SOCIETY OF ACTUARIES

AMERICAN SOCIETY OF PENSION ACTUARIES

JOINT BOARD FOR THE ENROLLMENT OF ACTUARIES

# **ENROLLED ACTUARIES PENSION EXAMINATION, SEGMENT A**

**NOVEMBER 2003 EA-2, SEGMENT A, EXAMINATION**

**E2A-10-03 Printed in U.S.A.**

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

Consider the following statement:

Every collectively bargained plan can use the shortfall funding method.

[Question 1]{.underline}

Is the above statement true or false?

(A) True

(B) False

[Data for Question 2]{.underline} (1 point)

Plan effective date: 1/1/2003.

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

Valuation interest rate: 7% per year.

Data for sole participant:

Date of birth 1/1/1973

Date of hire 1/1/2003

Consider the following statement.

The normal cost as of 1/1/2003 using the entry age cost method is
greater than the normal cost using the unit credit cost method.

[Question 2]{.underline}

Is the above statement true or false?

\(A\) True

\(B\) False

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

Consider the following statement:

A change in the date on which assets are valued is considered to be a
change in funding method.

# Question 3

Is the above statement true or false?

\(A\) True

\(B\) False

[Data for Question 4]{.underline} (3 points)

Death benefit commencing upon death:

Single participants \$20,000 lump sum

Married participants \$500 per month

Actuarial cost method for ancillary benefits: One-year term cost.

Valuation interest rate: 7% per year.

The assumed probability of death at age 64 is 0.04.

All deaths are assumed to occur at the end of the year.

Married assumption: 60% of participants are assumed to be married with
the spouse the same age as the participant.

Selected unisex annuity value:
${\overset{¨}{a}}_{\text{65}}^{\left( \text{12} \right)}$= 10.00.

The plan has 100 participants, all age 64.

[Question 4]{.underline}

In what range is the beginning of year normal cost for the death
benefit?

(A) Less than \$110,000

(B) \$110,000 but less than \$170,000

(C) \$170,000 but less than \$230,000

(D) \$230,000 but less than \$290,000

(E) \$290,000 or more

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

Plan effective date: 1/1/1999.

Actuarial cost method: Frozen initial liability.

Valuation interest rate:

Before 2003 8% per year

After 2002 7% per year

Credit balance in funding standard account as of 12/31/2002: \$2,500.

Selected valuation results as of 1/1/2003:

  --------------------------------- ------------------ ------------------
                                    [8%]{.underline}   [7%]{.underline}

  Normal cost                       \$35,000           \$40,000

  Unfunded liability                325,000            450,000
  --------------------------------- ------------------ ------------------

Contribution for 2003: \$90,000 paid on 12/31/2003.

# 

# 

# 

# Question 5

In what range is the credit balance in the funding standard account as
of 12/31/2003?

\(A\) Less than \$4,000

\(B\) \$4,000 but less than \$4,500

\(C\) \$4,500 but less than \$5,000

\(D\) \$5,000 but less than \$5,500

\(E\) \$5,500 or more

## Data for Question 6 (4 points)

Plan effective date: 1/1/2002.

Normal retirement benefit: 2% of final three-year average salary per
year of service.

Actuarial cost method: Unit credit.

Selected actuarial assumptions:

> Valuation interest rate 7% per year
>
> Compensation increases 4% per year

Data for sole participant:

> Date of birth 1/1/1952
>
> Date of hire 1/1/1997
>
> 2001 compensation as reported for 1/1/2002 valuation \$50,000
>
> 2002 compensation as reported for 1/1/2003 valuation \$60,000

Selected annuity value:

${\overset{¨}{a}}_{\text{65}}^{\left( \text{12} \right)}$ = 10.00

Normal cost as of 1/1/2002: \$6,280.

Contribution for 2002: Amount equal to the minimum required contribution
for 2002 paid on 12/31/2002.

## Question 6

In what range is the minimum required contribution for 2003 as of
1/1/2003?

(A) Less than \$8,250

(B) \$8,250 but less than \$9,250

(C) \$9,250 but less than \$10,250

(D) \$10,250 but less than \$11,250

(E) \$11,250 or more

[Data for Question 7]{.underline} (3 points)

Plan effective date: 1/1/2002.

Actuarial cost method: Aggregate.

Valuation interest rate: 7% per year.

Minimum contribution for 2002 plan year as of 12/31/2002: \$200,000.

Normal cost for 2003 as of 1/1/2003: \$210,000.

Contributions made for the 2002 and 2003 plan years:

  -------------------------- ---------------------- ----------------------
  [Date]{.underline}         [Plan                  [Amount]{.underline}
                             Year]{.underline}      

  4/1/2002                   2002                   \$100,000

  10/1/2002                  2002                   70,000

  9/15/2003                  2002                   30,000

  4/1/2003                   2003                   120,000

  9/1/2003                   2003                   60,000

  1/15/2004                  2003                   50,000

  9/15/2004                  2003                   40,000
  -------------------------- ---------------------- ----------------------

The plan is not subject to quarterly contribution requirements.

[Question 7]{.underline}

In what range is the credit balance in the funding standard account as
of 12/31/2003?

(A) Less than \$52,000

(B) \$52,000 but less than \$54,000

(C) \$54,000 but less than \$56,000

(D) \$56,000 but less than \$58,000

(E) \$58,000 or more

[Data for Question 8]{.underline} (3 points)

Plan effective date: 1/1/2002.

Normal retirement benefit: 2.50% of final compensation per year of
service.

Normal retirement age: 63.

Actuarial cost method: Unit credit.

Selected actuarial assumptions:

Valuation interest rate 7% per year

> Salary increases 3% per year

Data for sole participant:

Date of birth 1/1/1968

Date of hire 1/1/1993

2001 compensation \$42,000

Contribution for 2002: \$7,000 paid on 4/1/2002.

Experience (gain)/loss for 2002 from sources other than investments:
\$0.

Unfunded accrued liability as of 1/1/2003: \$28,000.

Selected annuity value:
${\overset{¨}{a}}_{\text{63}}^{\left( \text{12} \right)}$ = 9.22

## Question 8

In what range is the investment experience for 2002 as of 1/1/2003?

\(A\) Gain of \$2,250 or more

\(B\) Gain greater than \$750 but less than \$2,250

(C) Gain or loss less than or equal to \$750

(D) Loss greater than \$750 but less than \$2,250

\(E\) Loss of \$2,250 or more

[Data for Question 9]{.underline} (3 points)

Selected valuation results as of: [1/1/2000]{.underline}
[1/1/2001]{.underline} [1/1/2002]{.underline} [1/1/2003]{.underline}

> Market value of assets \$85,000 \$ 90,000 \$109,000 \$100,000
>
> Actuarial value of assets 80,000 100,000 112,000 85,000
>
> Credit balance 2,000 3,000 3,000 4,000
>
> Current liability computed using
>
> the highest interest rate in the
>
> permissible range 87,000 110,000 100,000 107,000
>
> RPA \'94 current liability 90,000 110,000 110,000 112,000

The plan has always had more than 150 participants.

All assets are "liquid assets."

For the first quarter of the 2002 and 2003 plan years the plan had a
liquidity shortfall.

Consider the following statements:

I.  The plan is exempt from the quarterly contribution requirement for
    the 2003 plan year.

II. The plan is exempt from the additional funding charge for the 2003
    plan year.

III. The plan is exempt from the liquidity requirement for the 2003 plan
     year.

[Question 9]{.underline}

Which, if any, of these statement(s) is (are) true?

\(A\) None

\(B\) I only

\(C\) II only

\(D\) III only

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

[Data for Question 10]{.underline} (3 points)

Actuarial cost method: Aggregate.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2002: \$0.

Valuation results as of 1/1/2003:

Market value of assets \$820,000

Actuarial value of assets 830,000

Normal cost 60,000

Normal cost under entry age normal method 54,000

Accrued liability under entry age normal method 790,000

Funding waiver for 2002 as of 12/31/2002: \$80,000.

[Question 10]{.underline}

In what range is the 2003 full funding credit in the funding standard
account as of 12/31/2003?

\(A\) Less than \$54,800

\(B\) \$54,800 but less than \$56,400

\(C\) \$56,400 but less than \$58,000

\(D\) \$58,000 but less than \$59,600

\(E\) \$59,600 or more

[Data for Question 11]{.underline} (3 points)

Actuarial cost method: Entry age normal.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2002: \$100,000.

Selected valuation results:

  --------------------------------- ------------------------ ------------------------
                                    [1/1/2002]{.underline}   [1/1/2003]{.underline}

  Accrued liability                 \$2,500,000              \$3,500,000

  Normal cost                       275,000                  350,000
  --------------------------------- ------------------------ ------------------------

Actuarial (market) value of assets as of 1/1/2002: \$2,000,000

Net balance of amortization bases as of 1/1/2003: \$1,600,000

The only benefit payment during the year was a lump sum payment of
\$1,000,000 made on 7/1/2002.

A contribution of \$400,000 was made on 10/1/2002.

[Question 11]{.underline}

In what range is the absolute value of the asset gain/loss for 2002?

# Less than \$465,000

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

(B) \$475,000 but less than \$485,000

(C) \$485,000 but less than \$495,000

(D) \$495,000 or more

[Data for Question 12]{.underline} (5 points)

Actuarial cost method: Aggregate.

Normal retirement benefit: 50% of final three-year average compensation.

Selected actuarial assumptions:

Valuation interest rate 7% per year

Retirement age 52

## Salary increases:

## Before 2003 3.5% per year

> After 2002 3.5% for all years except final year of employment, at
> which time a 40% salary increase is assumed

Credit balance in funding standard account as of 12/31/2002: \$0.

Actuarial (market) value of assets as of 1/1/2003: \$3,400,000.

+----------------------------------------------+-----------------------+
| Selected valuation data as of 1/1/2003:      |                       |
+----------------------------------------------+-----------------------+
| 2003 valuation compensation per participant  | \$50,000              |
|                                              |                       |
| Number of active participants                | 17                    |
+----------------------------------------------+-----------------------+
| Age of each active participant               | 45                    |
+----------------------------------------------+-----------------------+

The plan has no inactive participants

Selected annuity value:

${\overset{¨}{a}}_{\text{52}}^{\left( \text{12} \right)}$ = 11.8

[Question 12]{.underline}

In what range is the change in the normal cost for 2003 as of 1/1/2003,
due to the assumption change?

(A) Less than \$62,000

(B) \$62,000 but less than \$66,000

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(C) \$66,000 but less than \$70,000

(D) \$70,000 but less than \$74,000

\(E\) \$74,000 or more

[Data for Question 13]{.underline} (3 points)

Plan effective date: 1/1/1997.

Actuarial cost method: Frozen initial liability.

Initial actuarial liability: \$500,000.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2002: \$25,000.

Selected valuation results as of 1/1/2003:

> Entry age normal accrued liability, before 1/1/2003 amendment
> \$1,100,000
>
> Entry age normal accrued liability, after 1/1/2003 amendment 1,250,000

Minimum required contribution for 2003 as of 12/31/2003: \$72,000.

# Question 13

In what range is the normal cost for 2003 as of 1/1/2003?

(A) Less than \$35,000

(B) \$35,000 but less than \$40,000

(C) \$40,000 but less than \$45,000

(D) \$45,000 but less than \$50,000

(E) \$50,000 or more

[Data for Question 14]{.underline} (3 points)

The plan has mandatory employee contributions.

Actuarial cost method: Aggregate.

Valuation interest rate: 7% per year.

Selected valuation results as of 1/1/2003:

Actuarial (market) value of assets \$275,000

Present value of total benefits 2,000,000

Present value of future employee contributions 250,000

Credit balance in funding standard account as of 12/31/2002: \$0.

Data for all participants in the plan as of 1/1/2003:

[Age]{.underline} [Number of Participants]{.underline}

53 30

55 20

[Question 14]{.underline}

In what range is the employer normal cost for 2003 as of 1/1/2003?

A.  Less than \$175,000

B.  \$175,000 but less than \$185,000

C.  \$185,000 but less than \$195,000

D.  \$195,000 but less than \$205,000

E.  \$205,000 or more

[Data for Question 15]{.underline} (4 points)

Actuarial cost method: Entry age normal.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2001: \$2,500.

Selected valuation results as of 1/1/2002:

#  Unfunded accrued liability \$20,000

Normal cost 25,000

Contribution for 2002 made on 12/31/2002: \$32,000.

Credit balance on 12/31/2002: \$5,000.

Selected valuation results as of 1/1/2003:

Actuarial (market) value of assets \$300,000

Normal cost (after plan amendment) 28,000

Accrued liability before 1/1/2003 plan amendment 305,000

Accrued liability after 1/1/2003 plan amendment 330,000

No bases expired in either 2002 or 2003.

[Question 15]{.underline}

In what range is the absolute value of the change in the end of year
minimum required contribution between the 2002 and 2003 plan years?

(A) Less than \$1,000

(B) \$1,000 but less than \$2,000

(C) \$2,000 but less than \$3,000

(D) \$3,000 but less than \$4,000

(E) \$4,000 or more

[Data for Question 16]{.underline} (5 points)

# Effective date: 1/1/1990.

# 

# Actuarial cost method: Attained age normal.

Initial accrued liability: \$200,000.

Selected actuarial assumptions:

Valuation interest rate 7% per year

# Current liability interest rate 6% per year

# Gateway current liability interest rate 6.65% per year

Credit balance in funding standard account as of 12/31/2002: \$24,000.

Selected valuation results as of 1/1/2003:

### Normal cost \$120,000

### Current liability 1,200,000

# Expected increase in current liability due

#  to benefits accruing during the plan year 100,000

Unfunded old liability amount 0

Gateway percentage 78%

Funded current liability percentage 73%

There have always been at least 150 participants in the plan.

The "applicable percentage" of unfunded new liability is defined by the
following formula, where FCL% is the funded current liability
percentage:

30% - \[(FCL% - 60%, not less than 0%) x 0.4\]

## Question 16

# In what range is the minimum required contribution for 2003 as of 12/31/2003?

(A) Less than \$160,000

(B) \$160,000 but less than \$170,000

(C) \$170,000 but less than \$180,000

(D) \$180,000 but less than \$190,000

(E) \$190,000 or more

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

Plan effective date: 1/1/2002.

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

Early retirement benefit: Accrued benefit reduced by 4% for each year by
which commencement of payments precedes age 65.

Actuarial cost method: Attained age normal.

Valuation interest rate: 7% per year.

Data for all plan participants:

[Name]{.underline} [Date of Birth]{.underline} [Date of
Hire]{.underline}

Smith 1/1/1963 1/1/1989

Jones 1/1/1941 1/1/1978

Contribution for 2002 made on 12/31/2002: \$16,000.

Selected annuity values:

${\overset{¨}{a}}_{\text{62}}^{\left( \text{12} \right)}$ = 10.60

${\overset{¨}{a}}_{\text{65}}^{\left( \text{12} \right)}$ = 10.00

Participant Jones retired on 12/31/2002.

[Question 17]{.underline}

In what range is the minimum required contribution for 2003 payable on
1/1/2003?

(A) Less than \$3,800

\(B\) \$3,800 but less than \$4,300

\(C\) \$4,300 but less than \$4,800

\(D\) \$4,800 but less than \$5,300

\(E\) \$5,300 or more

[Data for Question 18]{.underline} (3 points)

Plan effective date: 7/1/1997.

Plan year: 7/1 -- 6/30.

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

Actuarial cost method: Attained age normal.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 6/30/2003: \$25,000.

Valuation results as of 7/1/2003:

Normal cost \$45,000

Unfunded liability 450,000

The deductible limit for any tax year is the deductible limit determined
on the basis of the plan year beginning in that tax year.

[Question 18]{.underline}

In what range is the deductible limit for 2003?

(A) Less than \$110,000

(B) \$110,000 but less than \$115,000

(C) \$115,000 but less than \$120,000

(D) \$120,000 but less than \$125,000

(E) \$125,000 or more

[Data for Question 19]{.underline} (4 points)

Plan effective date: 1/1/2002.

Actuarial cost method: Unit credit.

Valuation interest rate: 7% per year.

Selected valuation results:

  ----------------------------------------- ------------------------ ------------------------
                                            [1/1/2002]{.underline}   [1/1/2003]{.underline}

  Normal cost                               \$55,000                 \$40,000

  Accrued liability                         100,000                  130,000

  Actuarial (market) value of assets        0                        75,000
  ----------------------------------------- ------------------------ ------------------------

The employer contributed an amount equal to the maximum deductible
contribution for 2002 on 7/1/2002.

[Question 19]{.underline}

In what range is the minimum required contribution for 2003 payable
12/31/2003?

\(A\) Less than \$32,000

(B) \$32,000 but less than \$35,000

(C) \$35,000 but less than \$38,000

(D) \$38,000 but less than \$41,000

(E) \$41,000 or more

[Data for Question 20]{.underline} (3 points)

Actuarial cost method: Attained age normal.

Valuation interest rate: 7% per year.

Current liability interest rate: 6% per year.

Credit balance in funding standard account as of 12/31/2002: \$0.

Selected valuation results as of 1/1/2003:

> Actuarial value of assets \$819,000
>
> Market value of assets 801,000
>
> Entry age normal accrued liability 675,000
>
> Entry age normal normal cost 75,000
>
> Current liability 910,000
>
> Expected increase in current liability due
>
> to benefits accruing during the plan year 83,000
>
> Expected benefit payments 0

[Question 20]{.underline}

In what range is the full funding limitation under IRC section 412 for
2003?

\(A\) \$0

\(B\) More than \$0 but less than \$75,000

\(C\) \$75,000 but less than \$150,000

\(D\) \$150,000 but less than \$225,000

\(E\) More than \$225,000

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

XYZ Company has three divisions with employees benefiting in two defined
benefit (DB) and two money purchase (DC) plans as shown below:

  ---------------------- ----------------- ------------ ------------------
  Plan                   Division 1        Division 2   Division 3

  DB plans               Plan A                         Plan B

  DC plans               Plan C            Plan D       
  ---------------------- ----------------- ------------ ------------------

Other information for the 2003 plan year:

  ------------------------- --------------- -------------- -----------------
                            Division 1      Division 2     Division 3

  Annual pay                \$22,000,000    \$10,000,000   \$6,000,000

  DB plan information                                      

  Minimum 412 contribution  Plan A =                       Plan B =
                            \$8,500,000                    \$1,250,000

  Actual contribution       Plan A =                       Plan B =
                            \$9,000,000                    \$1,400,000

  Unfunded current          Plan A =                       Plan B =
  liability projected to    \$7,500,000                    \$1,000,000
  year-end                                                 

  Maximum 404 contribution  Plan A =                       Plan B =
                            \$12,000,000                   \$1,500,000

  DC plan contributions     Plan C =        Plan D =       
                            \$500,000       \$300,000      
  ------------------------- --------------- -------------- -----------------

[Question 21]{.underline}

In what range is the total amount of non-deductible contributions under
IRC Section 404 for 2003?

(A) Less than \$500,000

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

(C) \$1,000,000 but less than \$1,500,000

(D) \$1,500,000 but less than \$2,000,000

(E) \$2,000,000 or more

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

Actuarial cost method:

Before 2003 Entry age normal

After 2002 Unit credit

Valuation interest rate: 7% per year.

There was an ERISA full funding credit in the 2002 funding standard
account.

The credit balance in the funding standard account as of 12/31/2002:
\$5,000.

## Selected valuation results as of 1/1/2003 after changes:

Amortization base due to 1/1/2003 plan amendment \$30,000

Amortization base due to 1/1/2003 assumption change 20,000

Amortization base due to 1/1/2003 funding method change (10,000)

Normal cost 10,000

Actuarial accrued liability 170,000

Actuarial (market) value of assets 110,000

# Question 22

In what range is the minimum required contribution for 2003 as of
12/31/2003?

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

\(B\) \$8,000 but less than \$10,500

\(C\) \$10,500 but less than \$13,000

\(D\) \$13,000 but less than \$15,500

\(E\) \$15,500 or more

[Data for Question 23]{.underline} (3 points)

Plan effective date: 1/1/1997.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2002: \$3,000.

Minimum funding amortization bases:

+-----------------------------+----------------+-----------------------+
| [Type of base]{.underline}  | Date           | Outstanding balance   |
|                             |                |                       |
|                             | [Establishe    | [on                   |
|                             | d]{.underline} | 1/1/2003]{.underline} |
+-----------------------------+----------------+-----------------------+
| Initial accrued liability   | 1/1/1997       | \$500,000             |
+-----------------------------+----------------+-----------------------+
| Assumption change           | 1/1/2000       | 50,000                |
+-----------------------------+----------------+-----------------------+
| Plan amendment              | 1/1/2002       | 75,000                |
+-----------------------------+----------------+-----------------------+

Normal cost as of 1/1/2003: \$30,500.

### [Question 23]{.underline}

In what range is the minimum required contribution for 2003 as of
12/31/2003?

(A) Less than \$81,000

(B) \$81,000 but less than \$84,000

(C) \$84,000 but less than \$87,000

(D) \$87,000 but less than \$90,000

(E) \$90,000 or more

[Data for Question 24]{.underline} (3 points)

Plan effective date: 1/1/2003.

Normal retirement age: 62.

Normal retirement benefit: 4% of final three-year average compensation
for each year of service.

Actuarial cost method: Unit credit.

Selected valuation assumptions:

Valuation interest rate 7% per year

Salary increase 0% per year

Data for sole participant as of 1/1/2003:

Date of birth 1/1/1954

Date of hire 1/1/2001

2003 valuation compensation \$190,000

2002 compensation 180,000

2001 compensation 170,000

Selected annuity values:

> ${\overset{¨}{a}}_{\text{62}}^{\left( \text{12} \right)}$ = 9.25

### [Question 24]{.underline}

In what range is the minimum required contribution for 2003 as of
12/31/2003?

# Less than \$33,800

(A) \$33,800 but less than \$34,800

(B) \$34,800 but less than \$35,800

(C) \$35,800 but less than \$36,800

(D) \$36,800 or more

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

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

Actuarial cost method: Aggregate.

Selected actuarial assumptions:

Valuation interest rate 7% per year

Salary increase 4% per year

Credit balance in funding standard account as of 12/31/2002: \$0.

Actuarial value of plan assets as of 1/1/2003: \$190,000.

Market value of plan assets as of 1/1/2003: \$185,000.

Current liability (including expected increase for the year due to
benefits accruing during the plan year) adjusted to 12/31/2003:
\$175,000.

Data for sole plan participant as of 1/1/2003:

> Age 50
>
> Service 10
>
> 2002 compensation \$400,000

Selected annuity value:

${\overset{¨}{a}}_{\text{65}}^{\left( \text{12} \right)}$ = 10.2

Compensation limit under IRC §401(a)(17) for 2003: \$200,000.

[Question 25]{.underline}

In what range is the minimum required contribution for 2003 as of
12/31/2003?

\(A\) Less than \$10,500

\(B\) \$10,500 but less than \$12,500

\(C\) \$12,500 but less than \$14,500

\(D\) \$14,500 but less than \$16,500

\(E\) \$16,500 or more

[Data for Question 26]{.underline} (4 points)

Plan effective date: 1/1/1998.

Actuarial cost method: Frozen initial liability.

Valuation interest rate: 7% per year.

Initial accrued liability: \$1,000,000.

Credit balance in funding standard account as of 12/31/2001: \$5,000.

Normal cost for 2002 as of 1/1/2002: \$125,000.

Contribution for 2002 paid on 4/15/2002: \$210,000.

Normal cost for 2003 as of 1/1/2003: \$140,000.

The minimum required quarterly contribution due 4/15/2003 was paid on
that date.

[Question 26]{.underline}

In what range is the minimum amount needed to satisfy the quarterly
contribution requirement due 7/15/2003?

(A) Less than \$40,300

(B) \$40,300 but less than \$44,300

(C) \$44,300 but less than \$48,300

(D) \$48,300 but less than \$52,300

\(E\) \$52,300 or more

[Data for Question 27]{.underline} (3 points)

Effective date: 1/1/1999.

Normal retirement benefit:

Before 2003 \$42 per month for each year of service

After 2002 \$47 per month for each year of service before 2003

> plus \$50 per month for each year of service after 2002

Actuarial cost method: Unit credit.

Valuation interest rate: 7% per year.

There have been no gains or losses.

Credit balance in funding standard account as of 12/31/2002: \$0.

Data for sole participant:

Date of birth 1/1/1952

Date of hire 1/1/1975

Selected annuity values:
${\overset{¨}{a}}_{\text{65}}^{\left( \text{12} \right)}$ = 10.00.

[Question 27]{.underline}

In what range is the increase in the minimum contribution for 2003
payable 1/1/2003 due to the plan amendment?

(A) Less than \$750

(B) \$750 but less than \$900

(C) \$900 but less than \$1,050

(D) \$1,050 but less than \$1,200

(E) \$1,200 or more

[Data for Question 28]{.underline} (5 points)

## Type of plan: Multiemployer plan.

Plan effective date: 1/1/2000.

Actuarial cost method: Unit credit.

Valuation interest rate:

Before 2003 7.5% per year

After 2002 7% per year

Amortization charges/(credits) for all amortization bases in the 2002
funding standard account:

+------------------------------------------+-------------+-------------+
| [Type of base]{.underline}               | Effective   | A           |
|                                          |             | mortization |
|                                          | [date]{     |             |
|                                          | .underline} | payment at  |
|                                          |             |             |
|                                          |             | [1/1/2002]{ |
|                                          |             | .underline} |
+------------------------------------------+-------------+-------------+
| ## Initial accrued liability             | ## 1/1/2000 | ## \$10,000 |
+------------------------------------------+-------------+-------------+
| Increase due to plan amendment           | 1/1/2001    | 30,000      |
+------------------------------------------+-------------+-------------+
| ## Increa                                | ## 1/1/2002 | ## 100,000  |
| se due to change in mortality assumption |             |             |
+------------------------------------------+-------------+-------------+
| Actuarial (gain)/loss                    | 1/1/2002    | (50,000)    |
+------------------------------------------+-------------+-------------+

There were no gains or losses during 2002.

Change in accrued liability as of 1/1/2003 due to change in interest
rate: \$101,000.

Change in normal cost as of 1/1/2003 due to change in interest rate:
\$20,000.

# 

# 

# 

# 

# 

# 

# Question 28

In what range is the change in the minimum required contribution for
2003 as of 1/1/2003 due to the change in the interest rate?

\(A\) Less than \$22,000

\(B\) \$22,000 but less than \$25,000

\(C\) \$25,000 but less than \$28,000

\(D\) \$28,000 but less than \$31,000

\(E\) \$31,000 or more

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

Normal retirement benefit: \$20 per month times years of service.

Early retirement eligibility: 62.

Early retirement benefit: Unreduced accrued benefit.

Actuarial cost method: Aggregate.

Selected actuarial assumptions:

Valuation interest rate 7% per year

Retirement age

Before 2003 65

After 2002 64

Credit balance in funding standard account as of 12/31/2002: \$0.

Actuarial (market) value of assets as of 1/1/2003: \$10,000.

Data for sole participant:

Date of birth 1/1/1948

Date of hire 1/1/1978

Selected annuity values:

${\overset{¨}{a}}_{\text{64}}^{\left( \text{12} \right)}$ = 8.35
${\overset{¨}{a}}_{\text{65}}^{\left( \text{12} \right)}$ = 8.14

# Question 29

In what range is the increase in the normal cost for 2003 as of 1/1/2003
due to the change in the assumed retirement age?

\(A\) Less than \$400

\(B\) \$400 but less than \$500

\(C\) \$500 but less than \$600

\(D\) \$600 but less than \$700

\(E\) \$700 or more

[Data for Question 30]{.underline} (5 points)

Plan effective date: 1/1/2002.

## 

## Actuarial cost method: Unit credit.

Valuation interest rate: 7% per year.

Selected valuation results as of: [1/1/2002]{.underline}
[1/1/2003]{.underline}

Normal cost \$75,000 \$75,000

Actuarial accrued liability 0 134,000

Actuarial (market) value of assets 0 50,000

Expected benefit payments 0 0

Current liability (including expected increase for the year due to
benefits accruing during the plan year) adjusted to 12/31/03: \$144,000.

Contribution for the 2002 plan year paid on 7/1/2002: \$80,000.

The entire contribution for the 2003 plan year was made on 12/31/2003 in
an amount equal to the deductible limit.

# Question 30

In what range is the deductible limit for the 2003 plan year?

\(A\) Less than \$91,000

\(B\) \$91,000 but less than \$93,000

\(C\) \$93,000 but less than \$95,000

\(D\) \$95,000 but less than \$97,000

\(E\) \$97,000 or more

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

Plan effective date: 1/1/1995.

Actuarial cost method: Entry age normal.

Valuation interest rate: 7% per year.

Initial accrued liability: \$200,000.

Credit balance in funding standard account as of 12/31/2002: \$10,000.

Selected valuation results as of 1/1/2003:

Normal cost \$65,000

Accrued liability 595,000

Actuarial (market) value of assets 525,000

The only experience gains or losses occurred during 1999.

[Question 31]{.underline}

In what range is the minimum required contribution for 2003 as of
12/31/2003?

(A) Less than \$15,000

(B) \$15,000 but less than \$20,000

(C) \$20,000 but less than \$25,000

(D) \$25,000 but less than \$30,000

\(E\) \$30,000 or more

[Data for Question 32]{.underline} (2 points)

Consider the following statements regarding liquidity requirements:

I.  For a given plan year, plans with funded current liability
    percentage greater than or equal to 100% for the preceding plan
    year, and plans that on every day of the preceding plan year had 100
    or fewer participants, are [not]{.underline} subject to the
    liquidity requirements.

II. Multiemployer plans are [not]{.underline} subject to the liquidity
    requirements.

III. The contribution required to satisfy the liquidity requirement is
     not more than the amount necessary to increase the funded current
     liability percentage at the end of the current year to 100%.

[Question 32]{.underline}

Which, if any, of the above statement(s) is(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 33]{.underline} (4 points)

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

Tax year: 7/1 -- 6/30.

Actuarial cost method: Entry age normal.

Valuation interest rate: 7% per year.

Credit balance in funding standard account as of 12/31/2001: \$5,000.

Selected valuation results:

[1/1/2002]{.underline} [1/1/2003]{.underline}

Normal cost \$50,000 \$52,000

IRC section 412 net amortization charges 10,000 13,000

IRC section 404 net amortization charges 15,000 17,500

Contribution for the 2002 plan year made on 6/30/2002: \$50,000.

Contribution for the 2002 plan year made on 12/31/2002 to be deducted in
tax year ending 6/30/2003: \$10,000.

IRC section 404 deductible limits are based upon the plan year beginning
within the

employer's tax year.

### [Question 33]{.underline}

In what range is the deductible limit for the tax year ending 6/30/2003?

(A) Less than \$73,000

(B) \$73,000 but less than \$74,300

(C) \$74,300 but less than \$75,600

(D) \$75,600 but less than \$76,900

(E) \$76,900 or more

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

Actuarial cost method: Unit credit.

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

Pre-retirement death benefit: None.

Valuation assumptions:

[Current]{.underline} [Proposed]{.underline}

Valuation interest rate 7% per year 8% per year

Mortality table UP84 GAM83

For all values of x in the respective mortality tables, q~x~^UP84^ \>
q~x~^GAM83^.

Participant data for sole participant at 1/1/2003:

Age 40

Service 10

Consider the following statements:

I.  The proposed change in the interest rate alone would decrease the
    normal cost.

II. The proposed change in the mortality table alone would increase the
    actuarial accrued liability.

III. The proposed change in the mortality table and interest rate would
     either decrease both the actuarial accrued liability and normal
     cost or increase both the actuarial accrued liability and normal
     cost.

[Question 34]{.underline}

Which, if any, of the above statement(s) is (are) true?

\(A\) I and II

\(B\) I and III

\(C\) II and III

\(D\) I, II, and III

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

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

Plan effective date: 1/1/1986.

Actuarial cost method: Entry age normal.

Valuation interest rate: 7% per year.

Current liability interest rate for 2003 (maximum allowable): 6.65% per
year.

Credit balance in funding standard account as of 12/31/2002: \$10,000.

Selected valuation results and other information as of 1/1/2003:

## Number of participants 200

Normal cost \$50,000

Actuarial (market) value of assets before 1/1/2003

method change 400,000

Actuarial value of assets after 1/1/2003 method change 420,000

Current liability 460,000

Expected increase in current liability due to benefits

accruing during the plan year 50,000

Unfunded old liability 0

Net amortization charges and credits

before 1/1/2003 method change 10,000

The "Gateway Percentage" is 82% for 2001 and 85% for 2002.

The "applicable percentage" of unfunded new liability is defined by the
following formula, where FCL% is the funded current liability
percentage:

30% - \[(FCL% - 60%, not less than 0%) x 0.4\]

## Maximum number of participants in the prior year: 140.

# Question 35

In what range is the change in the 2003 additional funding charge due to
the change in asset valuation method?

\(A\) Less than \$1,300

\(B\) \$1,300 but less than \$2,300

\(C\) \$2,300 but less than \$3,300

\(D\) \$3,300 but less than \$4,300

\(E\) \$4,300 or more

[Data for Question 36]{.underline} (4 points)

Plan effective date: 1/1/2003.

Normal retirement benefit formula: 5% of final salary times years of
service.

Pre-retirement death benefit: Lump sum payment of \$100,000.

Actuarial cost method: Individual aggregate (split funded).

Pre-retirement funding assumptions:

Valuation interest rate 7% per year

Salary increase 0% per year

Mortality decrements

  ------------------------- ---------------- ----------------------------
  [Age x]{.underline}                        [q~x~]{.underline}

  62                                         0.011

  63                                         0.012

  64                                         0.013
  ------------------------- ---------------- ----------------------------

Preretirement death is assumed to occur at the end of the year

There are no other pre-retirement decrements.

Data for sole participant:

Date of birth 1/1/1941

Date of hire 1/1/2002

2002 compensation \$60,000

Cost of insurance: \$50 per \$1,000 of insurance.

Cash value of insurance at age 65: \$75 per \$1,000 of insurance.

Selected annuity rate: ${\overset{¨}{a}}_{\text{65}}^{(\text{12})}$ =
9.24.

[Question 36]{.underline}

In what range is the minimum required contribution for 2003 as of
1/1/2003?

# Less than \$31,000

(A) \$31,000 but less than \$33,000

(B) \$33,000 but less than \$35,000

(C) \$35,000 but less than \$37,000

(D) \$37,000 or more

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

Plan effective date: 1/1/1998.

Valuation interest rate: 7% per year.

# Actuarial cost method: 

# 

# Before 2003 Entry age normal

# After 2002 Unit credit

Selected valuation results as of 1/1/2003:

+-----------------------------------+-------------------+-------------+
|                                   | [Entry age        | [Unit       |
|                                   | no                | credit]{    |
|                                   | rmal]{.underline} | .underline} |
+-----------------------------------+-------------------+-------------+
| ### Normal cost                   | ### \$ 35,000     | ##          |
|                                   |                   | # \$ 37,000 |
+-----------------------------------+-------------------+-------------+
| # Accrued liability               | # 980,000         | # 800,000   |
+-----------------------------------+-------------------+-------------+
| Actuarial (market) value of       | 790,000           | 790,000     |
| assets                            |                   |             |
+-----------------------------------+-------------------+-------------+

# 

Information on all minimum funding amortization bases as of 1/1/2003
other than the change in actuarial cost method:

+-----------------------------------+----------------+----------------+
|                                   | #### Effective | ##             |
|                                   |                | ## Outstanding |
|                                   | #### [dat      |                |
|                                   | e]{.underline} | #### bala      |
|                                   |                | nce of base on |
|                                   |                |                |
|                                   |                | #### [1/1/200  |
|                                   |                | 3]{.underline} |
+-----------------------------------+----------------+----------------+
| ### Initial unfunded liability    | ### 1/1/1998   | ### \$90,000   |
+-----------------------------------+----------------+----------------+
| # Assumption change               | # 1/1/1999     | # 30,000       |
+-----------------------------------+----------------+----------------+
| Plan change                       | 1/1/2001       | 50,000         |
+-----------------------------------+----------------+----------------+
| Actuarial loss                    | 1/1/2003       | 25,000         |
+-----------------------------------+----------------+----------------+

## Question 37

# In what range is the minimum required contribution for 2003 as of 12/31/2003?

(A) Less than \$26,000

(B) \$26,000 but less than \$31,000

(C) \$31,000 but less than \$36,000

(D) \$36,000 but less than \$41,000

\(E\) \$41,000 or more

[Data for Question 38]{.underline} (5 points)

Plan effective date: 1/1/2002.

Normal retirement benefit:

####  Prior to 1/1/2003 5% of final compensation per year of service up to 10 years

####  After 12/31/2002 7% of final compensation per year of service up to 10 years

Actuarial cost method: Entry age normal.

#### Valuation interest rate: 7% per year.

Selected valuation results based on the benefit formula in effect on
12/31/2002:

+----------------------------------+-----------------+----------------+
| ######                           | ###### [1/1/20  | #              |
|                                  | 02]{.underline} | ##### [1/1/200 |
|                                  |                 | 3]{.underline} |
+----------------------------------+-----------------+----------------+
| ###### Accrued liability         | ###             | ####           |
|                                  | ### \$2,500,000 | ## \$3,300,000 |
+----------------------------------+-----------------+----------------+
| ###### Normal cost               | ###### 340,800  | ###### 364,000 |
+----------------------------------+-----------------+----------------+

Contribution for 2002: \$700,000 paid on 7/1/2002.

#### Actual investment earnings during 2002: \$45,000.

Benefit payments during 2002: \$0.

There are no inactive participants in the valuation as of either
valuation date.

##### Question 38

In what range is the minimum required contribution for 2003 as of
12/31/2003?

# Less than \$600,000

(A) \$600,000 but less than \$650,000

(B) \$650,000 but less than \$700,000

(C) \$700,000 but less than \$750,000

\(E\) \$750,000 or more

[Data for Question 39]{.underline} (2 points)

Valuation interest rate: 7% per year.

Selected valuation results as of 1/1/2003 prior to any 2002
contributions:

Market value of assets \$28,500,000

Actuarial value of assets 30,500,000

Current liability 41,200,000

The "Gateway Percentage" as of 1/1/2001 and 1/1/2002 was 90%.

[Question 39]{.underline}

In what range is the minimum contribution for 2002 payable 9/15/2003 to
avoid an additional funding charge for 2003?

(A) Less than \$4,000,000

(B) \$4,000,000 but less than \$6,000,000

(C) \$6,000,000 but less than \$8,000,000

(D) \$8,000,000 but less than \$10,000,000

\(E\) \$10,000,000 or more

[Data for Question 40]{.underline} (4 points)

Actuarial cost method: Individual level premium.

Valuation assumptions:

Valuation interest rate 7% per year

Compensation increases None

Credit balance in funding standard account as of 12/31/2002: \$0.

Selected valuation results as of 1/1/2003:

## Normal cost \$6,500

Present value of future benefits 100,000

Actuarial (market) value of assets 12,000

Current liability, including expected increase for the year due to
benefits accruing during the plan year, adjusted to 12/31/2003:
\$18,000.

There were no experience gains or losses before 2002.

The entire contribution for the 2003 plan year was made on 12/31/2003.

Date of birth for sole participant: 1/1/1961.

[Question 40]{.underline}

In what range is the deductible limit for 2003?

(A) Less than \$6,000

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

(C) \$7,000 but less than \$8,000

(D) \$8,000 but less than \$9,000

\(E\) \$9,000 or more

[Data for Question 41]{.underline} (4 points)

Plan effective date: 1/1/2002.

Actuarial cost method: Unit credit.

### 

### Valuation interest rate: 7% per year.

Normal retirement benefit:

Effective 1/1/2002 \$60 per month per year of service.

Effective 1/1/2003 \$80 per month per year of service.

Selected valuation results:

[1/1/2002]{.underline} [1/1/2003]{.underline}

Benefit level \$60 \$80

Normal cost 100,000 116,000

Actuarial accrued liability 600,000 864,000

Contribution for 2002: \$170,000 paid on 4/1/2002.

There were no benefit payments in 2002.

There are no inactive participants in the valuation as of either
valuation date.

There were no investment gains or losses during 2002.

[Question 41]{.underline}

In what range is the minimum required contribution for 2003 as of
12/31/2003?

\(A\) Less than \$145,000

\(B\) \$145,000 but less than \$158,000

\(C\) \$158,000 but less than \$171,000

\(D\) \$171,000 but less than \$184,000

\(E\) \$184,000 or more

[Data for Question 42]{.underline} (5 points)

Plan effective date: 1/1/2002.

Normal retirement benefit: \$1,000 per year for each year of service.

Actuarial cost method: Attained age normal.

Valuation interest rate: 7% per year.

Data for sole participant:

Date of birth 1/1/1957

Date of hire 1/1/1992

The 2002 maximum deductible contribution was made on 1/1/2002.

Actuarial (market) value of assets as of 1/1/2003: \$11,000.

The full funding limitation does not apply.

Selected annuity value:
${\overset{¨}{a}}_{\text{65}}^{\left( \text{12} \right)}$= 9.24

$$

[Question 42]{.underline}

In what range is the minimum required contribution for 2003 as of
12/31/2003?

### Less than \$4,000

(A) \$4,000 but less than \$4,500

(B) \$4,500 but less than \$5,000

(C) \$5,000 but less than \$5,500

(D) \$5,500 or more

[Data for Question 43]{.underline} (3 points)

Plan effective date: 1/1/2000.

Actuarial cost method: Frozen initial liability.

Valuation interest rate:

Before 2003 8% per year

After 2002 7% per year

Initial accrued liability: \$220,000.

Selected valuation results as of 1/1/2003:

[8%]{.underline} [7%]{.underline}

Normal cost \$18,000 \$21,000

Entry age normal accrued liability 140,000 160,000

The contribution for each year before 2003 was paid on 12/31 of that
year in an amount equal to the deductible limit for that year.

[Question 43]{.underline}

In what range is the deductible limit for 2003?

\(A\) Less than \$54,700

(B) \$54,700 but less than \$55,700

(C) \$55,700 but less than \$56,700

(D) \$56,700 but less than \$57,700

(E) \$57,700 or more

[Data for Question 44]{.underline} (4 points)

Normal retirement benefit: \$40 per month per year of service.

Early retirement eligibility: Age 55.

Early retirement benefit: Unreduced accrued benefit payable at age 62.
Prior to age 62, accrued benefit, reduced by 6% for each year by which
the benefit commencement date precedes age 62.

Actuarial cost method: Unit credit.

Valuation interest rate: 7% per year.

Retirement assumption and selected annuity values:

  ---------------- -------------------------------- -----------------------------------------------------
  [Age             Probability of                   $${\overset{¨}{a}}_{x}^{\left( \text{12} \right)}$$
  x]{.underline}   [Retirement]{.underline}         

  55               0.50                             10.38

  62               0.75                             9.95

  65               1.00                             9.24
  ---------------- -------------------------------- -----------------------------------------------------

Retirements are assumed to occur at the beginning of the year.

Pre-retirement decrements: None.

Valuation data for sole participant:

Date of birth 1/1/1953

Date of hire 1/1/1985

[Question 44]{.underline}

In what range is the accrued liability as of 1/1/2003?

(A) Less than \$30,000

(B) \$30,000 but less than \$45,000

(C) \$45,000 but less than \$60,000

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

(E) \$75,000 or more

[Data for Question 45]{.underline} (3 points)

Type of plan: Multiemployer plan.

Plan effective date: 1/1/1995.

Actuarial cost method: Unit credit.

Valuation interest rate: 7% per year.

Selected valuation results as of 1/1/2003 and projected values as of
12/31/2003 for IRC Section 404 purposes:

[1/1/2003]{.underline}

Normal cost \$74,000

Accrued liability 200,000

[12/31/2003]{.underline}

Actuarial value of assets \$201,000

Market value of assets 206,000

Current liability including expected increase for the year

due to benefits accruing during the plan year 283,000

Expected benefit payments 0

The fresh start approach is used for limit adjustments under IRC section
404.

Minimum required contribution for 2003 as of 12/31/2003: \$71,000.

# Question 45

In what range is the maximum deductible contribution for 2003?

\(A\) Less than \$76,000

\(B\) \$76,000 but less than \$81,000

\(C\) \$81,000 but less than \$86,000

\(D\) \$86,000 but less than \$91,000

(E) \$91,000 or more

**November 2003 EA-2 (Segment A)**

**Answer Key**

  ----------------- ----------------- ----------------- -----------------
  **Question No.**  **Answer**        **Question No.**  **Answer**

  1                 B                 31                C

  2                 A                 32                D

  3                 A                 33                B

  4                 B                 34                D

  5                 B                 35                D

  6                 E                 36                C

  7                 E                 37                C

  8                 D                 38                D

  9                 E                 39                A

  10                D                 40                E

  11                D                 41                A

  12                B                 42                B

  13                C                 43                D

  14                B                 44                B

  15                A                 45                C

  16                B                                   

  17                B                                   

  18                C                                   

  19                B                                   

  20                B                                   

  21                C                                   

  22                D                                   

  23                D                                   

  24                D                                   

  25                B                                   

  26                D                                   

  27                B                                   

  28                B                                   

  29                C                                   

  30                E                                   
  ----------------- ----------------- ----------------- -----------------