EA-2L FAQ: Frequently Asked Questions

Date Question
The syllabus has changed many times. Which of the older exam questions can we skip, since they no longer apply to the current exam?
Where can we download the new 2018 Joint Board announcement?
GENERAL
How should I study for EA-2L (before I get to the seminar)?
I've heard that the HP-12C is not a legal calculator for the EA exams. This can't be true???
Have you read the SOA article "Study Tips for Conquering FSA-Level Exams"?
Are there any good actuarial discussion forums for the Enrollment exams?
I don't travel much. Do you have any ideas or suggestions for me?
Where can I get things like Revenue Rulings, Revenue Procedures, etc. on the internet?
What are the Dx and Nx commutation functions in the exam problems?
I don't have much pension experience. What is the best way to learn more about pension plans?
Which of the books listed in the Joint Board Announcement are worth reading?
Why do some exam questions cover topics that are NOT listed in the Joint Board announcement?
Where can we download the DOL stuff that was added to the Joint Board announcement?

OLDER FAQ items
misc

Should the 200,000 value of the 401(a)(17) limit in 2002 be applied retroactively?
non-dis

I'm confused by the solutions for problem 23 on the 2008 exam and problem 30 on the 2008 exam. Why did you handle participants under the CBA differently?
non-dis Why do some problem solutions include 401(k) deferrals, and other solutions exclude them?
non-dis

Are we responsible for knowing how to test 401(k) and 401(m) for nondiscrimination?
non-dis

In the solution for some problems, we are cross testing some DB/DC plans on a BENEFITS basis. Why is the DB/DC gateway cross tested on CONTRIBUTIONS basis?
non-dis

How are QSLOBs handled for the ABPT and the ratio percentage tests under 410(b)?
non-dis

How do we use exam condition 29 on grouping of accrual rates?
non-dis

How do we use exam condition 30 on imputing permitted disparity?
401(l)

When should you think about the 401(l) simplified table?
401(l)

Aren't 401(l) Excess and Offset plans basically equivalent?
411
PBGC

I'm confused by the solutions for problem 34 on the 2004 exam and problem 44 on the 2009 exam. Why are the partially vested participants treated differently?

411

I'm confused by the solutions for problem 17 on the 2009 exam and problem 30 on the 2010 exam. Why did you calculate the participants' accrued benefits differently?

411

I'm confused by some solutions for exam problems on 411(d)(6) - 2002 number 18 and 2007 number 19. Can you explain why we handle these situations differently at work?
414(q)

When do you exclude collectively bargained employees under the top-paid group election in 414(q)?

415

Under IRC 415(b)(2)(B), there is no adjustment for the QJSA payment form. If a problem states the participant elected a J&S option, how do you know if it satisfies the QJSA definition in IRC 417?
417(e)

What is the difference between a Level Income option and a Social Security supplement?
PBGC

How do you calculate the phase-in for the PBGC guaranteed benefit when the benefits decrease in the five years prior to DOPT?
PBGC

if a plan is in At-Risk status, which funding target is used to determine the variable rate premium?
PBGC

Is it true that you should increase the PBGC maximum guaranteed benefit for ages above 65?
PBGC

2001 exam problem 33 seems to be defective.
PBGC

I've heard rumors of a PBGC plan termination study note. Where can I get it?
PBGC

I'm confused by the solution for problem 25 on the 2006 exam. What is the relationship between PC3, PC4 and the guaranteed benefit?
PBGC

Is there an error in example 1 of section 3 of the PBGC 4050 regulation?

Multi

I'm confused by the solution for problem 21 on the 2009 exam. Is the solution correct?

 

 

Which of the older exam questions can we skip, since they no longer apply to the current exam?

Dave Farber created a list at the Actuarial Outpost several years ago. There is a link to new version at the Actuarial Bookstore.

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Where can we download the new 2018 Joint Board announcement?

The syllabus for the 2018 EA-2L exam is in the most recent Joint Board announcement, which was updated January 22, 2018. You can download it from the Joint Board page on the IRS web site.  You can download it from the SOA web site.

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G E N E R A L   I T E M S

 

How should I study for EA-2L (before I get to the seminar)?

Some students don't prepare at all before attending the seminar. I don't think this is a good idea - there is simply too much to absorb at one time.

The EA-2F exam covers IRC Sections 404 and 412, plus cost methods. EA-2L is much harder to study for than EA-2F, since it includes everything ELSE. The syllabus is VERY large. It includes a few sections of the Internal Revenue Code, but ALL of ERISA. Due to its size, I think it is impossible for most students to have a good handle on the entire syllabus. In addition, you MUST have several years of pension experience to have enough knowledge to pass the exam.

The syllabus says IRC Section 401 includes everything except for subsections (f),(g),(i),(m),(n),(o). You are expected to know lots of "general knowledge" items that are in the code as well as ERISA.

Most of the seminar overheads focus on items that are calculation oriented, or that have been routinely tested on the exam. The "Obsolete Overheads" pages have been removed because they are no longer applicable. The "Obscure Overheads" pages are really obscure topics that have never been tested.

In my "Cover letter" with the study materials, I suggest that you read the code, and ALL the revenue rulings, revenue procedures, study notes, etc. Many students disagree, since the source material is often contradictory and confusing.

At the seminar, I will go through all the overheads in detail, and make additional comments on them. I will try to clear up all the contradictory and confusing stuff. Most of the seminar overheads focus on items that are calculation oriented, or that have been routinely tested on the exam. I will not spend time discussing items that are strictly memorization.

There are many areas in the regulations that are interpreted differently by practicing actuaries. Anything like this is unlikely to be tested on EA-2L. The reason is that the JBEA hates to give credit for more than one answer on the exam. They have to test simplified situations that are NOT subject to interpretation.

Some students wait until after the seminar to work the older exams. You need a good grasp of the material before you are ready for many of the exam questions. I add new practice problems each year, which are updated versions of some of the older exam problems.  

Each year, there are new areas that are tested on the exam. Don't worry - these are usually 2 or 3 point questions, and they aren't very hard. It is just random luck if you happen to be familiar with those topics.

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I've heard that the HP-12C is not a legal calculator for the EA exams. This can't be true - can it?

NO - that is not true.

In Item 9 of the Exam Rules and Regulations/Instructions to Candidates, it states that for EA exams, we can use any calculators. Then, it lists the calculator models in the website: http://www.soa.org/education/exam-req/exam-day-info/edu-calculators.aspx

From that same SOA web page:

"For the Enrolled Actuaries (EA) examinations, candidates may use any model that meets the specifications of the Joint Board for the Enrollment of Actuaries. Specifications are listed in the Joint Board’s Examination Program. "

Here is the pertinent text near the beginning of the Joint Board Announcement http://www.soa.org/files/edu/edu-jbe-booklet.pdf:

"Each candidate should bring an electronic calculator to the examination center for use in performing computations. Calculators should be able to compute financial functions such as amortization payments, present and future values, interest rates, time periods, logarithmic functions, and exponential functions. Calculators are subject to the following conditions:

The examination supervisor will ascertain that all calculators:

• have self-contained power sources,

• are noiseless, and

• do not have the capability to retain text.

A candidate generally will be allowed to take the examination using a questionable calculator. However, any questions raised as to the appropriateness of a calculator will be noted on the supervisor's report along with the candidate's number and the make and model number of the calculator; a determination will be made later as to whether the calculator was permissible."

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Have you heard about the "Study Tips for Conquering FSA-Level Exams"?

I had not - thanks to Viresh, who recommended this article to me.

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Are there any good actuarial discussion forums for the Enrollment exams?

I highly recommend the Actuarial Outpost

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I don't travel much. Do you have any ideas or suggestions for me?

I have compiled a list of "Travelers' Tips" here (last updated 09/15/09)

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Where can I get things like Revenue Rulings, Revenue Procedures, etc. on the internet?


ERISA Sections (from from Cornell online LII)
ERISA Sections (from Benefits Link)
Internal Revenue Code Sections (from Benefits Link)

IRS Regulations
IRS Revenue Rulings by Year
IRS Revenue Procedures by Year
IRS Forms and Instructions
IRS summary - EP Examination Guidelines

Joint Board Examination Program info
Links to Joint Board regulation revisions + info
Joint Board regulations - Code of Federal Regulations - Part 901

PBGC web site - Overview
PBGC Regulations
PBGC Technical Updates
PBGC 2010 Bluebook - EA Meeting
PBGC 2011 Bluebook - EA Meeting
PBGC 2012 Bluebook - EA Meeting

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What are the Dx and Nx commutation functions?

Commutation functions are shortcut formulas that allowed calculations to be done quickly by hand. Some exam problems between 2001 and 2006 gave you data for the interest rate, lx and px, and you simply do summations by hand. But you can only do 4-5 terms of the summation, because of the number of calculations.

Here are the definitions for the Dx and Nx commutation functions, and how they are used to calculate an annuity value:

Dx        =  vxlx
Dx+1     =  vx+1lx+1

Nx        = ∑Dx
            = vxlx + vx+1lx+1 + vx+2lx+2 + …

äx         = Nx / Dx
            = (vxlx + vx+1lx+1 + vx+2lx+2 + …) / (vxlx)
            = 1 + v1px + v22px + …

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I don't have much pension experience. What is the best way to learn more about pension plans?

If you are asking this question, you probably aren't ready to take this exam! During the seminar, it is impossible for me to give you the depth of pension knowledge that results from several years of pension experience.

The reason this exam is so difficult is that it requires a good understanding of pension plans in general. In addition, you must be able to read and interpret the Internal Revenue Code, as well as the regulations and Revenue Rulings.

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Which of the books listed in the Joint Board Announcement are worth reading?

Here are some comments about the books:

1 - Multi-employer Retirement Plans: Handbook for the 21st century by McGinn. I bought this book, but it seems to have too much stuff that is not on the EA-2L exam.

2 - Defined Benefit Answer Book, by Neff McGhie. This book has some good explanations to aid in understanding material on the EA-2L seminar. The book is expensive ($225), and it is not perfect, but you will probably find it helpful.

3-The ERISA Outline Book by Tripodi
Some students recommended this book on The Actuarial Outpost. I finally got a chance to see this in 2010, and it is simply HUGE. It is not "a book" - it is a series of books. It is actually more detailed than the Defined Benefit Answer Book. And it is quite expensive at $575 for the print only edition, and $525 for the online only version.

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Why do some exam questions cover topics that are NOT listed in the Joint Board announcement?

The trick is that the reading list in the Joint Board announcement is NOT "all inclusive." The syllabus is described on the first page, in VERY general terms. 

The suggested readings starts on the second page. And that says:
"This list is not meant to describe or modify the syllabus listed above."

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Where can we download the DOL stuff that was added to the Joint Board announcement?

Section 2510 regulations - DEFINITIONS
Section 2520 regulations - REPORTING AND DISCLOSURE
Section 2550 regulations - FIDUCIARY RESPONSIBILITY
Section 2560 regulations - RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT
Section 2570 regulations - PROCEDURAL REGULATIONS UNDER ERISA

Interpretive Bulletins

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MISCELLANEOUS

Should the 200,000 value of the 401(a)(17) limit in 2002 be applied retroactively?

This is one of those areas that appears to test your "general pension knowledge". I believe most plans apply the 401(a)(17) limit for 2002 of 200,000 retroactively to prior years.  

The source of the confusion goes back to OBRA 1993, as explained in the revised outline for Notice 2001-56 (on 04/21). Back then, the IRS reduced the 401(a)(17) limit, and they said it MUST be applied retroactively to prior years.

EGTRRA increased the 401(a)(17) limit, and the examples in IRS Notice 2001-56 said it may be retroactive, depending on the wording of the plan amendment.  Notice 2001-56 does NOT specify a default one way or the other! The best interpretation is that the 2002 401(a)(17) limit of 200,000 is retroactive for prior years, unless the plan amendment specifies otherwise.  

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NON-DISCRIMINATION

I'm confused by the solutions for problem 23 on the 2008 exam and problem 30 on the 2008 exam. Why did you handle participants under the CBA differently?

There is a key difference between the two problems - which is whether the plan covers the CBA employees.

2008 EXAM PROBLEM 23
In this problem, the plan DOES cover the CBA employees. That is why you can use the option under 401(a)(26) whether you treat the CBA employees as excludable.

2008 EXAM PROBLEM 31
In this problem, the plan does NOT cover the CBA employees. This means you must treat the CBA employees as excludable under 401(a)(26).

If you have the option, it is usually easier to pass 401(a)(26) if more employees are covered. In general, you would want to include the CBA employees.

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Why do some problem solutions include 401(k) deferrals, and other solutions exclude them?

The key is exactly what you are testing - 410(b) and 401(a)(4) have different rules. In general, the 401(k) plan must be disaggregated from any other plans for testing under 410(b).

This is due to the mandatory disaggregation rules under 410(b). The method of handling 401(k) deferrals is based on reading the description of disaggregation in 1.410(b)-7(c)(1). It describes how you would split a profit sharing plan into three separate plans: 401(k), 401(m), and everything else.

Of course, there is an exception. If the problem requires you to do calculations for the average benefits percentage test (ABPT), then you must include the 401(k) plan with all the other plans. This is based on the special rules for the ABPT testing group, at 1.410(b)-7(e).

If you are doing 401(a)(4) calculations, then you must disaggregate the 401(k) plan. The reason is that the 401(a)(4) regulation requires a 401(k) plan to pass the ADP test instead of the rate group test.

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Are we responsible for knowing how to test 401(k) and 401(m) for nondiscrimination?

You are responsible for knowing the 401(k) rules. In IRC 401(k), it describes the Average Deferral Percentage (ADP) test. There is an example of these calculations in nondiscrimination practice problem 4.

As described below, the EA-2L syllabus covers everything and anything having to do with pension plans. In the Joint Board announcement, it explicitly excludes IRC 401(m) from the EA-2L reading list. That leads me to believe that you are not responsible for knowing the 401(m) rules.

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In the solution for some problems, we are cross testing a set of DB/DC plans on a BENEFITS basis. Why is the DB/DC gateway cross tested on CONTRIBUTIONS basis?

This is a tricky concept. The problem DOES match the definition of the minimum allocation DB/DC cross-testing gateway shown on overhead pages 401(a)(4)-55 and 56. If you cross test both a DB and a DC plan on a benefits basis, then you must satisfy one of the four gateways.

The minimum allocation DB/DC gateway is defined based on the "aggregate normal allocation rate". That means you need to cross test the DB plan on a contributions basis in order to figure out whether or not you satisfy the gateway. In this problem, you can determine that the minimum allocation gateway requires a DB accrual of 100.65 for NHCE 3.

Once you do that, the actual non-discrimination testing is done by cross-testing the DB and DC plans on a benefits basis. The DC items are all converted into DB accrual rates, then combined with the DB plan NAR and MVAR. The resulting aggregate NAR and MVAR are used to do the ABPT and the 401(a)(4) rate group testing.

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How are QSLOBs handled for the ABPT and the ratio percentage tests under 410(b)?

Students always want to know the intricacies of QSLOBs. So far, there have been no detailed QSLOB questions on the exam.

First, here are some definitions:

QSLOBQualified Separate Line of Business

CBA:       Collective Bargaining Agreement

ABPT:      Average Benefit Percentage Test

NHCCP:  Non-Highly Covered Concentration Percentage

 ==========================================

A QSLOB is part of the mandatory disaggregation groups in 1.410(b)-7(c). A QSLOB is also one of the groups of excludable employees in 1.410(b)-6. It should be tested as a separate group, apart from all others.

When you are testing the QSLOB, it is handled in a similar way as a group of collectively bargained employees. Note that employees covered under a CBA are in the mandatory disaggregation groups in 1.410(b)-7(c). They are also one of the groups of excludable employees in 1.410(b)-6.

The general rule is that the non-excludables for the ABPT should be the same as those used for the ratio test and the NHCCP.

When testing the QSLOB, you will only use its employees to construct the non-excludables. You will have a different ABPT result, which will only include the employees of the QSLOB.

 ==========================================

One thing that is confusing is the definition of the ABPT testing group (for all of the employees NOT in the QSLOB) under 1.410(b)- 7(e). It says that you should permissively aggregate all plans that you can, ignoring certain parts of 1.410(b)-7(c) and 1.410(b)-7(d).

You are supposed to ignore the QSLOB rule in 1.410(b)-7(d)(4), which has to do with permissive aggregation when you have multiple QSLOBs. You don't ignore the QSLOB mandatory disaggregation rule in 1.410(b)-7(c).

The bottom line is that you will have a different ABPT result for the QSLOB when it is tested by itself. When you test all the other plans in the controlled group, you eliminate everyone in the QSLOB, and you have another ABPT result.

The general rule is STILL that the non-excludables for the ABPT should be the same as those used for the ratio test and the NHCCP.

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How do we use 2012 exam condition 29 on grouping of accrual rates?

29. For purposes of nondiscrimination testing under 401(a)(4), grouping of allocation rates or accrual rates has not been used unless there is specific reference to it.

Based on prior exam problems, it is safe to ignore grouping of accrual rates unless the problem makes a specific reference to it. The problems generally must give you some additional information to narrow down your choices for grouping of accrual rates.

The main problem with grouping of accrual rates is that it is quite subjective. You can start your accrual rate bands literally anywhere. Students often ask why I use the HCE rate as the midpoint of a range. This is an attempt to meet the requirement of §1.401(a)(4)-2(c)(2)(v)(A): " ... Allocation rates within a given range may not be grouped under this paragraph (c)(2)(v) if the allocation rates of HCEs within the range generally are significantly higher than the allocation rates of NHCEs in the range. ..."

I know of one problem where trying to grouping the accrual rates gave the wrong answer. In 2003 #15, my solution stated that I assumed that the data on accrual rates had ALREADY been grouped. If you don't make that assumption, and you use the grouping option, then you'll have columns one, three, and four in the rate group with NAR = 1.20% and MVAR = 2.20%. This is based on rate bands from 1.14% to 1.26% for the NAR, and from 1.87% to 2.53% for the MVAR.

This also gives the WRONG answer. I calculate the resulting ratio percentage to be 44.4%, which falls just below the correct answer range of C.

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How do we use 2012 exam condition 30 on imputing permitted disparity?

30. For purposes of coverage testing under IRC section 410(b), “snapshot” testing is not used and permitted disparity is not imputed.

Some students have pointed out that the condition specifically refers to Section 410(b), and wondered about testing under Section 401(a)(4).

Based on prior exam problems, it is safe to ignore permitted disparity unless the problem makes a specific reference to it. You normally can't impute permitted disparity without lots of additional information in the problem.

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401(l) Rules

When should you think about the 401(l) simplified table?

Some prior problems have told you to ignore the simplified table. Other problems told you "the plan uses the same percentage for all employees", which implies the plan was designed using the simplified table. 

If the problem doesn't tell you anything specific about the simplified table, I think you MUST check to see if it will give you a better result than the tables that vary the .75% by SSRA. 

In most prior exam problems, the simplified table tends to give you a lower final benefit. The 2003 exam had the first problem where use of the simplified table is required to produce the correct answer range.  

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Aren't 401(l) Excess and Offset plans basically equivalent?

You can get similar, but not identical results, for the 401(l) excess and offset plan designs.  

The main difference is the definition of the maximum offset allowance, which has additional limits that don't apply to the maximum excess allowance. There is also an extra adjustment for early retirement under offset plans.  

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411 Rules

I'm confused by the solutions for problem 34 on the 2004 exam and problem 44 on the 2009 exam. Why are the partially vested participants treated differently?

The difference between the two problems is that 2004 #34 has a partial plan termination, but 2009 #44 is an actual plan termination. The rules are fairly similar, since under IRC 411(d)(3) all employees "become vested to the extent funded".

2004 EXAM PROBLEM 34
bulletThe partial termination occurs at 01/01/2004
bulletIt affects ONLY the employees who terminated on 01/01/2004
bulletThe reason Smith is only 20% vested is that they terminated in 2003, so they were NOT part of the partial plan termination.

2009 EXAM PROBLEM 44
bulletThe actual plan termination occurs at 01/01/2009
bulletIt affects ALL employees
bulletSmith may be only 20% vested in certain IRS Districts, and 100% vested in other IRS Districts. They have not applied the rule in IRC 411(d)(3) consistently.

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I'm confused by the solutions for problem 17 on the 2009 exam and problem 30 on the 2010 exam. Why did you calculate the participants' accrued benefits differently?

There is a key difference between the two problems - which is the definition of the benefit formula.

2007 EXAM PROBLEM 19
This problem defines the benefit as 1% of each year's compensation. So you can simply add on each year's accrual to the 1,000 accrued benefit at 01/01/2002.

2010 EXAM PROBLEM 30
This problem defines the benefit as 1% of the final year's compensation. So you can NOT simply add on accruals to the 1,650 accrued benefit at 01/01/2007. You have to recalculate the accrued benefit each time the compensation changes.

This problem does not give you the 2006 compensation, but it appears to be 48,889 = [1650(12)]/[27(1.5%)]

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I'm confused by some solutions for exam problems on 411(d)(6) - 2002 number 18 and 2007 number 19. Can you explain why we handle these situations differently at work?

It sounds like you are working with bifurcated benefits in your plans. This is an approach where you split a participant's benefit into pieces, where different optional forms (or assumptions) apply to each piece.

What you are doing goes WAY beyond what you have to do under the law. You do NOT have to go through all those complications to satisfy the requirements of 411(d)(6).

When you amend a plan to change assumptions (or early retirement factors), you only have to "protect" the frozen accrued benefit at the effective date of the amendment. At each future exit age, you must compare that frozen benefit under the pre-amendment factors to the total benefit based on the new factors. The participant must get the better of the two results.

This usually only has any impact for a year or two - then the additional accruals outweigh the effect of the change in the factors.

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414(q) HCEs

When do you exclude collectively bargained employees under the top-paid group election in 414(q)?

The Internal Revenue Code implies that you can always exclude employees covered by a collective bargaining agreement (CBA). But the code is misleading.

The details of the handling of the Top-paid group election are in the 414(q) regulation. The exclusion does not apply unless both
bullet90 per cent or more of the employees are covered under a CBA, AND
bulletthe plan being tested only covers employees who are not covered under a CBA.

See 1.414(q)-1T Q&A-9 (b)(1)(iii)(A) and (B).

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415 Rules

Under IRC 415(b)(2)(B), there is no adjustment for the QJSA payment form. If a problem states the participant elected a J&S option, how do you know if it satisfies the QJSA definition in IRC 417?

Based on prior exam questions, you should simply assume that any J&S annuity form meets the definition of QJSA in IRC 417. The joint annuitant has to be the spouse, and the continuation is between 50% and 100%. 

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417(e)(3) Rules

What is the difference between a Level Income option and a Social Security supplement?  

I think of a social security supplement as something added to another benefit. You could have an early retirement benefit payable for life, plus a temporary social security supplement payable until age 62. The basic early retirement benefit is payable for life, and it is a non-decreasing annuity. It is NOT subject to 417(e).

A Level Income form of payment is a decreasing annuity that takes the social security payments into account. As a decreasing annuity, it IS subject to 417(e).

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PBGC

How do you calculate the phase-in for the PBGC guaranteed benefit when the benefits decrease in the five years prior to DOPT?

I don't believe that decreases are phased in at all. When you do the phase-in calculations, you are calculating the vested accrued benefit today, but reflecting prior sets of plan provisions.

My understanding is that the PC3 benefit is defined using the "lowest level of plan benefits in effect in the 5 years preceding DOPT". The guaranteed benefit then phases in the effect of any benefit increases in the 5 years preceding DOPT.

There is an example on page 72 of the PBGC Study Note. It says that you simply ignore the prior higher benefit level.

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If a plan is in At-Risk status, which funding target is used to determine the variable rate premium?

You should use the At-Risk funding target for the calculation of the UVB (and the VRP). It is a bit unclear in the PBGC regulations, due to some tricky wording.

You don't need to worry about the meaning of "At-Risk funding target" on the EA-2L exam. The reason is that the EA-2L exam does not have anything like EA-2F exam condition #43.

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Is it true that you should increase the PBGC maximum guaranteed benefit for ages above 65?

Yes, you should. 2005 was the first year the Joint Board announcement included factors for adjusting the MGB above age 65.

In prior years, there were NO published factors for adjusting the MGB above age 65. The PBGC study note has not been updated to reflect this change.

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2001 exam problem 33 seems to be defective. Doesn't the 5,000,000 liability for "Participants not Receiving Payments" already include the liability for the "Terminated Participants"?

This is simply a matter of interpretation. I just assumed they were giving us the numbers for the actives separately from the number for the terminated vesteds.

The problem was NOT defective, and it was not thrown out.  

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I've heard rumors of a PBGC plan termination study note. Where can I get it?

This study note is available for download from the SOA web site. You may want to download the Joint Board announcement from the SOA web site.

That PDF file has hyperlinks that allow you to download ALL the study notes as PDFs.

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What is the relationship between PC3, PC4 and the guaranteed benefit?

Many students have asked about the solution to problem 25 on the 2006 exam. There is a subtle difference between problems 25 and 39 on that exam.

"Why does 2006 exam problem 25 deduct PC3 from PC4? Any why do we ignore PC3 in 2006 exam problem 39?"

You have to read the problem carefully. The key is the final question asked in the problem.

2006 EXAM PROBLEM 25

This problem asks for the "benefit assigned to PC4".

The entire benefit through PC4 is defined as the guaranteed benefit under the 5 year phase-in rules. If there is any benefit in PC3, then the excess of the guaranteed benefit over the PC3 benefit is the amount of the benefit assigned to PC4.

This was the idea behind the example on PBGC MISC overhead page 24. Smith has a larger PC3 benefit that is larger than the guaranteed benefit. The reason is that the MGB limit applied to their guaranteed benefit. Smith's benefit assigned to PC4 is zero. Brown is the more typical case, where the PC3 benefit is less than their guaranteed benefit. The benefit assigned to PC4 is the excess of their guaranteed benefit over the PC3 benefit.

2006 EXAM PROBLEM 39

This problem asks for the "benefit ... allocated through PC4".

This is asking for the entire benefit from PC1 through PC4. In this problem, both participants had small benefits. All you had to do was to calculate the guaranteed benefit under the 5 year phase-in rules. Even if they had a benefit in PC3, their total benefit in PC3 and PC4 would equal the guaranteed benefit. The result would be like Brown on PBGC MISC overhead page 24.

If either participant had a benefit that would be capped by the MGB limit, then you would need to calculate the PC3 benefit. Then you could skip the calculation of the guaranteed benefit since it would be lower. The result would be like Smith on PBGC MISC overhead page 24 - the PC4 benefit would be zero.

2005 EXAM PROBLEM 30

This problem asks for the "sum of the guaranteed benefits" for both participants.

If the problem asks for the guaranteed benefit, then you can simply calculate that value. You don't need to worry about the amount of benefit in PC3. The opposite is also true. If the problem asks for the PC3 benefit, then you can simply calculate that value. You don't need to worry about the amount of guaranteed benefit.

Note that there can be a difference between the guaranteed benefit and the PC 4 benefit for a majority owner. The PC4 benefit is defined as the 5 year phase-in calculation for everyone.

For a majority owner, the guaranteed benefit is defined as the 5 year phase-in calculation, multiplied by a ratio based on the number of full years the original plan was in effect. If the plan was in effect for 10 full years, then the ratio is limited to 1 - otherwise the guaranteed benefit is reduced. See PBGC GB overhead page 13.

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Is there an error in example 1 section 3 of the PBGC 4050 regulation?

Many students have asked this question:

"I’m reading through example 1, case 3 under Appendix A in 4050. It says the plan provides that if PV < 3500 then they have to take a mandatory LS and that no other LS will be paid. Then it says for participant R:

PV = 4900 under plan assumptions,
PV = 3600 under missing participant LS assumptions, and
PV = 4950 under missing participant annuity assumptions.

Then it says the plan admin pays 4,950 under sec 4050.a3. I see why (a)(1) doesn’t apply (no mandatory LS), but why doesn’t (a)(2) apply? Why doesn’t he have to be paid 3,600 under the de minimis lump sum rule, which says that if the present value under missing participant LS assumptions is under 5,000 then the designated benefit is that amount?"

I have to agree - this example looks erroneous to me

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MULTIEMPLOYER

Is there an error in the solution for 2009 exam problem 21?

Many students have asked about this problem. There is a subtle difference between that question and similar problems on other exams.

If a Multiemployer withdrawal occurs in year XXXX, then you use the UVB at the end of the prior year (or XXXX-1) to calculate the withdrawal liability. 2009-21 is a bit of an atypical problem. It does not give the UVB, but instead gives the withdrawal liability, assuming withdrawal in 2005. So you don't need to do any additional calculations - just use the withdrawal liability as given.

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OTHER

Last modified: March 10, 2018