+----------------+----------------+
| 65               | 0.00           | 0.00           | 1.00           |
+------------------+----------------+----------------+----------------+

Decrements are assumed to apply at the beginning of the plan year.

Data for sole participant:

  ---------------------------------------------- ------------------------
  Date of birth                                  1/1/1952

  Date of hire                                   1/1/1982

  2001 compensation                              \$60,000
  ---------------------------------------------- ------------------------

Selected annuity value:

$ä_{\text{65}}^{(\text{12})}$ = 10.0

## Question 35

In what range is the normal cost for 2002 as of 1/1/2002?

(A) Less than \$3,275

(B) \$3,275 but less than \$3,500

(C) \$3,500 but less than \$3,725

(D) \$3,725 but less than \$3,950

(E) \$3,950 or more

## Data for Question 36 (3 points)

Normal retirement benefit: \$1,500 per month.

Normal form of payment: Life annuity.

Optional form of payment: Joint & survivor benefit paying:

(1) a reduced benefit to the participant for life, plus

(2) 66 2/3% of the participant's reduced benefit to the beneficiary for
    his/her remaining lifetime after the participant's death.

Reduction factor to adjust life annuity to the optional form of payment:
90%.

Data for participant Smith as of 1/1/2002:

Date of birth 1/1/1937

Spouse's date of birth 1/1/1942

Date of retirement 1/1/2002

Selected annuity values:

> $ä_{\text{60}}^{(\text{12})}$ = 9.815 $ä_{\text{65}}^{(\text{12})}$ =
> 8.736 $ä_{\overline{\text{60}:\text{65}}}^{(\text{12})}$ = 11.117

For valuation purposes, the actuary assumes all participants will take
the life annuity form of payment. However, Smith elects the optional
form of payment upon retirement.

[Question 36]{.underline}

In what range is the absolute value of the (gain)/loss in the total
present value of benefits due to Smith's election of the only optional
form of payment?

(A) Less than \$1,000

(B) \$1,000 but less than \$9,500

(C) \$9,500 but less than \$18,000

(D) \$18,000 but less than \$26,500

(E) \$26,500 or more

[Data for Question 37]{.underline} (5 points)

Plan effective date: 1/1/1996.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Initial accrued liability: \$250,000.

Credit balance in funding standard account as of 12/31/2000: \$0.

Normal cost as of:

  -------------------------------------- --------------------------------
  1/1/2001                               \$40,000

  1/1/2002                               35,000
  -------------------------------------- --------------------------------

Contribution for 2001 plan year: \$40,000 paid on 8/1/2001.

Change in entry age normal accrued liability due to 1/1/2002 plan
amendment: (\$30,000).

Contributions for 2002 plan year are paid after 12/31/2002.

[Question 37]{.underline}

In what range is the deductible limit for 2002?

(A) Less than \$70,000

(B) \$70,000 but less than \$73,000

(C) \$73,000 but less than \$76,000

(D) \$76,000 but less than \$79,000

(E) \$79,000 or more

## Data for Question 38 (4 points)

Normal retirement benefit: \$30 per month for each year of service.

Normal retirement age:

Before 2002 65

After 2001 64

Actuarial cost method: Aggregate.

Valuation interest rate: 7% per year.

Assumed retirement age is equal to the normal retirement age.

No pre-retirement decrements are assumed.

Data for sole participant:

Date of birth 1/1/1947

Date of hire 1/1/1972

Credit balance in the funding standard account as of 12/31/2001: \$0.

Actuarial (market) value of assets as of 1/1/2002: \$45,000.

> Selected annuity values: $ä_{\text{64}}^{(\text{12})}$ = 9.48
> $ä_{\text{65}}^{(\text{12})}$ = 9.24

[Question 38]{.underline}

In what range is the increase in normal cost for 2002 as of 1/1/2002 due
to the change in normal retirement age?

(A) Less than \$200

(B) \$200 but less than \$500

(C) \$500 but less than \$800

(D) \$800 but less than \$1,100

(E) \$1,100 or more

[Data for Question 39]{.underline} (3 points)

Plan effective date: 1/1/1995.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Selected valuation results as of 1/1/2002:

  ---------------------------------------------------- ------------------
  Present value of benefits                            \$1,500,000

  Actuarial (market) value of assets                   250,000

  Present value of future compensation                 1,800,000

  Expected compensation for 2002                       180,000

  Normal cost                                          55,000
  ---------------------------------------------------- ------------------

Credit balance in funding standard account as of 12/31/2001: \$7,500.

# Question 39

In what range is the 2002 minimum required contribution as of
12/31/2002?

(A) Less than \$106,000

(B) \$106,000 but less than \$113,000

(C) \$113,000 but less than \$120,000

(D) \$120,000 but less than \$127,000

(E) \$127,000 or more

[Data for Question 40]{.underline} (3 points)

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

Actuarial cost method: Unit credit.

Selected actuarial assumptions:

Valuation interest rate 7% per year

Compensation increases 6% per year

Pre-retirement decrements None

Data for sole participant in the plan as of 1/1/2002:

Date of birth 1/1/1942

Date of hire 1/1/1982

> 2002 compensation \$35,000

Selected annuity value:

> $ä_{\text{65}}^{(\text{12})}$ = 9.70

[Question 40]{.underline}

In what range is the normal cost as of 1/1/2002?

(A) Less than \$5,450

(B) \$5,450 but less than \$5,750

(C) \$5,750 but less than \$6,050

(D) \$6,050 but less than \$6,350

(E) \$6,350 or more

NOVEMBER 2002 EA-2, SEGMENT A

# **ANSWER KEY**

1\. D 26. C

2\. C 27. C

3\. B 28. B

4\. B 29. B

5\. B 30. D

6\. A 31. B

7\. D 32. A

8\. B 33. B

9\. C 34. C

10\. C 35. A

11\. C 36. C

12\. D 37. D

13\. D 38. D

14\. B 39. C

15\. C 40. C

16\. D

17\. B

18\. D

19\. D

20\. C

21\. E

22\. B

23\. C

24\. C

25\. A