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
A plan's 'target normal cost' under IRC Section 430 is used to determine the minimum required contribution when:
Answer: The plan is in surplus (funding target fully met)
When plan assets exceed the funding target (no shortfall), the minimum required contribution equals the target normal cost less any excess funding.
The 'yield curve' approach for computing pension liabilities under IRC Section 430 uses three segment rates that correspond approximately to bond maturities of:
Answer: 0–5 years, 5–20 years, and 20+ years
IRC 430 segment rates correspond to benefit payments expected within 5 years, between 5 and 20 years, and beyond 20 years.
Under the Aggregate cost method, there is no separately calculated actuarial accrued liability because:
Answer: The entire unfunded cost is spread over future salaries of active employees
The Aggregate method spreads the total present value of future benefits (less current assets) over the projected future payroll of active participants, producing no separate AAL.
In pension actuarial practice, 'decrement tables' are used to model:
Answer: The rates at which active participants leave employment through death, disability, withdrawal, and retirement
Decrement tables quantify the probability of each mode of exit (death, disability, turnover, retirement) from active employment at each age.
For a cash balance plan, the 'hypothetical account balance' is the actuarial present value of the benefit primarily because:
Answer: The nominal account balance equals the lump-sum benefit and approximates its present value directly
In a cash balance plan, the participant's hypothetical account balance is typically payable as a lump sum, so it directly represents the accrued benefit amount.
When a pension plan sponsor adopts a new actuarial cost method, which professional standard requires the actuary to disclose the effect of the change?
Answer: ASOP No. 4 — Measuring Pension Obligations
ASOP No. 4 specifically governs the measurement of pension obligations and requires disclosure when the actuarial cost method changes.
The 'expected return on plan assets' component in ASC 715 net periodic pension cost is intended to:
Answer: Offset pension cost by recognizing anticipated long-term asset growth
Expected return on assets reduces net periodic pension cost by recognizing the anticipated long-run return the plan expects to earn on its invested assets.