Term
| 1 Actuarial cost methods can be broadly classified into what two categories p263 |
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Definition
| 1 Actuarial cost methods can be broadly classified into accrued benefit and projected benefit p263 |
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Term
| 2a Define Normal Cost Supplemental Liability and Supplemental Cost |
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Definition
| 2a Normal cost = the amount of annual cost determine din accordance with a particular actuarial cost method p263 |
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Term
| 2b Define Supplemental Liability p263 |
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Definition
| 2b The Liability is caused by the fact that credit for past service is granted or part of the total benefits is imputed to years prior to the inception date of the plan p263 |
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Term
| 2c Define Supplemental Cost p263 |
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Definition
| 2c The supplemental cost is the portion of the annual cost that is applied toward the reduction of the plan's supplemental liability |
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Term
| 3 What is a past service liability ? p263 |
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Definition
| 3 Past service liability is one of many possible types of plan supplemental liabilities Past service liability arises when credit for past service is granted or part of the total benefits are imputed to a year prior to the inception of the plan p263 |
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Term
| 4 A cost method under which the actuarial costs are based directly upon benefits accrued to the date of cost determination such benefits being determined either by plan terms or by some assumed allocation of total prospective benefits to yrs of svc |
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Definition
| 4 Accrued Benefit cost method p264 |
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Term
| 5 What type of benefit formula is best adapted to the accrued benefit method of cost determination Explain ? P264 |
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Definition
| Method ltd to plans that provide a unit benefit type of formula based on career avg comp Ie a % of each yrs comp or a specified $ amount for each yr of credited svc A precisely determinable unit of benefit is assoc w/ each yr of a ppt credited svc |
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Term
| 6 Can the accrued benefit method only be use with plans using a unit benefit type of formula? P264 |
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Definition
| "Best adapt to plans that use a unit benefit type formula Accrued benefit cost method can be used when plans provide a composite benefit based on ppt tot pd of credited svc ie A plan which provides monthly benefit $1,000 at age 65 + 25 yrs svc" |
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Term
| 6 continued Can the accrued benefit method only be use with plans using a unit benefit type of formula? P264 |
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Definition
| 6 continued Or a plan may use a benefit formula based on final avg comp In these instance the accrued benefit method requires a portion of the prospective benefit be imputed to each yr of the credited svc |
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Term
| 7a Explain the steps in the calculation of the normal cost under the accrued benefit cost method p264-265 |
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Definition
| 7a The first step in calculation of the normal cost is to determine the present value of each participant's benefit credited during the plan year for which costs are being calculated p264-265 |
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Term
| 7a Continued Explain the steps in the calculation of the normal cost under the accrued benefit cost method p264-266 |
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Definition
| 7a continued The second and final step is to determine the normal cost for the plan as a whole by summing the separate normal costs for the benefit credited for each participants p264-265 |
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Term
| 7b Explain the steps in the calculation of the supplemental liability under the accrued benefit cost method p264-265 |
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Definition
| The supplemental liability at the inception of the plan under this method is simple the present value of the accrued past service benefits credited for each participant p264-265 |
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Term
| 8 How does a projected benefit cost method differ from an accrued benefit cost method? Projected benefit cost method differs from an accrued benefit cost method in 2 respects: p266 |
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Definition
| 8 First the normal cost accrual under a projected benefit cost method is related to the total prospective benefit credited by the retirement date rather than the benefit amt credited for a particular year specific per of service and-- |
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Term
| 8 continued How does a projected benefit cost method differ from an accrued benefit cost method? p266 |
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Definition
| 8 continued Second A projected benefit cost method is applied with the objective of generating a normal cost which is a level amount or percentage of earning for either the individual participants or to the participants as a group p266 |
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Term
| 9 Distinguish between the individual level an aggregate level cost methods p267-270 |
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Definition
| 9 Both these method are types of projected benefit cost methods Under the individual level cost method the normal cost accruals are determined separately for each employee as a preliminary step to the determination of total plan cost p267-270 |
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Term
| 9 Continued Distinguish between the individual level an aggregate level cost methods p267-270 |
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Definition
| "In contrast, under the aggregate level cost method, the normal cost accruals are calculated for the plan as a whole without associating a portion of these cost accruals with the projected benefits of specific individuals p267-270" |
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Term
| 10 Explain how the annual cost of a defined contribution plan is determined p271 |
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Definition
| 10 In these plans Er contribution commitment is fixed and is usually expressed as a specified % of the comp of covered ee To allow the er to est future costs or benefits projections require actuary assumptions + a specific actuarial cost method |
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Term
| 10 Continued Explain how the annual cost of a defined contribution plan is determined p271 |
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Definition
| In est ultimate costs under a DC Plan the actuary could use eith er the accrued benefit method or a projected benefit cost method depending on how benefits are defined |
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Term
| 10 Coninued again Explain how the annual cost of a defined contribution plan is determined p271 |
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Definition
| Under traditional dc plans the annual contribution on behalf of each employee is viewed as a single premium payment for a unit of deferred annuity to going upon attainment of normal retirement age p271 |
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Term
| 11a Continued Describe the amortization periods for single employer plans that are not under funded pg 272-273 |
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Definition
| "11a For plans in existence on 1-1,74 the max amortization period for supplemental liability is 40 yrs For single Er plans established after 1-1,74 the max amortization period is 30 yrs pg 272-273" |
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Term
| 11a Describe the amortization periods for single employer plans that are not under funded pg 272-274 |
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Definition
| "11a Cont Moreover , experience gains and loses for single Er plans must be amortized over a 5 yr period Changes in supplemental liabilities associated with changes in actuarial assumptions must be amortized over a period not longer than 10 yrs" |
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Term
| 11b Describe situations where variance from the standards mentioned in 11a will be permitted pg 272-273 |
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Definition
| 11b Amortization period may be extended by the IRS for up to ten years if the Er shows the extension would provide adequate protection for ppt and beneficiaries If there is substantial risk that without such extensions the plan would be terminated or |
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Term
| 11b Continued Describe situations where variance from the standards mentioned in 11a will be permitted pg 272-273 |
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Definition
| 11b Continued or greatly reduced or if employee benefits or compensation is at risk the I No more than three waivers in a 15 year window Amounts waived must be amortized over no more than 5 years |
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Term
| 12 What are the exemptions from the mandated minimum funding standards? Pg 273 |
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Definition
| 12 Exempted from mandated minimum funding standards include (a) Government and Church (b) Fully insured pension plans funded exclusively through individual or group permanent insurance contracts (c) excess plans More Details p273 |
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Term
| 13a Describe a funding standard account Pg273-274 |
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Definition
| "13a All pension plans subject to the minimum funding requirements must establish a ""funding standard account"" that provides a comparison between actual contributions and contributions required under the minimum funding requirements Pg273-274" |
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Term
| 13b Describe the annual charges in the funding standard account 1 -4 |
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Definition
| 13b The funding standard account is charged in each plan year for: 1 Normal Cost 2 The minimum amortization payment required for initial supplemental liabilities 3 Increase in plan liabilities 4 Experience losses Pg 273-274 |
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Term
| 13b Continued Describe the annual charges in the funding standard account 5-6 |
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Definition
| 13b Continued The funding standard account is charged in each plan yr for: 5 The net loss resulting from changes in actuarial assumptions 6 Waived contributions for each yr 7 Adjustment for interest in the preceding items to the end of the plan yr |
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Term
| 13c Describe the annual credits n the funding standard account 1-4 Pg 273-274 |
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Definition
| 13c The funding standard account is credited each year for 1 Employer contributions made for that year 2 The amortized portions of decreased in plan liabilities 3 Experience gains 4 The net gain resulting from changes in actuarial assumptions |
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Term
| 13c Continued Describe the annual credits n the funding standard account 5-6 Pg 273-274 |
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Definition
| 5 Amounts on any waived contributions 6 Adjustment for interest in the preceding items to the end of the plan year Pg 273-274 |
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Term
| 14a What is the impact of a positive balance at the end of the plan for the standard funding account? Pg273-274 |
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Definition
| 14a If the funding standard account has a positive balance at the end of the year such a balance will be credited with interest in future years and reduce the amount needed to meet future minimum funding requirements Pg273-274 |
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Term
| 14b What is the impact of a negative balance at the end of the plan for the standard funding account? Pg273-274 |
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Definition
| 14b If the funding standard account has a negative balance at the end of the year such a balance will be accrue interest in future years and increase the amount needed to meet future minimum funding requirements Pg273-274 |
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Term
| 15 Describe which plans were subject to the additional minimum funding requirements established by the Omnibus Budget Reconciliation Act of 1987 (OBRA 87) Pg 275 |
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Definition
| 15 The additional COBRA 87 minimum funding requirmts applied to plans covering more than 100 ppts and that are not at least 100% funded for curr liabilities In general the current liability was the plan's liability determined on a plan termination basis |
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Term
| 15 continued Describe which plans were subject to the additional minimum funding requirements established by the Omnibus Budget Reconciliation Act of 1987 (OBRA 87) Pg 275 |
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Definition
| 15 Continued Also the unfunded liability was calculated by subtracting the actuarial value of asses any credit balance in the funding standard account must first be subtracted from the actuarial value of assets Pg275 |
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Term
| 16a Describe how the unfunded old liability amount was determined for purposes of OBRA 87 See book Too long for cards Pg 275-276 |
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Definition
| 16a The unfunded old liability amount equaled an 18 yr amortization beg in 1989 of the unfunded current liability if any at the beg of the 1988 plan yr (unfunded old liability) based on the plan provisions in effect on 10-16-87 For complete Pg 275-276 |
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Term
| 17 What alternate minimum funding standard exist for plans that use the entry age normal method? Pg 276 Plans using the entry age normal funding method can elect compliance under the alternative minimum funding standard |
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Definition
| 17 Under this standard the minimum annual contribution to the pension plan is the lesser of the normal cost determined for the plan or the normal cost determined under the accrued benefit cost method plus---Pg 276 |
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Term
| 17 continued What alternate minimum funding standard exist for plans that use the entry age normal method? Pg 276 Plans using the entry age normal funding method can elect compliance under the alternative minimum funding standard |
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Definition
| 17 Continued plus the excess if any of the actuarial value of the accrued benefits over the fair market value for the plan assets Pg 276 |
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Term
| 18 An employer's contributions to a qualified plan are subject to specific deduction limitation under Section 404 of the Internal Revenue Code Are there any other requirements that must be satisfied for the contributions to be deductible? Pg 278-279 |
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Definition
| 18 It must satisfy the conditions of an ordinary an necessary business expense relating to trade or business expenses or 212 relating to expense for the production of income has rendered Pg 278-279 |
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Term
| 18 ConAn employer's contributions to a qualified plan are subject to specific deduction limitation under Section 404 of the Internal Revenue Code Are there any other requirements that must be satisfied for the contributions to be deductible? Pg 278-279 |
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Definition
| 18 cont Also a deduction will not be allowed for any portion of the contribution for any employee which together with other deductions allowed for compensation for such employee exceeds a reasonable allowance before services the employee actually |
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Term
| 19 list the rules used to determine the maximum amount an employer can contribute and take as a deduction t a qualified pension plan in any one taxable year Pg279 |
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Definition
| 19 Two provisions determine the maximum amount an employer can contribute to a qualified pension plan and take as a deduction in any one taxable year See book for details Pg 279 |
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Term
| 20 Describe the applicable penalties for overstatement of pension liabilities Pg 280 An excise tax will be imposed on an underpayment of taxes that results from an overstatement of pension liabilities |
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Definition
| 20 A 20% penalty tax is imposed on the underpayment of tax if the actuarial determination for pension liabilities is between 200% and 399% of the amount determined to be correct |
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Term
| 20 Cont Describe the applicable penalties for overstatement of pension liabilities Pg 280 An excise tax will be imposed on an underpayment of taxes that results from an overstatement of pension liabilities |
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Definition
| "20 Cont If the actuarial determination is 400% or more of the correct amount the penalty tax is increase to 40% If the tax benefit is $1,000 or less no excise tax will be imposed Pg 280" |
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Term
| 21 Explain any special deduction limits for combined plans Pg 280-281 |
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Definition
| 21 Lengthy explanation See book for details Pg280-281 |
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Term
| 22 Explain how IRC limits may influence the deduction of some employer contributions Pg281 |
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Definition
| 22 N Lengthy explanation See book for details Pg 281 |
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