CPC CPC Actuarial Concepts & Funding Methods 3

Question 1

Which mortality table is currently mandated for determining minimum funding liabilities for single-employer defined benefit plans?

Accepted Answer

IRS-prescribed mortality tables updated periodically under IRC Section 430(h)(3)

Answer

IRC Section 430(h)(3) requires use of mortality tables prescribed by the IRS, which are updated periodically to reflect current mortality experience.

Question 2

What does 'experience gain' mean in the context of actuarial valuations?

Accepted Answer

Actual plan experience more favorable than actuarial assumptions

Answer

An actuarial experience gain occurs when actual demographic, economic, or investment experience is more favorable than the assumptions used in the prior valuation.

Question 3

A plan uses a 7% investment return assumption. If actual returns average 5% over 5 years, the resulting actuarial loss is reflected how?

Accepted Answer

Amortized over future years as part of actuarial gains/losses or immediately under certain methods

Answer

Actuarial losses from investment underperformance are typically recognized through the funding mechanism over future years, either via experience amortization or immediate recognition depending on the cost method.

Question 4

What is the 'target normal cost' used in minimum funding calculations under IRC Section 430?

Accepted Answer

The normal cost under the plan's actuarial cost method minus the expected plan expenses for the year

Answer

Target normal cost equals the plan's actuarial normal cost plus expected plan expenses, minus expected employee contributions for the plan year.

Question 5

Under the Frozen Initial Liability (FIL) actuarial cost method, how are actuarial gains and losses treated?

Accepted Answer

They adjust the normal cost for future years but do not create separate amortization bases

Answer

Under FIL, gains and losses are absorbed into future normal cost calculations rather than creating separate amortization layers.

(CPC) Certified Pension Consultant Practice Test

(CPC) Certified Pension Consultant Practice Test

CPC CPC Actuarial Concepts & Funding Methods 3