CGFO Pension Administration 5

Question 1

When a government reduces pension benefits for current employees, which legal doctrine often protects those benefits from reduction?

Accepted Answer

Contractual or property rights doctrine under state constitutions

Answer

Many state courts have held that accrued pension benefits constitute a contractual or vested property right that cannot be unilaterally reduced by the government employer.

Question 2

The 'open group' actuarial valuation method for a pension plan includes:

Accepted Answer

Current members plus an assumed stream of future new entrants

Answer

The open group method projects the plan's financial position including both current and expected future members, providing a long-term sustainability perspective.

Question 3

Which type of pension risk is defined as the possibility that actual investment returns will be lower than the assumed rate?

Accepted Answer

Investment risk

Answer

Investment risk is the possibility that portfolio returns fall short of actuarial assumptions, resulting in larger-than-expected unfunded liabilities and contribution increases.

Question 4

In a government defined benefit pension plan, 'final average salary' is most commonly calculated as:

Accepted Answer

The average of the highest 3 or 5 consecutive years of earnings

Answer

Most public pension plans define final average salary as the average of the three or five highest consecutive years, used as the benefit formula base.

Question 5

A government pension plan trustee discovers that the plan's investment consultant has an undisclosed financial relationship with a recommended fund manager. This primarily violates:

Accepted Answer

Fiduciary duty of loyalty and conflict-of-interest rules

Answer

Undisclosed conflicts of interest violate the fiduciary duty of loyalty, which requires that advisors and trustees act solely in the interest of plan participants.

(CGFO) Certified Government Finance Officer Practice Test

(CGFO) Certified Government Finance Officer Practice Test

CGFO Pension Administration 5