Minimum Funding Standards for Single Employer Plans

Question 1

Minimum Required Contribution = ___ + ___ + ___

Answer 1

MRC =

Target Normal Cost +

Shortfall Ammortization Charge +

Waiver Amortization Charge

Question 2

If the value of the plan assets is at least as large as the funding target for the year, then the minimum required contribution is equal to the ___, reduced by ___. In no event can the minimum required contribution be ___.

Answer 2

If the value of the plan assets is at least as large as the funding target for the year, then the minimum required contribution is equal to the target normal cost, reduced by the excess of the value of the plan assets over the funding target. In no event can the minimum required contribution be less than $0.

Question 3

The target normal cost is equal to the difference between the ___ and the ___. The TNC is also increased by ___, and reduced by ___.

Answer 3

The target normal cost is equal to the difference between the present value of the end of year accrued benefit and the present value of the beginning of year accrued benefit. The TNC is also increased by the expected plan-related expenses for the year, and reduced by the expected mandatory employee contributions for the year.

Question 4

When calculating the TNC, the beginning of year accrued benefit ___ take into account any salary increase for the current year.

Answer 4

When calculating the TNC, the beginning of year accrued benefit does not take into account any salary increase for the current year.

Question 5

When calculating the TNC, the end of year accrued benefit ___ take into account any salary increase for the current year.

You ___ project the current year increase past the end of the current year.

Answer 5

When calculating the TNC, the end of year accrued benefit does take into account any salary increase for the current year.

You cannot project the current year increase past the end of the current year.

Question 6

When calculating the TNC, accrued benefits ___ top heavy minimums under IRC section 416 and ___ subject to the benefit limits of IRC section 415.

Answer 6

When calculating the TNC, accrued benefits include top heavy minimums under IRC section 416 and are subject to the benefit limits of IRC section 415.

Question 7

T/F:

When calculating the TNC, compensation must be limited as required by IRC section 401(a)(17).

Answer 7

True

Question 8

For a cash balance/hybrid plan, the benefit used for the target normal cost is the ___, accumulated to ___ using the plan’s ___.

Answer 8

For a cash balance/hybrid plan, the benefit used for the target normal cost is the current year contribution credit, accumulated to the assumed retirement age using the plan’s future interest crediting rate.

Question 9

The funding target is equal to the ___.

Answer 9

The funding target is equal to the present value of the beginning of year accrued benefit.

Question 10

When calculating the FT, the beginning of year accrued benefit ___ take into account any salary increase for the current year.

Answer 10

When calculating the FT, the beginning of year accrued benefit does not take into account any salary increase for the current year.

Question 11

When calculating the FT, accrued benefits ___ top heavy minimums under IRC section 416 and ___ subject to the benefit limits of IRC section 415.

Answer 11

When calculating the FT, accrued benefits include top heavy minimums under IRC section 416 and are subject to the benefit limits of IRC section 415.

Question 12

T/F:

When calculating the FT, compensation must be limited as required by IRC section 401(a)(17).

Answer 12

True

Question 13

For a cash balance/hybrid plan, the accrued benefit is ___, accumulated to ___ using the plan’s ___.

Note that accumulated balances can never be less than ___ (preservation of principal).

Answer 13

For a cash balance/hybrid plan, the accrued benefit is the account balance, accumulated to the assumed retirement age using the plan’s future interest crediting rate.

Note that accumulated balances can never be less than the total of the contributions credits to date (preservation of principal).

Question 14

• The funding target attainment percentage (FTAP) is equal to _____.
  
  • The value of the plan assets are generally reduced by _____.
  • If the funding target is equal to zero, then the FTAP is equal to ___.

Answer 14

• The funding target attainment percentage (FTAP) is equal to the ratio of the value of the plan assets to the funding target (without regard to at-risk assumptions).
  
  • The value of the plan assets are generally reduced by the prefunding balance and funding standard carryover balance.
  • If the funding target is equal to zero, then the FTAP is equal to 100%.

Question 15

For benefits that are not earned based on service or accrual, such as a supplemental benefit, the allocation is made ___ (for allocation to the funding target) and ___ (for allocation to the target normal cost) as a percentage of ___.

Answer 15

For benefits that are not earned based on service or accrual, such as a supplemental benefit, the allocation is made pro-rata based upon service to date (for allocation to the funding target) and one year of service (for allocation to the target normal cost) as a percentage of total service at retirement.

Question 16

A plan provides a supplemental benefit of a flat dollar amount of $900 per month payable from age 60 through 65, for participants who elect to retire early at age 60. Participant Smith was hired at age 30 and is currently age 50.

Smith currently has ___ of service and will have ___ of service at age 60.

For purposes of the funding target, the supplemental benefit is ___.

For purposes of the target normal cost, the supplemental benefit is ___.

Answer 16

A plan provides a supplemental benefit of a flat dollar amount of $900 per month payable from age 60 through 65, for participants who elect to retire early at age 60. Participant Smith was hired at age 30 and is currently age 50.

Smith currently has 20 years of service and will have 30 years of service at age 60.

For purposes of the funding target, the supplemental benefit is $600 per month (20/30th of $900).

For purposes of the target normal cost, the supplemental benefit is $30 per month (1/30th of $900).

Question 17

A plan amendment deemed to be effective for the current year under IRC section 412(d)(2) is applied for purposes of determining both the ___ and the ___. So, even if the amendment is either adopted or effective after the valuation date, if the plan sponsor has elected to determine the ___ by taking into account the plan amendment, then it is applied as if it became effective on ___.

Answer 17

A plan amendment deemed to be effective for the current year under IRC section 412(d)(2) is applied for purposes of determining both the target normal cost and the funding target. So, even if the amendment is either adopted or effective after the valuation date, if the plan sponsor has elected to determine the minimum required contribution by taking into account the plan amendment, then it is applied as if it became effective on the first day of the plan year.

Question 18

If the plan amendment becomes effective or is adopted after the first day of the year, and the amendment increases benefits with regard to future service only (so that it would impact only the target normal cost and not the funding target), it ___ taken into account if it would cause ___ if the increase is included as part of the funding target.

Answer 18

If the plan amendment becomes effective or is adopted after the first day of the year, and the amendment increases benefits with regard to future service only (so that it would impact only the target normal cost and not the funding target), it must be taken into account if it would cause the AFTAP to fall below 80% if the increase is included as part of the funding target.

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 ___ 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 ___ excluded from the valuation sooner.

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.

Question 23

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

Answer 23

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.