SOCIETY OF ACTUARIES

AMERICAN SOCIETY OF PENSION ACTUARIES

JOINT BOARD FOR THE ENROLLMENT OF ACTUARIES

# ENROLLED ACTUARIES PENSION EXAMINATION, SEGMENT B

**MAY 2003 EA-2, SEGMENT B, EXAMINATION**

**E2B-10-03 Printed in U.S.A.**

Data for Question 1 (1 point)

Single-employer pension plan participants: 200

Total employees in the controlled group: 200

Quarterly contribution requirement for 2003 plan year: \$ 25,000

Credit balance as of 12/31/2002: \$ 0

Consider the following statement:

If the pension plan sponsor does not make a required quarterly
contribution for the 2003 plan year, the sponsor must file a PBGC Form
10 within 30 days after the required due date of the contribution.

Question 1

Is the above statement true or false?

(A) True

(B) False

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

                                      

                                      
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Data for Question 2 (1 point)

Consider the following statement:

A Qualified Social Security Supplement is a protected benefit under IRC
section 411(d)(6).

Question 2

Is the above statement true or false?

(A) True

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(C) False

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Data for Question 3 (1 point)

A plan distributes a mandatory lump sum payment to 100% vested
participant Smith on termination of employment. Smith is subsequently
rehired and resumes plan participation.

Consider the following statement:

The plan must allow Smith the option to buy back his past service
benefit.

Question 3

Is the above statement true or false?

(A) True

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(D) False

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Data for Question 4 (1 point)

The normal retirement benefit payable annually to Smith at age 62 as of
December 31, 2002 is a \$160,000 straight life annuity.

Consider the following statement:

If Smith defers receipt until he is age 63, the benefit of \$160,000
cannot be actuarially increased for late retirement.

Question 4

Is the above statement true or false?

(A) True

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(E) False

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Data for Question 5 (1 point)

Consider the following statement:

For limitation years beginning after December 31, 2001, a multiemployer
plan is not combined or aggregated with any single employer plan for
purposes of applying the IRC section 415(b)(1)(B) compensation limit for
the single employer plan.

Question 5

Is the above statement true or false?

(A) True

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(F) False

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Data for Question 6 (1 point)

Participant Smith received a partial in-service distribution of \$10,000
in 2000 at normal retirement age. Smith did not separate from service
and is still employed at the end of 2003.

Consider the following statement:

Smith's distribution of \$10,000 is not included in the present value of
accrued benefits of Smith for purposes of determining if the plan is
top-heavy for 2003.

Question 6

Is the above statement true or false?

(A) True

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(G) False

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Data for Question 7 (1 point)

Consider the following statement:

If no key employees are included in a collectively-bargained plan, then
the collectively-bargained plan is not part of the required aggregation
group for top-heavy purposes.

Question 7

Is the above statement true or false?

(A) True

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(H) False

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Data for Question 8 (1 point)

Consider the following statement:

Withdrawal liability must be determined using the actuarial assumptions
for funding the plan in the plan year prior to the plan year in which
the withdrawal occurs.

Question 8

Is the above statement true or false?

(A) True

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(I) False

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Data for Question 9 (1 point)

A plan exchanges property with a party-in-interest. The trustee was not
aware that the person with whom the exchange was made was a
party-in-interest.

Consider the following statement:

Because the fiduciary had no knowledge that the transaction involved a
party-in-interest, it is not considered a prohibited transaction.

Question 9

Is the above statement true or false?

(A) True

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(J) False

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Data for Question 10 (1 point)

Consider the following statement:

The plan instrument may designate named fiduciaries or may specify a
procedure for naming fiduciaries.

Question 10

Is the above statement true or false?

(A) True

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(K) False

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Data for Question 11 (1 point)

An enrolled actuary discovers that her signed Schedule B of Form 5500,
which should have been filed, was not filed.

Consider the following statement:

The enrolled actuary must provide written notification of the non-filing
to the appropriate government agency where it should have been filed.

Question 11

Is the above statement true or false?

(A) True

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(L) False

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Data for Question 12 (1 point)

Consider the following statement:

Upon partial termination of a pension plan, the non-vested benefits must
be vested to the extent funded for all participants employed immediately
prior to the partial termination.

Question 12

Is the above statement true or false?

\(A\) True

(B) False

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Data for Question 13 (4 points)

Company X sponsors Plans A, B, and C. Company X's fiscal year is the
calendar year.

Current liability values shown below are based on the yield on 30-year
Treasuries for the last month of the plan year.

Results as of the last days of various plan years are as follows:

+-----------------------+-----------------------+-----------------------+
|                       | Values as of          |                       |
+-----------------------+-----------------------+-----------------------+
| ## Plan A             | [12                   | [12                   |
|                       | /31/2001]{.underline} | /31/2002]{.underline} |
+-----------------------+-----------------------+-----------------------+
| Vested Current        | \$960,000,000         | \$980,000,000         |
| Liability             |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Total Current         | 965,000,000           | 985,000,000           |
| Liability             |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Market Value of       | 900,000,000           | 955,000,000           |
| Assets                |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Actuarial Value of    | 905,000,000           | 935,000,000           |
| Assets                |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Credit Balance        | 10,000,000            | 10,000,000            |
+-----------------------+-----------------------+-----------------------+

+-----------------------+-----------------------+-----------------------+
|                       | Values as of          |                       |
+-----------------------+-----------------------+-----------------------+
| ## Plan B             | [01                   | [01                   |
|                       | /31/2002]{.underline} | /31/2003]{.underline} |
+-----------------------+-----------------------+-----------------------+
| Vested Current        | \$100,000,000         | \$120,000,000         |
| Liability             |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Total Current         | 105,000,000           | 125,000,000           |
| Liability             |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Market Value of       | 80,000,000            | 85,000,000            |
| Assets                |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Actuarial Value of    | 70,000,000            | 84,000,000            |
| Assets                |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Credit Balance        | 0                     | 0                     |
+-----------------------+-----------------------+-----------------------+

+-----------------------+-----------------------+-----------------------+
|                       | Values as of          |                       |
+-----------------------+-----------------------+-----------------------+
| ## Plan C             | [12                   | [12                   |
|                       | /31/2001]{.underline} | /31/2002]{.underline} |
+-----------------------+-----------------------+-----------------------+
| Vested Current        | \$200,000,000         | \$220,000,000         |
| Liability             |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Total Current         | 220,000,000           | 242,000,000           |
| Liability             |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Market Value of       | 215,000,000           | 230,000,000           |
| Assets                |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Actuarial Value of    | 250,000,000           | 275,000,000           |
| Assets                |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Credit Balance        | 0                     | 0                     |
+-----------------------+-----------------------+-----------------------+

Question 13

In what range is the minimum amount of unfunded liability used to
determine if the company has exceeded the \$50,000,000 reporting
threshold for fiscal year 2002 reported in 2003 under ERISA section
4010?

(A) Less than \$40,000,000

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(M) \$40,000,000 but less than \$50,000,000

(N) \$50,000,000 but less than \$60,000,000

(O) \$60,000,000 but less than \$70,000,000

(P) \$70,000,000 or more

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Data for Question 14 (4 points)

Pension plan accrued benefit: (0.7% times final average pay up to
Covered Compensation\
plus\
X% times final average pay over Covered Compensation)\
times the lesser of service or 40

Early retirement age: Age 62

Early retirement benefit: Accrued benefit payable immediately

Profit sharing allocation formula: 5% of pay up to 75% of the Social
Security Taxable Wage Base

plus\
6% of pay over 75% of the Social Security Taxable Wage Base

All employees are covered by both pension and profit sharing plans.

All participants are age 21 or older. The plans satisfy the IRC section
401() "Safe Harbor" requirements.

Question 14

In what range is the maximum value of X?

(A) Less than 1.040%

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(Q) 1.040% but less than 1.070%

(R) 1.070% but less than 1.100%

(S) 1.100% but less than 1.130%

(T) 1.130% or more

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Data for Question 15 (3 points)

A plan covers collectively bargained ("union") and non-collectively
bargained ("non-union") employees.

The following are the employees meeting the minimum age and service
conditions of the plan:

> Highly compensated non-union employees 50
>
> Non-highly compensated non-union employees 300
>
> Non-highly compensated union employees 500

The following identifies the normal accrual rates and most valuable
accrual rates for those employees participating in the plan:

Normal accrual rate 1.20% 1.10% 1.20% 1.30%

Most valuable accrual rate 2.20% 2.20% 2.10% 2.30%

Non-union HCEs 10 5 10 10

Non-union NHCEs 40 50 20 20

Union NHCEs 20 20 30 20

Question 15

In what range is the ratio percentage for the rate group with a normal
accrual rate of 1.20% and a most valuable accrual rate of 2.20%?

(A) Less than 30%

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(U) 30% but less than 45%

(V) 45% but less than 60%

(W) 60% but less than 75%

(X) 75% or more

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Data for Question 16 (4 points)

A company sponsors two defined benefit plans: Plan A and Plan B

Plan A eligibility: No age or service requirement

Plan B eligibility: Age 21 and 1 year of service

No employee is in more than one plan.

Otherwise excludable employees are not tested separately.

  --------------------------------------------- ---------------- ----------------
  Data for all employees:                       [Plan            [Plan
                                                A]{.underline}   B]{.underline}

  [Highly Compensated Employees]{.underline}                     

  At least age 21 and 1 year of service         40               10

  Under age 21 or less than 1 year of service   4                1

  [Non-Highly Compensated                                        
  Employees]{.underline}                                         

  At least age 21 and 1 year of service         100              235

  Under age 21 or less than 1 year of service   20               30
  --------------------------------------------- ---------------- ----------------

Consider the following statements regarding non-discrimination testing:

I.  If the plans are tested separately, the testing group for Plan B is
    composed of 385 non-excludable employees.

II. If the plans are permissively aggregated for testing purposes, the
    non-highly compensated employee concentration percentage is at least
    87%.

III. If the plans are permissively aggregated for testing purposes, the
     testing group is composed of less than 425 employees.

Question 16

Which, if any, of these statements are true?

(A) I and II only

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(Y) I and III only

(Z) II and III only

(A) I, II, and III

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

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Data for Question 17 (4 points)

Plan A is a defined benefit plan covering two highly compensated
employees.

Plan B is a profit sharing plan covering Smith, a non-highly compensated
employee.

There are no other employees.

Plan A retirement benefit: 5.0% of compensation for each year of service

Plan A actuarial equivalence: 8.0% interest\
Pre-retirement mortality: None\
Post-retirement mortality: Applicable mortality table

Discrimination testing assumptions:

> Testing Age Age 65
>
> Testing assumptions Plan A actuarial equivalence
>
> Testing compensation Current year compensation
>
> Testing method Benefits basis, annual accrual
>
> Permitted disparity Not imputed
>
> Testing date December 31, 2003
>
> Grouping None

Data for all employees:

[HCE 1]{.underline} [HCE 2]{.underline} [Smith]{.underline}

> Date of birth 12/31/1954 12/31/1944 12/31/1964
>
> Compensation for all years \$200,000 \$150,000 \$50,000

Life annuity factor at age 65 using 8.0% interest and applicable
mortality table: 9.35

Question 17

In what range is the lowest contribution rate that Plan B must provide
to Smith in order for the plans to pass the 2003 general
nondiscrimination test on an aggregated basis?

(A) Less than 4.75%

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(C) 4.75% but less than 5.50%

(D) 5.50% but less than 6.25%

(E) 6.25% but less than 7.00%

(F) 7.00% or more

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Data for Question 18 (2 points)

A company considers implementing two defined benefit plans: Plan A and
Plan B.

## Plan A proposed benefit formula: 1.25% of 3-year final average compensation times service

Plan B proposed benefit formula: 1.00% of 3-year final average
compensation times service

## 

All other provisions of the two plans would be identical.

Consider the following data for all employees in the controlled group:

Highly Non-Highly

Compensated Compensated

[Employees]{.underline} [Employees]{.underline}

Proposed employees benefiting under Plan A 35 0

Proposed employees benefiting under Plan B 0 70

Question 18

In what range is the minimum number of non-highly compensated employees
that need to benefit under Plan A in order to satisfy the requirements
of IRC section 401(a)(26)?

(A) None

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(G) 1 but less than 6

(H) 6 but less than 11

(I) 11 but less than 16

(J) 16 or more

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Data for Question 19 (4 points)

Company A sponsors a pension plan and a profit sharing plan. Both plans
use the top-paid group election.

Pension plan eligibility: Non-collectively bargained employees

Pension plan participation: One year of service

All employees are over age 21.

The following table identifies all employees:

+---------------------------------+---+--------------+---+--------------+
|                                 |   | Non-         |   | Collectively |
|                                 |   | Collectively |   | Bargained    |
|                                 |   | Bargained    |   |              |
+---------------------------------+---+--------------+---+--------------+
| > Under 6 months of service     |   | 30           |   | 0            |
+---------------------------------+---+--------------+---+--------------+
| > 6 months, but less than 1     |   | 10           |   | 0            |
| > year service                  |   |              |   |              |
+---------------------------------+---+--------------+---+--------------+
| > 1 year or more of service     |   | 160          |   | 20           |
+---------------------------------+---+--------------+---+--------------+

Data for selected employees:

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

2002 total compensation \$98,000 \$92,000 \$96,000 \$94,000

2002 401(k) deferral 11,000 4,000 3,000 1,000

Ranking by pay (from highest) 35th 41st 37th 39th

5% owner in 2002 N N N N

5% owner in 2003 N N N Y

Participates in pension plan Y N Y Y

Question 19

How many of Smith, Jones, Brown and Green are not HCEs in 2003?

(A) None

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(K) 1

(L) 2

(M) 3

(N) 4

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Data for Question 20 (2 points)

Consider the following benefits:

I. Ancillary life insurance protection

II\. A single sum benefit payable at separation from service

III\. A joint and 75% survivor life annuity wherein the plan also offers
joint and 50% survivor and joint and 100% survivor life annuity options.

Question 20

Which, if any, of the above benefits may be eliminated by amendment
without violating IRC section 411(d)(6)?

(A) I and II

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(O) I and III

(P) II and III

(Q) I, II, and III

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

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Data for Question 21 (3 points)

Optional form of payment: Lump sum

Lump sum actuarial equivalence:

Prior to December 31, 2002: The applicable mortality table is defined
under Revenue Ruling 95-6 and the applicable interest rate is determined
using the October interest rate of the prior plan year.

> Beginning December 31, 2002: The applicable mortality table is defined
> under Revenue Ruling 2001-62 and the applicable interest rate is
> determined using the September interest rate of the prior plan year.

Data for participant Smith:

Date of birth: 1/1/1938

Date of hire: 1/1/1990

Date of retirement: 1/1/2003

Accrued benefit on 1/1/2003: \$1,000 per month

The applicable interest rate for September 2002 is 5.08% and the
applicable interest rate for October 2002 is 4.76%.

Selected annuity factors:

Mortality Table Mortality Table

[under Revenue Ruling 95-6]{.underline} [under Revenue Ruling
2001-62]{.underline}

[4.76%]{.underline} [5.08%]{.underline} [4.76%]{.underline}
[5.08%]{.underline}

Age 65 11.77 11.46 12.04 11.71

Question 21

In what range is the lump sum payment to Smith on January 1, 2003?

(A) Less than \$137,000

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(S) \$137,000 but less than \$139,000

(T) \$139,000 but less than \$141,000

(U) \$141,000 but less than \$143,000

(V) \$143,000 or more

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Data for Question 22 (3 points)

Plan year prior to July 1, 2000: Calendar year

Plan year after June 30, 2000: July 1 to June 30

Vesting service: One year for each vesting computation period in which
an employee age 18 or over earns at least 1,000 hours of service

Vesting computation period: 12-month period beginning on the first day
of the plan year

Data for participant Smith:

Birth Date: 1/1/1981

[12 months ending]{.underline} [Hours]{.underline} [12 months
ending]{.underline} [Hours]{.underline}

December 31, 1997 1,000 June 30, 1997 1,000

December 31, 1998 1,000 June 30, 1998 1,000

December 31, 1999 900 June 30, 1999 1,000

December 31, 2000 1,000 June 30, 2000 1,000

December 31, 2001 900 June 30, 2001 1,000

December 31, 2002 900 June 30, 2002 1,000

December 31, 2003 900 June 30, 2003 1,000

June 30, 2004 1,000

Question 22

In what range is the number of years of vesting service Smith has earned
at the end of the plan year ending in 2003?

(A) Less than 3

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(W) 3

(X) 4

(Y) 5

(Z) 6 or more

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Data for Question 23 (3 points)

Plan year: 10/1 through 9/30

Lump sum benefit: IRC §417(e) applicable interest rate and applicable
mortality table

Lookback period: Four months

Stability period: One calendar year

Data for participant Smith:

> Date of birth 2/1/1938
>
> Date of termination 7/1/2002
>
> Date of payment 2/1/2003
>
> Accrued benefit \$1,000 per month

Average 30-year Treasury rate and related annuity factors by month:

  --------------- -- ------- -- ----------------------- -- --------------- -- ------- -- -----------------------
                     Rate       ![](media/image1.wmf)                         Rate       ![](media/image2.wmf)

  April, 2001        5.65%      11.176                     April, 2002        5.68%      11.148

  May, 2001          5.78%      11.059                     May, 2002          5.65%      11.176

  June, 2001         5.67%      11.158                     June, 2002         5.52%      11.295

  July, 2001         5.61%      11.212                     July, 2002         5.39%      11.416

  August, 2001       5.48%      11.332                     August, 2002       5.08%      11.714

  September, 2001    5.48%      11.332                     September, 2002    4.76%      12.038

  October, 2001      5.32%      11.482                     October, 2002      4.93%      11.864

  November, 2001     5.12%      11.675                     November, 2002     4.96%      11.834

  December, 2001     5.48%      11.332                     December, 2002     4.92%      11.874

  January, 2002      5.45%      11.360                                                   

  February, 2002     5.40%      11.407                                                   

  March, 2002        5.71%      11.121                                                   
  --------------- -- ------- -- ----------------------- -- --------------- -- ------- -- -----------------------

Question 23

In what range is Smith's lump sum on 2/1/2003?

(A) Less than \$135,000

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(A) \$135,000 but less than \$138,000

(B) \$138,000 but less than \$141,000

(C) \$141,000 but less than \$144,000

(D) \$144,000 or more

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

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Data for Question 24 (5 points)

Plan effective date: January 1, 1980

Normal retirement benefit: 100% of highest 3-year average compensation

Date of entry: Age 21 and 1 year of service

Early retirement eligibility: Age 55

Early retirement benefit: Normal retirement benefit reduced 3% per year
from age 65 to age 62, 6% per year from age 62 to age 55

Lump sum benefit: Present value of immediate benefit

Pre-retirement death benefit: Present value of accrued benefit

Data for participant Smith: Date of birth 1/1/1948

Date of employment 1/1/1995

Date of retirement 1/1/2003

Highest 3-year average compensation \$170,000

Plan actuarial equivalence: 1983 Group Annuity Mortality table; 5%
interest

Applicable interest rate: 5.68%

Selected immediate annuity factors ![](media/image3.wmf):

+--------+---+--------------+---+-----------------+---+------------------+
| Age    |   | 5.00%        |   | 5.00%           |   | 5.68%            |
|        |   |              |   |                 |   |                  |
|        |   | 1983 GAM     |   | Applicable      |   | Applicable       |
|        |   |              |   | mortality       |   | mortality        |
+--------+---+--------------+---+-----------------+---+------------------+
| 55     |   | 13.63        |   | 14.35           |   | 13.39            |
+--------+---+--------------+---+-----------------+---+------------------+
| 62     |   | 11.64        |   | 12.46           |   | 11.74            |
+--------+---+--------------+---+-----------------+---+------------------+
| 65     |   | 10.69        |   | 11.53           |   | 10.92            |
+--------+---+--------------+---+-----------------+---+------------------+

Question 24

In what range is the lump sum benefit payable to Smith as of 1/1/2003?

(A) Less than \$820,000

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(E) \$820,000 but less than \$900,000

(F) \$900,000 but less than \$980,000

(G) \$980,000 but less than \$1,060,000

(H) \$1,060,000 or more

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

                                      

                                      
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Data for Question 25 (3 points)

Plan interest rate for actuarial equivalence: 6%

Plan mortality table for actuarial equivalence: Applicable mortality

Benefits are forfeited on the pre-retirement death of a participant.

Data for participant Smith:

Age at retirement 55

Service at retirement 10 years

Form of benefit Life annuity

Selected actuarial factors:

  --------------------------- ----------------------- -- ----------------------- -- ----------------------- -- ----------------------- -- -----------------------
                              ![](media/image4.wmf)      ![](media/image5.wmf)      ![](media/image6.wmf)      ![](media/image7.wmf)      ![](media/image8.wmf)

  Applicable mortality, 5%    0.5775                     0.8408                     14.57                      12.68                      11.79
  interest                                                                                                                                

  Applicable mortality, 6%    0.5253                     0.8172                     13.15                      11.61                      10.87
  interest                                                                                                                                
  --------------------------- ----------------------- -- ----------------------- -- ----------------------- -- ----------------------- -- -----------------------

Question 25

In what range is the age-adjusted dollar limit under IRC section 415(b)
in 2003 for the benefits payable to Smith?

(A) Less than \$74,000

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(I) \$74,000 but less than \$83,000

(J) \$83,000 but less than \$92,000

(K) \$92,000 but less than \$101,000

(L) \$101,000 or more

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

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

Data for Question 26 (2 points)

Normal retirement benefit: \$300 per month per year of service

Early retirement eligibility: Age 60 and 10 years of service

Early retirement reduction: None

Data for participant Smith:

Date of birth 1/1/1941

Date of hire 1/1/1993

Date of retirement 1/1/2003

Annual

[Year]{.underline} [Compensation]{.underline}

1993. \$15,000

1994. 16,000

1995. 17,000

1996. 18,000

1997. 19,000

1998. 25,000

1999. 23,000

2000. 22,000

2001. 22,000

2002. 22,000

[Question 26]{.underline}

In what range is the annual early retirement benefit payable to Smith at
age 62?

(A) Less than \$18,000

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(M) \$18,000 but less than \$23,000

(N) \$23,000 but less than \$28,000

(O) \$28,000 but less than \$33,000

(P) \$33,000 or more

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

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

Data for Question 27 (4 points)

Plan effective date: January 1, 1980

Participation: One year of service

Accrued benefit: 10% times average pay times service

Early retirement eligibility: Age 60 with 5 years of service

Early retirement benefit: Accrued benefit reduced 6½% per year prior to
age 65

Joint and 50% survivor benefit: 95% of the benefit payable in the normal
form

There is a complete forfeiture of benefits on a pre-retirement death.

Data for participant Smith:

Date of birth 1/1/1943

Date of hire 1/1/1993

Date of retirement 1/1/2003

Pay in all years \$200,000

Payment option chosen Joint and 50% survivor

Spouse date of birth 1/1/1943

Actuarial factors at 5% interest and applicable mortality for
participant Smith and his spouse:

[Age 60]{.underline} [Age 62]{.underline} [Age 65]{.underline}

Single life annuity 13.251 12.680 11.794

Joint and 50% survivor annuity 14.231 13.700 12.859

![](media/image9.wmf) 0.753 0.841 1.000

Question 27

In what range is Smith's annual retirement benefit commencing 1/1/2003?

(A) Less than \$115,000

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(Q) \$115,000 but less than \$119,000

(R) \$119,000 but less than \$123,000

(S) \$123,000 but less than \$127,000

(T) \$127,000 or more

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

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

Data for Question 28 (4 points)

Plan effective date: 1/1/2002

Valuation date: 1/1

Normal retirement age: Age 65

Benefit formula: 1% of three-year average compensation for each year of
participation

Top-heavy minimum benefit: 2% of five-year average compensation for each
year of participation the plan is top-heavy. Top-heavy minimums are for
non-key employees only.

Top-heavy determination assumptions: 5% pre-retirement interest\
No pre-retirement mortality\
Annuity factor at age 65 equals 10.0

Active participant data as of 12/31/2002:

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

Date of birth 1/1/1948 1/1/1955

Date of hire 1/1/2000 1/1/1995

Compensation for all years \$100,000 \$84,000

Key employee Yes No

Smith and Jones are the only participants in the plan.

Question 28

What is the top-heavy percentage for the 2003 plan year?

(A) Less than 20%

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(U) 20% but less than 40%

(V) 40% but less than 60%

(W) 60% but less than 80%

(X) 80% or more

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

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

Data for Question 29 (4 points)

Employer A sponsors both a defined benefit and a profit sharing plan.

Plan effective date (both plans): January 1, 1980

Data for all participants:

+----------+-------------+---------+---------+---+----------+----------+
|          |             | Present |         |   | Profit   |          |
|          |             | Values  |         |   | Sharing  |          |
|          |             | of      |         |   |          |          |
|          |             |         |         |   | Account  |          |
|          |             | Accrued |         |   | Balances |          |
|          |             | Benefit |         |   |          |          |
+----------+-------------+---------+---------+---+----------+----------+
| ### Par  | ### Status  | [       | [       |   | [12/31/2 | [12/31/2 |
| ticipant |             | 1/1/200 | 1/1/200 |   | 001]{.un | 002]{.un |
|          |             | 2]{.und | 3]{.und |   | derline} | derline} |
|          |             | erline} | erline} |   |          |          |
+----------+-------------+---------+---------+---+----------+----------+
| 1        | 50% owner   | \$      | \$      |   | \$45,000 | \$55,000 |
|          |             | 360,000 | 367,500 |   |          |          |
| 2        | 50% owner   |         |         |   | 37,000   | 35,000   |
|          |             | 100,000 | 102,000 |   |          |          |
| 3        | Non-key     |         |         |   | 10,000   | 45,000   |
|          |             | 100,000 | 115,000 |   |          |          |
| 4        | Non-key     |         |         |   | 5,000    | 30,000   |
|          |             | 50,000  | 65,000  |   |          |          |
| 5        | Non-key     |         |         |   | 5,000    | 20,000   |
|          |             | 40,000  | 50,000  |   |          |          |
+----------+-------------+---------+---------+---+----------+----------+

Participant 2 terminates employment in 2001 and is credited with no
hours of service after termination of employment.

All other participants are employed, earning at least 1,000 hours of
service per year.

Participant 2 has not taken a distribution of benefits from either plan.

In-service distribution to Participant 5 from the profit sharing plan in
1999: \$55,000.

Question 29

In what range is the top-heavy percentage for the year beginning
1/1/2003?

(A) Less than 54%

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(Y) 54% but less than 57%

(Z) 57% but less than 60%

(A) 60% but less than 63%

(B) 63% or more

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

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

Data for Question 30 (4 points)

Plan B is to be spun-off from Plan A on December 31, 2003.

Information as of December 31, 2003:

Plan A

[(Before Spin-off)]{.underline} [Plan B]{.underline}

Accrued liability including normal cost \$12,400,000 \$2,500,000

OBRA current liability including the expected\
increase for benefits accruing during the year 8,400,000 1,400,000

RPA current liability including the expected\
increase for benefits accruing during the year 7,900,000 1,200,000

ERISA 4044 termination liability 9,800,000 1,600,000

Market value of assets 11,000,000

Actuarial value of assets 11,350,000

The sponsors of Plan A and Plan B are part of the same controlled group.

The sponsors of Plan A and Plan B do not intend to terminate either
plan.

Question 30

In what range is the market value of assets to be spun-off to Plan B?

(A) Less than \$1,700,000

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(C) \$1,700,000 but less than \$1,800,000

(D) \$1,800,000 but less than \$1,900,000

(E) \$1,900,000 but less than \$2,000,000

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

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

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

Data for Question 31 (2 points)

Consider the following dates in connection with a merger or spin-off:

I.  The date on which the affected employees stop accruing benefits in
    one plan and begin coverage and benefit accruals under another plan

II. The date as of which the amount of assets to be eventually
    transferred is calculated

III. If the merger or spin-off agreement provides that interest is to
     accrue from a certain date to the date of actual transfer, the date
     from which such interest will accrue

Question 31

Which, if any, of the above dates are relevant to the determination of
the actual date of a merger or spin-off?

(A) I and II only

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(G) I and III only

(H) II and III only

(I) I, II, and III

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

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

                                      

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

Data for Question 32 (4 points)

Early retirement eligibility: Age 55 with 10 years of service

Early retirement benefit: Accrued benefit reduced 4% per year prior to
age 65

Pre-retirement death benefit: Minimum required death benefit, subsidized
by the plan

Joint and 50% survivor benefit: 95% of the benefit payable in the normal
form

Lump sum values include the value of early retirement subsidies.

  --------------- ----------------------------------- -------------- --------------
  Data for                                            Smith          Jones
  selected                                                           
  participants:                                                      

                  Date of birth                       1/1/1953       1/1/1943

                  Spouse's date of birth              1/1/1953       1/1/1943

                  Date of hire                        1/1/1992       1/1/1997

                  Date married                        7/1/1997       7/1/1973

                  Monthly accrued benefit             \$100          \$100

                  Date of death                       1/1/2003       1/1/2003
  --------------- ----------------------------------- -------------- --------------

Selected annuity factors using the applicable interest rate and the
applicable mortality table:

[Age 50]{.underline} [Age 60]{.underline} [Age 65]{.underline}

Immediate 14.04 12.08 10.87

Deferred to age 55 9.71 N/A N/A

Deferred to age 65 4.22 7.80 10.87

Question 32

In what range is the sum of the lump sum values of the minimum
survivors' benefits the plan must provide to Smith's and Jones'
surviving spouses?

(A) Less than \$7,000

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

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

(M) \$9,000 but less than \$10,000

(N) \$10,000 or more

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

                                      

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

Data for Question 33 (2 points)

Plan year for which the PBGC premium payment is due: 2003

Valuation interest rate: 8.0% per year

PBGC required interest rate as of 1/1/2003: 4.92% per year

Value of plan assets as of 12/31/2001, (including 2001 receivable
contribution): \$900,000

Value of plan assets as of 12/31/2002, (including 2002 receivable
contribution): \$905,000

Contribution for the 2001 plan year paid on 7/1/2002: \$180,000

Contribution for the 2002 plan year paid on 7/1/2003: \$16,000

The plan has 600 participants.

The 2002 Schedule B of Form 5500 and the 2003 PBGC Form Schedule A

are filed on 7/31/2003.

Question 33

In what range is the adjusted value of plan assets used for the
Alternative Calculation Method that will appear on the 2003 PBGC Form
Schedule A?

(A) Less than \$897,000

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(O) \$897,000 but less than \$901,000

(P) \$901,000 but less than \$905,000

(Q) \$905,000 but less than \$909,000

(R) \$909,000 or more

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

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

Data for Question 34 (5 points)

Plan effective date: 1/1/1980

Normal retirement age: 65

Early retirement eligibility: Age 60 with 25 years of service

Early retirement benefit: Accrued benefit payable immediately

Monthly benefit before 1/1/2000: \$50 times all years of service

Monthly benefit after 12/31/1999: \$55 times all years of service

Normal form of payment: Life annuity with 3% annual cost of living
increase

Plan termination date: 12/31/2003

Market value of assets as of 12/31/2003: \$300,000

Data for all participants as of 12/31/2003:

+--------------------------+--------------+-------------+-------------+
|                          | ### Smith    |             | ### Jones   |
+--------------------------+--------------+-------------+-------------+

Date of birth 1/1/1936 1/1/1939

Date of hire 1/1/1973 1/1/1974

Date of retirement 1/1/1998

Annuity elected Normal form

Selected annuity values as of 12/31/2003 using PBGC assumptions:

[Age 62]{.underline} [Age 65]{.underline} [Age 68]{.underline}

Life annuity 12.10 10.81 9.88

Life annuity with 3% cost of living increase 15.64 14.61 12.61

Question 34

In what range are the assets allocated to Smith under ERISA §4044?

(A) Less than \$138,000

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(S) \$138,000 but less than \$140,000

(T) \$140,000 but less than \$142,000

(U) \$142,000 but less than \$144,000

(V) \$144,000 or more

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

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

Data for Question 35 (2 points)

Consider the following statements with respect to pre-termination
restrictions on plan distributions:

I.  When determining whether or not an employee\'s distribution must be
    restricted, a plan must use the actuarial value of plan assets when
    determining whether or not the value of plan assets equals or
    exceeds 110% of current liabilities.

II. A plan may be amended to increase the number of restricted employees
    to more than 25 without violating the anti-cutback rule under IRC
    411(d)(6).

III. If a restricted employee's distribution is determined to be
     restricted, that employee must elect a form of annuity that pays
     benefits no greater than the restricted employee's life annuity.

Question 35

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

(A) None

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(W) I only

(X) II only

(Y) III only

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

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

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

Data for Question 36 (4 points)

Type of plan: Multiemployer

History of employer contribution base units:

  ----------------------- ----------------------- -----------------------
                          Employer A              Contribution

  [Year]{.underline}      [Hours]{.underline}     [Rate]{.underline}

  1989                    100,000                 \$2.50

  1990                    120,000                 2.50

  1991                    270,000                 2.50

  1992                    190,000                 2.75

  1993                    250,000                 2.75

  1994                    250,000                 2.75

  1995                    220,000                 2.75

  1996                    260,000                 2.75

  1997                    80,000                  3.00

  1998                    85,000                  3.00

  1999                    73,000                  3.00

  2000                    42,000                  3.00

  2001                    47,000                  3.00

  2002                    55,000                  3.25

  2003                    60,000                  3.25
  ----------------------- ----------------------- -----------------------

There have been no withdrawals from the plan prior to Employer A's
withdrawal.

Question 36

In what range is Employer A's initial annual partial withdrawal
liability payment after Employer A's partial withdrawal due to a 70%
decline in contribution base units?

(A) Less than \$500,000

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(A) \$500,000 but less than \$520,000

(B) \$520,000 but less than \$540,000

(C) \$540,000 but less than \$560,000

(D) \$560,000 or more

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

                                      

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

Data for Question 37 (3 points)

Type of plan: Multiemployer

Plan effective date: 1/1/1996

Withdrawal liability method: Rolling five (one pool) with mandatory de
minimis rule

Employer A joins the plan on 1/1/1997.

History of employer contributions:

[Year]{.underline} [Employer A]{.underline} [All Employers]{.underline}

1996 \$900,000

1997 \$140,000 980,000

1998 110,000 1,050,000

1999 125,000 1,300,000

2000 135,000 1,350,000

2001 125,000 1,400,000

2002 145,000 1,450,000

Unfunded present value of vested benefits as of 12/31/2001: \$2,030,000

Unfunded present value of vested benefits as of 12/31/2002: \$2,200,000

Employer A withdraws from the plan in 2002. There have been no other
withdrawals from the plan.

Question 37

In what range is Employer A's withdrawal liability?

(A) Less than \$187,500

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(E) \$187,500 but less than \$200,000

(F) \$200,000 but less than \$212,500

(G) \$212,500 but less than \$225,000

(H) \$225,000 or more

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

                                      

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

Data for Question 38 (2 points)

Prohibited transaction (not a participant loan) amount: \$100,000

Date of prohibited transaction: 7/1/2003

Date prohibited transaction corrected: 6/30/2004

Company tax year end: 12/31

Question 38

In what range is the total statutory excise tax arising from the
prohibited transaction?

(A) Less than \$12,500

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(I) \$12,500 but less than \$20,000

(J) \$20,000 but less than \$27,500

(K) \$27,500 but less than \$35,000

(L) \$35,000 or more

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

                                      

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

Data for Question 39 (2 points)

Consider the following statements about standards of performance for
enrolled actuaries:

I.  An enrolled actuary may be suspended for failure to file personal
    income tax returns.

II. An enrolled actuary shall not perform actuarial services if she has
    knowledge of a conflict of interest with respect to the performance
    of such actuarial services.

III. An enrolled actuary shall not perform actuarial services for any
     organization that she believes may use those services in a
     fraudulent manner.

Question 39

Which of the above statements are true?

(A) None

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(M) I and II only

(N) I and III only

(O) II and III only

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

**May 2003, EA-2B Exam**

**Answer Key**

+-----------------+-----------------+-----------------+-----------------+
| # Question      | # Answer        | # Question      | # Answer        |
+-----------------+-----------------+-----------------+-----------------+
| 1               | B               | 21              | E               |
+-----------------+-----------------+-----------------+-----------------+
| 2               | A               | 22              | C               |
+-----------------+-----------------+-----------------+-----------------+
| 3               | B               | 23              | E               |
+-----------------+-----------------+-----------------+-----------------+
| 4               | A               | 24              | A               |
+-----------------+-----------------+-----------------+-----------------+
| 5               | A               | 25              | C               |
+-----------------+-----------------+-----------------+-----------------+
| 6               | B               | 26              | C               |
+-----------------+-----------------+-----------------+-----------------+
| 7               | A               | 27              | C               |
+-----------------+-----------------+-----------------+-----------------+
| 8               | B               | 28              | C               |
+-----------------+-----------------+-----------------+-----------------+
| 9               | B               | 29              | B               |
+-----------------+-----------------+-----------------+-----------------+
| 10              | A               | 30              | D               |
+-----------------+-----------------+-----------------+-----------------+
| 11              | A               | 31              | D               |
+-----------------+-----------------+-----------------+-----------------+
| 12              | B               | 32              | B               |
+-----------------+-----------------+-----------------+-----------------+
| 13              | B               | 33              | E               |
+-----------------+-----------------+-----------------+-----------------+
| 14              | B               | 34              | E               |
+-----------------+-----------------+-----------------+-----------------+
| 15              | C               | 35              | C               |
+-----------------+-----------------+-----------------+-----------------+
| 16              | A               | 36              | B               |
+-----------------+-----------------+-----------------+-----------------+
| 17              | D               | 37              | C               |
+-----------------+-----------------+-----------------+-----------------+
| 18              | C               | 38              | D               |
+-----------------+-----------------+-----------------+-----------------+
| 19              | B               | 39              | C               |
+-----------------+-----------------+-----------------+-----------------+
| 20              | B               |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+