Pension Valuation Flashcards
7 cards from real Actuary Certification practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Pension Valuation flashcards as text
Under the Entry Age Normal (EAN) cost method, the normal cost represents which of the following?
Answer: The level percentage of pay needed from entry age to fund the projected benefit
EAN spreads the cost of projected benefits as a level percentage of pay from entry age to expected retirement.
A pension plan's actuarial accrued liability (AAL) exceeds the plan assets by $5 million. This $5 million is called the:
Answer: Unfunded actuarial accrued liability (UAAL)
The UAAL is the excess of the AAL over the market or actuarial value of plan assets.
Which mortality table is required under IRS regulations for minimum funding purposes for single-employer defined benefit plans after 2007?
Answer: Mortality tables prescribed under IRC Section 430
IRC Section 430 requires use of mortality tables prescribed by the IRS, updated periodically to reflect current mortality experience.
In pension valuation, the 'projected benefit obligation' (PBO) differs from the 'accumulated benefit obligation' (ABO) because the PBO:
Answer: Includes future salary increases while ABO does not
PBO incorporates projected future compensation increases in the benefit formula, whereas ABO uses only current compensation levels.
Under ASOP No. 4, when must an actuary disclose a significant assumption change in a pension valuation report?
Answer: Whenever a change materially affects the results
ASOP No. 4 requires disclosure of any assumption change that could materially affect the measurement results.
The asset smoothing method in pension valuation is primarily used to:
Answer: Reduce year-to-year volatility in contribution requirements
Asset smoothing spreads investment gains and losses over multiple years to stabilize employer contribution requirements.
A plan uses the Unit Credit cost method. An employee earns one benefit unit per year of service. This year's normal cost equals:
Answer: The present value of the one unit earned during the current year only
Under Unit Credit, the normal cost is the present value of the single benefit unit attributed to the current year of service.