GFOA Exam Prep LMS Training: Understanding Pension Plans

Question 1

What guarantees a retiree a fixed benefit in retirement based on age, length of service, and salary?

Answer 1

Defined Benefit (DB) Plans

Question 2

How are Defined Contribution Plans different from Defined Benefit Plans?

Answer 2

Employee and employer contribute to the individual’s account, and the employee owns the investment risk.

Question 3

Who typically governs a DB Plan?

Answer 3

An independent board often called plan ‘Trustees’, with duties of loyalty, care, and prudence.

Question 4

What determines the funding of TRS?

Answer 4

Member and Employer Contributions, and State of Illinois Contributions along with Investment Earnings.

Question 5

What roles do Employer Services at TRS perform?

Answer 5

Assist employers in filing reports and administer audits as required.

Question 6

What services are offered by TRS Member Services?

Answer 6

Benefits estimates, health insurance information, and counseling on disability and death benefits.

Question 7

What types of actuarial assumptions are used in pension planning?

Answer 7

Demographic assumptions (like mortality, retirement) and Economic assumptions (like investment return, salary increases).

Question 8

What are the components of a Funding Policy?

Answer 8

Actuarial Cost Method, Asset Smoothing Method, and UAAL Amortization Policy.

Question 9

What does the Actuarial Cost Method determine?

Answer 9

Allocates the present value of a member’s projected benefits to years of service.

Question 10

What is the purpose of the Actuarially Determined Contribution?

Answer 10

Calculates the contribution amount as required by State statute and ensures adequate funding.

Question 11

How is the ‘Normal Cost’ defined in pension plans?

Answer 11

The portion of the value of projected benefits for active members that is allocated to each plan year.

Question 12

What are the goals of TRS Investments?

Answer 12

Fiduciary responsibility for members’ trust funds and investment based on the ‘prudent person rule’.

Question 13

How does TRS ensure funding basics?

Answer 13

Through Member Contributions, Employer Contributions, State Contributions, and Investment Earnings.

Question 14

What distinguishes the Defined Contribution Plan offered by TRS?

Answer 14

Optional for any TRS member, offering investment options and based on market performance.

Question 15

How is the TRS Board of Trustees structured?

Answer 15

15-member board with appointments by the Illinois Governor, elections by members, and specific duties.

Question 16

What is a primary function of the TRS Research Department?

Answer 16

Actuarial liaison for valuation, experience study, and legislative analysis.

Question 17

How does TRS address changes in actuarial assumptions?

Answer 17

Through Experience Analysis every 3 to 5 years for demographic and economic factors.

Question 18

What determines an employer’s contribution rate in a Defined Benefit Plan?

Answer 18

The Actuarially Determined Contribution (ADC) each year.

Question 19

What is the significance of asset allocation policy in TRS investments?

Answer 19

Determines the long-term allocation targets for managing trust funds.

Question 20

How does TRS manage employer reporting and contributions?

Answer 20

Through an online Employer Portal and transitioning to a pay-period reporting process called Gemini.

Question 21

How are TRS member services tailored to different tiers?

Answer 21

Benefits calculation, counseling services, and health insurance information vary by tier.

Question 22

What is the function of TRS’s Employer Services?

Answer 22

To assist employers with reporting, administer audits, and ensure accurate member data.

Question 23

What demographic assumptions are considered in TRS actuarial evaluations?

Answer 23

Rates of decrement like mortality, disability, and retirement based on service or age.

Question 24

How does TRS ensure its investments adhere to fiduciary responsibilities?

Answer 24

By establishing broad policies and objectives for the operation including asset allocation.

Question 25

Describe the process of setting an Actuarially Determined Contribution in TRS.

Answer 25

Performed by TRS system actuaries based on annual valuation and state statutes.