Actuary Certification Pension Valuation 5

Question 1

A plan's 'target normal cost' under IRC Section 430 is used to determine the minimum required contribution when:

Accepted Answer

The plan is in surplus (funding target fully met)

Answer

When plan assets exceed the funding target (no shortfall), the minimum required contribution equals the target normal cost less any excess funding.

Question 2

The 'yield curve' approach for computing pension liabilities under IRC Section 430 uses three segment rates that correspond approximately to bond maturities of:

Accepted Answer

0–5 years, 5–20 years, and 20+ years

Answer

IRC 430 segment rates correspond to benefit payments expected within 5 years, between 5 and 20 years, and beyond 20 years.

Question 3

Under the Aggregate cost method, there is no separately calculated actuarial accrued liability because:

Accepted Answer

The entire unfunded cost is spread over future salaries of active employees

Answer

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.

Question 4

In pension actuarial practice, 'decrement tables' are used to model:

Accepted Answer

The rates at which active participants leave employment through death, disability, withdrawal, and retirement

Answer

Decrement tables quantify the probability of each mode of exit (death, disability, turnover, retirement) from active employment at each age.

Question 5

For a cash balance plan, the 'hypothetical account balance' is the actuarial present value of the benefit primarily because:

Accepted Answer

The nominal account balance equals the lump-sum benefit and approximates its present value directly

Answer

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.

Actuary Certification Practice Test

Actuary Certification Practice Test

Actuary Certification Pension Valuation 5