CPC CPC Actuarial Concepts & Funding Methods

Question 1

Which actuarial cost method spreads the present value of future benefits as a level percentage of projected future compensation?

Accepted Answer

Entry Age Normal

Answer

The Entry Age Normal method allocates pension costs as a level percentage of pay from the employee's entry age to expected retirement.

Question 2

What is the minimum required contribution for a single-employer defined benefit plan under IRC Section 430?

Accepted Answer

The greater of the target normal cost or the shortfall amortization charge

Answer

IRC Section 430 requires contributions equal to the greater of the target normal cost (net of expected plan expenses) or the shortfall amortization charge.

Question 3

A plan's 'funding target' under PPA 2006 is measured using what interest rate?

Accepted Answer

24-month average segment rates based on corporate bond yields

Answer

PPA 2006 requires use of three 24-month average segment rates derived from investment-grade corporate bond yields to discount funding liabilities.

Question 4

Which of the following best describes the 'at-risk' liability used in defined benefit funding calculations?

Accepted Answer

Liability assuming maximum lump-sum elections and early retirement

Answer

At-risk liability assumes participants will elect the most expensive optional form of payment and retire at the earliest retirement age if that increases liability.

Question 5

A plan sponsor must obtain a waiver of minimum funding requirements from the IRS when?

Accepted Answer

Making the minimum required contribution would impose a substantial business hardship

Answer

IRC Section 412(c) allows a funding waiver when a plan sponsor demonstrates that meeting the minimum contribution requirement would cause substantial business hardship.

(CPC) Certified Pension Consultant Practice Test

(CPC) Certified Pension Consultant Practice Test

CPC CPC Actuarial Concepts & Funding Methods