General Rules of Minimum Funding

Question 1

The minimum funding requirement for years beginning in 2008 and later is the _______ determined under IRC section ___ for single employer plans.

Answer 1

The minimum funding requirement for years beginning in 2008 and later is the minimum required contribution determined under IRC section 430 for single employer plans.

Question 2

The IRC section 430 rules apply to ____ employer plans, applied to each employer separately.

Answer 2

The IRC section 430 rules apply to multiple employer plans, applied to each employer separately.

Question 3

A _______ plan is a plan that is sponsored by two or more unrelated employers.

Answer 3

A multiple employer plan is a plan that is sponsored by two or more unrelated employers.

Question 4

A _______ plan is collectively bargained and subject to IRC section 431.

Answer 4

A multiemployer plan is collectively bargained and subject to IRC section 431.

Question 5

The minimum funding requirement for years beginning in 2008 and later is the _______ determined under IRC section ___ for multiemployer plans.

Answer 5

The minimum funding requirement for years beginning in 2008 and later is the amount necessary to avoid a funding deficiency determined under IRC section for multiemployer plans.

Question 6

For employers that are part of a controlled group, each employer in the controlled group ___ be held liable for contributions not made by other members of the group.

Answer 6

For employers that are part of a controlled group, each employer in the controlled group may be held liable for contributions not made by other members of the group.

Question 7

Multiemployer plans in critical status under IRC section 432 ___ be held liable for required contributions if the plan adopts and complies with rehabilitation requirements under IRC section 432(e).

Answer 7

Multiemployer plans in critical status under IRC section 432 may not be held liable for required contributions if the plan adopts and complies with rehabilitation requirements under IRC section 432(e).

Question 8

For a single employer plan, under IRC section 430, a funding deficiency (or the portion of the funding deficiency to be waived) is determined as of the _____.

Answer 8

For a single employer plan, under IRC section 430, a funding deficiency (or the portion of the funding deficiency to be waived) is determined as of the valuation date.

Question 9

For a multiemployer plan, under IRC section 431, or for single employer plans prior to 2008, a funding deficiency (or the portion of the funding deficiency to be waived) is determined as of the ___________.

Answer 9

For a multiemployer plan, under IRC section 431, or for single employer plans prior to 2008, a funding deficiency (or the portion of the funding deficiency to be waived) is determined as of the last day of the plan year.

Question 10

The IRS cannot waive the minimum funding standard for more than _ out of any _ consecutive years for single employer plans (or multiple employer plans).

Answer 10

The IRS cannot waive the minimum funding standard for more than 3 out of any 15 consecutive years for single employer plans (or multiple employer plans).

Question 11

The IRS cannot waive the minimum funding standard for more than _ out of any _ consecutive years for multiemployer plans.

Answer 11

The IRS cannot waive the minimum funding standard for more than 5 out of any 15 consecutive years for multiemployer plans.

Question 12

T/F: The amortization of the waived deficiency cannot be waived in a subsequent year.

Answer 12

True

Question 13

For a funding waiver to be granted, a single employer plan must demonstrate a _______.

Answer 13

For a funding waiver to be granted, a single employer plan must demonstrate a temporary substantial business hardship.

Question 14

In the case of a multiemployer plan, __% or more of the employers contributing to the plan must have a substantial business hardship based on the following factors: □ □ □ □

Answer 14

In the case of a multiemployer plan, __% or more of the employers contributing to the plan must have a substantial business hardship based on the following factors: □ The employer is operating at an economic loss. □ There is substantial unemployment in the industry. □ The sales and profits within the industry are depressed or declining. □ It is reasonable to expect that the plan will continue only if the waiver is granted.

Question 15

For single employer plans, the application for the waiver must be submitted no later than ___ after the end of the plan year.

Answer 15

For single employer plans, the application for the waiver must be submitted no later than 2.5 months after the end of the plan year.

Question 16

For single employer plans, security is not required if the unpaid minimum required contribution plus the outstanding balance of prior waivers is less than $____.

Answer 16

For single employer plans, security is not required if the unpaid minimum required contribution plus the outstanding balance of prior waivers is less than $1,000,000.

Question 17

Plan amendments adopted on or before the valuation date and effective at any time during the plan year ___ be used to determine valuation results.

Answer 17

Plan amendments adopted on or before the valuation date and effective at any time during the plan year must be used to determine valuation results.

Question 18

Plan amendments adopted after the valuation date (and no later than ___ after the end of the plan year for single employer plans – ___ for multiemployer plans) ___ used to determine valuation results at the election of the plan sponsor.

Answer 18

Plan amendments adopted after the valuation date (and no later than 2½ months after the end of the plan year for single employer plans – 2 years for multiemployer plans) can be used to determine valuation results at the election of the plan sponsor.

Question 19

Benefits not paid or accrued as of the valuation date due to restrictions under IRC section 436 must generally ___ included in the determination of the target normal cost and funding target.

Answer 19

Benefits not paid or accrued as of the valuation date due to restrictions under IRC section 436 must generally not be included in the determination of the target normal cost and funding target.

Question 20

The determination of the target normal cost and funding target ___ take into account any assumption with regard to any possible future restriction after the valuation date due to IRC section 436.

Answer 20

The determination of the target normal cost and funding target cannot take into account any assumption with regard to any possible future restriction after the valuation date due to IRC section 436.

Question 21

For purposes of determining the target normal cost and funding target, the plan population included in the valuation must include participants ___, participants who are ___, and ___ (such as beneficiaries of deceased participants).

Answer 21

For purposes of determining the target normal cost and funding target, the plan population included in the valuation must include participants currently employed by the employer, participants who are retired or no longer employed by the employer, and any other individuals entitled to benefits under the plan (such as beneficiaries of deceased participants).

Question 22

Terminated nonvested participants can be disregarded once they have at least ___ consecutive years of breaks in service. However, if the plan’s experience with regard to nonvested terminated participants has been that they have generally not returned to service, then those nonvested terminated participants ___ be excluded from the valuation sooner than the ___ years.

Answer 22

Terminated nonvested participants can be disregarded once they have at least 5 consecutive years of breaks in service. However, if the plan’s experience with regard to nonvested terminated participants has been that they have generally not returned to service, then those nonvested terminated participants can be excluded from the valuation sooner than the 5 years.

Question 23

T/F:

Current employees not yet eligible to participate in the plan can be included in the valuation, in anticipation of their eventual entry into the plan.

Answer 23

TRUE

Question 24

The funding shortfall is equal to the difference between the ___ and the ___ (reduced by the ___ and ___).

Answer 24

The funding shortfall is equal to the difference between the funding target and the value of the plan assets (reduced by the prefunding balance and funding standard carryover balance).

Question 25

T/F:

The funding target for the funding shortfall is not based upon the funding target after applying the at-risk assumptions and any phase-in, if applicable.

Answer 25

FALSE

The funding target for the funding shortfall is based upon the funding target after applying the at-risk assumptions and any phase-in, if applicable.

Question 26

The shortfall amortization base is equal to the difference between the ___ and the ___.

Answer 26

The shortfall amortization base is equal to the difference between the funding shortfall and the outstanding balance of the prior shortfall and waiver amortization bases.

Question 27

T/F:

Shortfall amortization bases cannot be negative.

Answer 27

False

Question 28

If the funding shortfall for the current year is $0, then

1. 2.

Answer 28

If the funding shortfall for the current year is $0, then

1. There is no new funding shortfall amortization base for the year, and
2. The prior funding shortfall amortization bases are deemed to be fully amortized.

Question 29

The shortfall amortization installment is an amortization of the shortfall amortization base over a period of __ years using the segmented interest rates under IRC section 430(h)(2)(C). Since it is amortized over __ years, the segment 1 interest rate is used to discount the first __ payments, and the segment 2 interest rate is used to discount the last __ payments. The amortization installment remains the same for each of the __ years. There is no re-amortization for changes in interest rates. After __ years, the shortfall amortization base is fully amortized.

Answer 29

The shortfall amortization installment is an amortization of the shortfall amortization base over a period of 7 years using the segmented interest rates under IRC section 430(h)(2)(C). Since it is amortized over 7 years, the segment 1 interest rate is used to discount the first 5 payments, and the segment 2 interest rate is used to discount the last two payments. The amortization installment remains the same for each of the 7 years. There is no re-amortization for changes in interest rates. After 7 years, the shortfall amortization base is fully amortized.

Question 30

The shortfall amortization charge (net amount of the installments) ___ be less than zero.

Answer 30

The shortfall amortization charge (net amount of the installments) cannot be less than zero.

Question 31

A shortfall amortization installment is ___ for short plan years.

Answer 31

A shortfall amortization installment is pro-rated for short plan years.

Question 32

Describe the process for pro-rating shortfall amortization installments.

Answer 32

A final pro-rated installment is required in the 8th year in an amount equal to the difference between the full installment and the pro-rated installment

Question 33

The outstanding balance of a shortfall amortization base as of a valuation date is equal to _____.

Answer 33

The outstanding balance of a shortfall amortization base as of a valuation date is equal to the present value of the remaining payments using the segment interest rates in effect for the valuation date (not the original segment rates used to amortize the base).

Question 34

A plan is exempt from creating a new shortfall amortization base for a plan year if the valuation assets are at least as large as the funding target. For this purpose, the valuation assets ___ reduced by the funding standard carryover balance, but ___ reduced by the entire prefunding balance only _____.

Answer 34

A plan is exempt from creating a new shortfall amortization base for a plan year if the valuation assets are at least as large as the funding target. For this purpose, the valuation assets are not reduced by the funding standard carryover balance, but are reduced by the entire prefunding balance only if the employer has elected to use any portion of the prefunding balance for the year to reduce the minimum funding requirement.

Question 35

The waiver amortization installment is an amortization of the waiver amortization base over a period of ___ years using the segmented interest rates under IRC section 430(h)(2)(C).

Answer 35

The waiver amortization installment is an amortization of the waiver amortization base over a period of 5 years using the segmented interest rates under IRC section 430(h)(2)(C).

Question 36

T/F:

The interest rate used to amortize a waiver amortization installment is based upon the segmented interest rates that applied to the plan for the year for which the waiver is first amortized.

Answer 36

False

The interest rate used to amortize a waiver amortization installment is based upon the segmented interest rates that applied to the plan for the year for which the waiver is granted (not the year the waiver is first amortized).

Question 37

A waiver amortization installment is ___ for short plan years.

Answer 37

A waiver amortization installment is pro-rated for short plan years.

Question 38

The prior waiver amortization bases are deemed to be fully amortized if ___.

Answer 38

The prior waiver amortization bases are deemed to be fully amortized if the funding shortfall is $0.

Question 39

Any portion of the funding standard carryover balance can be elected by the plan sponsor to be used to reduce the minimum required contribution by subtracting that portion from the minimum as of _____.

Answer 39

Any portion of the funding standard carryover balance can be elected by the plan sponsor to be used to reduce the minimum required contribution by subtracting that portion from the minimum as of the first day of the plan year.

Question 40

If the valuation date is not the first day of the plan year, the funding standard carryover balance is ___ from the first day of the year to the valuation date using the plan’s ___ for the year for purposes of applying it to the current year valuation.

Answer 40

If the valuation date is not the first day of the plan year, the funding standard carryover balance is increased with interest from the first day of the year to the valuation date using the plan’s effective interest rate for the year for purposes of applying it to the current year valuation.

Question 41

Unused prior year funding standard carryover balance is increased with interest based upon the _____. This interest is credited from the valuation date for the ___ (the year the funding standard carryover balance is applied to the minimum required contribution) to ___. If the valuation date is not the first day of the year, the unused funding standard carryover balance must first be ___, and then ___.

Answer 41

Unused prior year funding standard carryover balance is increased with interest based upon the prior year rate of return on the plan assets. This interest is credited from the valuation date for the current year (the year the funding standard carryover balance is applied to the minimum required contribution) to the beginning of the following year. If the valuation date is not the first day of the year, the unused funding standard carryover balance must first be discounted to the first day of the year using the effective interest rate, and then increased to the first day of the following year using the rate of return on the assets.

Question 42

The increase in the prefunding balance each year is equal to _____ for the preceding year. The contribution that is added to the prefunding balance is equal to the contribution determined as of the ___ valuation date, increased using the ___ to ___.

Answer 42

The increase in the prefunding balance each year is equal to the excess of the contributions for the preceding year over the minimum required contribution for the preceding year. The contribution that is added to the prefunding balance is equal to the contribution determined as of the current year valuation date, increased using the current year plan effective rate to the beginning of the following year.

Question 43

If the employer has elected to use a portion of the funding standard carryover balance and/or the prefunding balance to reduce the minimum required contribution, then the portion of the excess contribution attributable to that reduction amount is increased using the ___ instead of ___

Answer 43

If the employer has elected to use a portion of the funding standard carryover balance and/or the prefunding balance to reduce the minimum required contribution, then the portion of the excess contribution attributable to that reduction amount is increased using the asset rate of return instead of the plan effective rate

Question 44

The election to make an addition to the prefunding balance must be made by ___

Answer 44

The election to make an addition to the prefunding balance must be made by the minimum funding due date

Question 45

The prefunding balance is not available in a year when the ratio of ___ (reduced by the ___) for the prior year to the ___ for the prior year is less than ___.

Answer 45

The prefunding balance is not available in a year when the ratio of the value of plan assets (reduced by the prefunding balance) for the prior year to the funding target for the prior year is less than 80%.

Question 46

If the valuation date is not the first day of the plan year, the prefunding balance is increased with interest from the first day of the year to the valuation date using the ___ for the year for purposes of applying it to the current year valuation.

Answer 46

If the valuation date is not the first day of the plan year, the prefunding balance is increased with interest from the first day of the year to the valuation date using the plan’s effective interest rate for the year for purposes of applying it to the current year valuation.

Question 47

Any election to reduce funding balances must be made to the ___ first; once the ___ is reduced to $0, then the plan sponsor can elect to reduce the ____.

The election to reduce the balances must be made no later than ___.

Answer 47

Any election to reduce funding balances must be made to the funding standard carryover balance first; once the funding standard carryover balance is reduced to $0, then the plan sponsor can elect to reduce the prefunding balance.

The election to reduce the balances must be made no later than the end of the plan year.

Question 48

The valuation date must generally be ___.

Answer 48

The valuation date must generally be the first day of the plan year.

Question 49

A change in the valuation date is treated as a change in the ___. Automatic approval for a change in the valuation date required under IRC section 430 is granted under Treasury regulation 1.430(g)-1(b)(2)(iv) when a small plan using a ___ no longer qualifies as a small plan and must change to ___.

Answer 49

A change in the valuation date is treated as a change in the funding method. Automatic approval for a change in the valuation date required under IRC section 430 is granted under Treasury regulation 1.430(g)-1(b)(2)(iv) when a small plan using a last day valuation no longer qualifies as a small plan and must change to a first day valuation.

Question 50

The actuarial value is based upon an average of the ___ on the ___ and the ___ determined for one or more ___.

Answer 50

The actuarial value is based upon an average of the fair market value on the valuation date and the adjusted fair market values determined for one or more determination dates (on dates prior to the valuation date).

Question 51

The adjusted fair market value for each determination date is equal to the ___, increased by ___ included in the fair market value on the ___ that were not included in the fair market value on the ___, and reduced by ___ paid by the plan between the ___ and the ___. An adjustment is also made for ___.

Answer 51

The adjusted fair market value for each determination date is equal to the fair market value on the determination date, increased by contributions included in the fair market value on the valuation date that were not included in the fair market value on the determination date, and reduced by benefits and administrative expenses paid by the plan between the determination date and the current valuation date. An adjustment is also made for expected earnings.

Question 52

The adjustment to the fair market value for a determination date due to the expected earnings is made from the ___ to the ___. The expected earnings must be based upon the actuary’s best estimate of expected earnings during the period, but in no event can this exceed the ___ that applies for the year in which the expected earnings are determined.

Answer 52

The adjustment to the fair market value for a determination date due to the expected earnings is made from the determination date to the valuation date. The expected earnings must be based upon the actuary’s best estimate of expected earnings during the period, but in no event can this exceed the third segment interest rate that applies for the year in which the expected earnings are determined.

Question 53

The time period between the determination dates chosen during the “25-month” period must be ___, and cannot be ___.

Answer 53

The time period between the determination dates chosen during the “25-month” period must be in equal increments, and cannot be more than 12 months apart.

Question 54

The average value (after adjustments for receivable contributions or excludable contributions) cannot be less than ___ or more than ___ of the fair market value of assets (also adjusted for the receivable and excludable contributions).

Answer 54

The average value (after adjustments for receivable contributions or excludable contributions) cannot be less than 90% or more than 110% of the fair market value of assets (also adjusted for the receivable and excludable contributions).

Question 55

Contributions receivable for the prior year (contributed on or before the minimum funding due date) ___ be included in the value of assets.

Answer 55

Contributions receivable for the prior year (contributed on or before the minimum funding due date) must be included in the value of assets.

Question 56

The assumptions and methods must each be ___, and in combination with each other represent ___.

Answer 56

The assumptions and methods must each be reasonable, and in combination with each other represent the actuary’s best estimate of anticipated experience under the plan.

Question 57

The ___ is the single rate which would produce the present value of accrued benefits equal to the funding target (without regard to at-risk assumptions). If the funding target for the year is zero, then ___ is used in place of the funding target.

Answer 57

The effective interest rate is the single rate which would produce the present value of accrued benefits equal to the funding target (without regard to at-risk assumptions). If the funding target for the year is zero, then the target normal cost is used in place of the funding target.

Question 58

Segment interest rates are based on an average of monthly corporate bond yield curves for the ___ period ending on ___.

Answer 58

Segment interest rates are based on an average of monthly corporate bond yield curves for the 24-month period ending on the month prior to the date for which the rate is published.

Question 59

The rate used for a valuation must be either the one published for the ___, or any of the _ preceding months.

Answer 59

The rate used for a valuation must be either the one published for the valuation month, or any of the 4 preceding months.

Question 60

A plan is considered at-risk of all of the following conditions apply:

1. 2. 3.

Answer 60

A plan is considered at-risk of all of the following conditions apply:

1. Prior year FTAP is < 80%
2. Prior year at-risk FTAP is < 70%
3. Plan had > 500 participants on at least one day of the prior plan year

Question 61

For at-risk plans, the funding target is generally equal to the sum of:

1. 2. A loading factor (only for plans that have been at-risk for at least _ of the past _ years), equal to the sum of:
   3. ___ times the ___ -
   4. __ of the funding target determined for the plan if it was not at-risk.

Answer 61

For at-risk plans, the funding target is generally equal to the sum of:

1. The present value of the beginning of year accrued benefit using additional actuarial assumptions.
2. A loading factor (only for plans that have been at-risk for at least 2 of the past 4 years), equal to the sum of:
   
   1. $700 times the number of participants (active participants, inactive participants, and beneficiaries) in the plan.
   2. 4% of the funding target determined for the plan if it was not at-risk.