CPC Retirement Plan Design & Administration 3

Question 1

A defined benefit plan uses a unit credit formula. An employee has 20 years of service and an average final salary of $80,000. If the benefit rate is 1.5% per year, what is the annual accrued benefit?

Accepted Answer

$24,000

Answer

The accrued benefit = 1.5% × 20 years × $80,000 = $24,000 per year.

Question 2

Which plan feature triggers the PBGC's variable-rate premium in addition to the flat-rate per-participant premium?

Accepted Answer

Unfunded vested benefits in a single-employer DB plan

Answer

PBGC charges a variable-rate premium based on the amount of unfunded vested benefits in single-employer defined benefit plans.

Question 3

A plan sponsor wants to add a cash balance formula alongside an existing final average pay formula in the same plan. What is this arrangement called?

Accepted Answer

Hybrid plan

Answer

A plan combining a traditional defined benefit formula with a cash balance formula is a hybrid plan design.

Question 4

Under IRC §415(b), what is the maximum annual benefit payable from a defined benefit plan to a participant who retires at age 62 in 2024?

Accepted Answer

$275,000 actuarially reduced for early retirement

Answer

The §415(b) limit of $275,000 (2024) is reduced actuarially when benefits commence before age 62; at exactly 62, the full limit applies before any actuarial reduction.

Question 5

Which nondiscrimination test specifically evaluates whether a plan provides benefits, rights, and features that do not discriminate in favor of highly compensated employees?

Accepted Answer

General test under IRC §401(a)(4)

Answer

IRC §401(a)(4) requires that contributions or benefits, rights, and features be nondiscriminatory, which is tested using the general test or safe harbor methods.

(CPC) Certified Pension Consultant Practice Test

(CPC) Certified Pension Consultant Practice Test

CPC Retirement Plan Design & Administration 3