Actuary Certification Pension Valuation 2

Question 1

Under the Entry Age Normal (EAN) cost method, the normal cost represents which of the following?

Accepted Answer

The level percentage of pay needed from entry age to fund the projected benefit

Answer

EAN spreads the cost of projected benefits as a level percentage of pay from entry age to expected retirement.

Question 2

A pension plan's actuarial accrued liability (AAL) exceeds the plan assets by $5 million. This $5 million is called the:

Accepted Answer

Unfunded actuarial accrued liability (UAAL)

Answer

The UAAL is the excess of the AAL over the market or actuarial value of plan assets.

Question 3

Which mortality table is required under IRS regulations for minimum funding purposes for single-employer defined benefit plans after 2007?

Accepted Answer

Mortality tables prescribed under IRC Section 430

Answer

IRC Section 430 requires use of mortality tables prescribed by the IRS, updated periodically to reflect current mortality experience.

Question 4

In pension valuation, the 'projected benefit obligation' (PBO) differs from the 'accumulated benefit obligation' (ABO) because the PBO:

Accepted Answer

Includes future salary increases while ABO does not

Answer

PBO incorporates projected future compensation increases in the benefit formula, whereas ABO uses only current compensation levels.

Question 5

Under ASOP No. 4, when must an actuary disclose a significant assumption change in a pension valuation report?

Accepted Answer

Whenever a change materially affects the results

Answer

ASOP No. 4 requires disclosure of any assumption change that could materially affect the measurement results.

Actuary Certification Practice Test