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G E N E R A L   I T E M S

The syllabus is detailed in the JBEA announcement. You can download it from the SOA web site.

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. You should have a good understanding of the cost methods. You can learn these by reading the seminar overheads, and one of the books mentioned below.

You should have a good grasp of the basics of Internal Revenue Code sections 404, 430 and 431. If you read the seminar overheads before the seminar, that should be sufficient. Almost everything in the handouts is also on the overheads. I suggest you read the text of the regulations and Internal Revenue Code sections. Many students disagree, and just read my outlines.

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.

In general, the older exam problems on 404 and 412 are not very useful. PPA 2006 changed most of the rules for maximum deductible limits and minimum funding calculations. I add new practice problems each year to reflect law changes. These new problems are updated versions of some of the older exam problems.

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Know your weaknesses

1. Study your prior answer sheets carefully. What was the reason you did NOT pass the last time?
    
2. If you are weak in only a few areas, you should focus exclusively on them until you feel completely confident about that material. You should try to work every problem you can find on that topic. If you need more problems to work, consider ordering Dave Farber's EA-2F study manual, which includes over 200 Original Questions & Solutions for the EA-2F Exam.
    
3. If you appear to be weak in many areas, you may not be fast enough at working the problems. Assuming you know the material, the only cure for this is practice, practice and more practice.

Make a study schedule and stick to it

1. Some people try to get study time on a haphazard basis. For example, "maybe if tomorrow isn't too busy, I'll squeeze a few hours of study time in". In my experience, this doesn't cut it.
    
2. The only way to achieve a goal is to fully map out how many hours you need to study, and plan on getting a minimum number of hours every day, with a stated goal each week. When I was studying for exams, I often spent 8-16 hours studying over the weekend, just to meet my goals.

When all else fails, try SomeThing ComPletely DiffeRent

1. 1. You may have tried some of the above ideas, and you are still stymied by this exam. Whatever you have been doing has not worked for you, so you should try something different.
    
2. If you have tried studying in one location (at home, or at work), you may not have been as productive as possible. You should consider changing your study routine. Use a different location, and consider studying in the morning before work. You'll definitely learn and retain more by studying in the morning than if you study at night after a long day at work.
    
3. If you tend to get stressed out by the exam, simply do NOT study for the last day or two. I have done this myself, and it can work wonders. You are allowed to think about the exam, but you may actually do better by giving yourself a break at the end. I strongly recommend doing something physical to take your mind off the exam - play tennis, or golf, or go hiking, ride a bike, etc.

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

IRS Regulations at 11-28-2018
IRS Proposed Regulations
IRS Revenue Rulings
IRS Revenue Procedures
IRS Forms and Instructions
IRS summary - EP Examination Guidelines

Joint Board Examination Program

PBGC web site - Overview

PBGC web site - Overview
PBGC Regulations (page has link to electronic Code of Federal Regulations)
PBGC Technical Updates
PBGC 2010 Bluebook - EA Meeting
PBGC 2011 Bluebook - EA Meeting
PBGC 2012 Bluebook - EA Meeting
PBGC 2013 Bluebook - EA Meeting
PBGC 2014 Bluebook - EA Meeting
PBGC 2015 Bluebook - EA Meeting
PBGC 2016 Bluebook - EA Meeting
PBGC 2017 Bluebook - EA Meeting

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In the latest Joint Board announcement, there is a link to the SOA study note on commutation functions:
http://www.soa.org/files/pdf/edu-2009-fall-ea-sn-com.pdf

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

When PPA 2006 was passed, it introduced the use of three segment rates to do present value calculations. Several problems on the recent EA-2F exams have included commutation functions at multiple interest rates. Here are the definitions for the D_x and N_x commutation functions, and how they are used to calculate an annuity value:

D_x        =  v^xl_x
D_x+1     =  v^x+1l_x+1

N_x        = ∑D_x
            = v^xl_x + v^x+1l_x+1 + v^x+2l_x+2 + …

ä_x         = N_x / D_x
            = (v^xl_x + v^x+1l_x+1 + v^x+2l_x+2 + …) / (v^xl_x)
            = 1 + v¹p_x + v²₂p_x + …

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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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1-Pension Funding and Valuation by Aitken
This is similar to #4. It is an overview of cost methods, and it has a lot of old exam problems that are used as examples. Based on prior years' emails, some of the solutions are incorrect. Some students prefer this to #4, but I like Farrimond better.

2-Pension Mathematics for Actuaries by Anderson
I don't have a copy of this, although I looked at a students' copy. I did not like it as well as the other books.

3-The Fundamentals of Pension Mathematics by Berin
I have a REALLY old copy of this (1978). It is a very short overview of the cost methods. I did not like it as well as the other books.

4-Actuarial Cost Methods by Farrimond, Mayer, Farber & Matray
This is my favorite of the various books. Some students prefer this to #1.

Another book is mentioned in the Society of Actuaries examination catalog:
Multi-employer Retirement Plans: Handbook for the 21st century by McGinn. I doubt that this book will help you pass the EA-2F exam. It primarily covers topics for the EA-2L exam.

You may also want to post a message on The Actuarial Outpost web site, or look at similar discussions from last year:  http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=12843  

5-The ERISA Outline Book by Tripodi
Some students recommended this book on The Actuarial Outpost. I finally got a chance to see this a few years ago, 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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COST METHODS

"In problem 8 (and the next few questions) there is a graded vesting schedule that goes from 0% at three years of service to 100% at seven years.  The sole participant in the problem is 63 with 4 years of service as of the valuation date. In your solution you state that the participant is 100% vested at 65 even though he does not reach 7 years of service until 66. 

Exactly why is this participant 100% vested at 65?"

The answer is that the vesting rules of IRC Section 411 require everyone to become 100% vested at NRA. This code section is on the EA-2L syllabus, and is something that you are assumed to know on the EA-2F exam. In recent exam problems, they set things up so that the graded vesting schedule produces 100% vesting based on the service when the participant reaches normal retirement age.

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QUESTION - I'm also confused about why the normal cost is not recomputed once the participant survives to age 63. Cost methods practice problem 10 says that we recompute the entry age NC when the projected benefit changes. The fact that the participant survives beyond the projected termination at age 62 also changes the projected benefit - but we don't recompute the NC in this problem.

Their survival beyond age 62 does NOT change the projected benefits. If you calculate the values at a later valuation date, the projected benefits would be the same.

QUESTION - Will the NC remain level throughout the participant's service despite the accrued benefit increasing each year?

Yes, the normal cost should be level in all years. If you test this example in your valuation software, the normal cost probably will NOT be level. That is the point of the notes at the end of the solution. Don't worry about it too much - this is WAY too theoretical to be the subject of any exam questions. The only students who should know this are those who work on pension valuation software!

QUESTION - Should the accrued liability be adjusted to reflect that he did not terminate?

No special adjustment is necessary - this is handled automatically. The difference between the expected and the actual accrued liability values creates a gain-loss base each year. Each year's gain-loss is amortized separately in the minimum funding standard account.

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415 RULES

1. Per overhead page 415-12, this uses the 417(e) applicable mortality table.

2. Per overhead page 417-5, the applicable mortality table is based on the IRC 430 funding mortality

3. Per overhead pages 430(h)-3, the funding mortality can use either static mortality or generational mortality.

4. The generational tables were published in the 2007 regulations, and the static tables were published in IRS Notice 2008-85. These were recently updated in IRS Notice 2013-49.

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416 RULES

In 416 #2, the plan is effective at 01/01/2000. I state that the plan is Top Heavy in 2000, but not Top Heavy in 2001. This is definitely possible.

In 416 #3, I state that the plan is Top Heavy in the even years. The plan is effective at 01/01/1986. But you can assume the plan is Top Heavy in 1987, as discussed in the solution:

"The reason the plan is Top Heavy for 1987 is that the determination date for both the 1986 and 1987 plan years is 12/31/1986. If the plan is Top Heavy for 1986, it is safe to assume it is also Top Heavy for 1987 (in the absence of additional data)."  

For more details on this, see the solution to 2003 #28.

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430 RULES

There are several transition rules under IRC 430 and 417(e). The IRC 430 transition rules expired starting with the 2011 plan year. The 417(e) transition rule for the applicable interest rate expired with the 2012 plan year.

You do NOT need to know the OLD transition rules, or know all the law history. In the 20XX Joint Board announcement, it states the exam is based on the law in effect at May 31, 20XX.

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The IRS was quite clear that there is NO option about setting up the base. If you are exempt from setting up a new shortfall base, then you do NOT set up a new base!

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Here is the link in his message to a PDF file which shows which EA-2F exam questions are no longer useful. I have reviewed the list, and it seems correct: http://www.studymanuals.com/errata/EA-2F_pre-2007_Exam_Problem_Guide_8-23-09.pdf

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If you have a 12/31/2009 valuation, everything should be handled consistently. If you look at past exam questions, they give you the data that you need. Assume you have an individual cost method. When you calculate UAL = AL - AAV, the AL should exclude the 2009 normal cost, and the assets should exclude the 2009 contributions. But the FFL should include the 2009 normal cost, since it is at EOY.

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This requires both actuarial and market value of assets. For aggregate type cost methods, you also need the Entry Age normal cost and accrued liability.

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"Based on the unfunded CL" depends on the relationship of the magnitude of the contribution to the NC + LA, and the 404 UCL:

1. NC + LA < contribution < UCL
2. UCL        < contribution < NC + LA

In the first example, the contribution is deductible, and it exceeds the NC + LA. The deduction is based on the 404 UCL, since the contribution would not be deductible without the 404 UCL definition.

In the second example, the contribution is deductible, and it exceeds the 404 UCL. Since the contribution is less than the NC + LA, the deduction is NOT based on the 404 UCL. The contribution would still be deductible without the 404 UCL definition.

You can't simply use the 404 UCL in all cases. It still depends on the magnitude of the contribution paid. Take a look at these values:

The deductible limit calculation is the greater of three values: the 412 minimum, normal cost + limit adjustments, and the 404 UCL. The DB / DC limit is the greater of the 412 minimum, and the lesser of (contribution or the 404 UCL).

I use the lesser of the contribution and the 404 UCL, since that would be the actual deduction. If the contribution exceeds the 404 UCL, then the deduction is capped at the 404 UCL. If the contribution is less than the 404 UCL, then the deduction is capped at the amount of the contribution.

Only in the last case does the DB / DC limit equal the 404 deductible limit.

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The 404 and 412 NC may be different for the reasons shown on overhead page 404REG-14:

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