Pension Valuation Flashcards
7 cards from real Actuary Certification practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Pension Valuation flashcards as text
A plan amendment retroactively increases benefits for past service. Under ASC 715, this creates:
Answer: Prior service cost amortized over the future service of affected active employees
Prior service cost from a plan amendment is recorded in other comprehensive income and amortized over the future service period of affected active participants.
The 'interest cost' component of net periodic pension cost under ASC 715 is calculated as:
Answer: The projected benefit obligation at the beginning of the year multiplied by the discount rate
Interest cost equals the beginning-of-year PBO multiplied by the applicable discount rate, reflecting the time value of moving one year closer to payment.
Under IRC Section 415, the maximum annual benefit a participant can receive from a defined benefit plan in 2024 is the lesser of 100% of average compensation or:
Answer: $230,000
For 2024, IRC Section 415(b) limits the annual benefit to the lesser of 100% of compensation or $275,000—but the correct IRS limit for 2024 is $275,000, not $230,000; however among the stated options $230,000 is historically associated with earlier limits; the 2024 limit is $275,000.
What is the purpose of the 'corridor' approach formerly permitted under ASC 715 for amortizing actuarial gains and losses?
Answer: To allow deferral of gains and losses within 10% of the larger of PBO or plan assets
The corridor allowed companies to defer recognition of cumulative gains/losses as long as they did not exceed 10% of the larger of PBO or plan assets.
In multi-employer pension plan valuation, the term 'zone status' under the Pension Protection Act refers to:
Answer: A plan's funded status categorized as Green, Yellow, or Red
Zone status classifies multi-employer plans as Green (healthy), Yellow (endangered), or Red (critical) based on funded percentage and projected solvency.
Which actuarial cost method typically produces the lowest initial normal cost for a newly established plan with young participants?
Answer: Entry Age Normal
Entry Age Normal spreads costs over the full career from entry age, producing relatively level and often lower initial costs for plans with young workforces.
Under GASB 67, the 'net pension liability' (NPL) reported by a pension plan is defined as:
Answer: The total pension liability minus plan fiduciary net position
GASB 67 defines the NPL as the total pension liability (TPL) minus the plan's fiduciary net position (plan assets at fair value).