CEBS: GBA/RPA 3 (new curriculum) Exam Questions and Answers

ERISA - Answer- Employee Retirement Income Security Act 1974 SOC Reports - Answer- Service Organization Controls: for external vendors SOC 1 - Answer- Internal Controls & Financial reports; used by auditors SOC 2 - Answer- Security, availability, processing integrity, confidentiality and privacy controls;used by management, regulators, and others under an NDA SOC3 - Answer- Same as SOC2, but available for public use. Tribble V Edison - Answer- Landmark court case re fiduciary responsibility pertaining to reasonableness of fees. Also, allowed 6 yr statute of limitations to be based on most recent time fees were applied rather than when fund was added. Greater exposure for plan sponsor. SPD-renewals - Answer- Renew every 10 yrs, every 5 years if changes; provide to ppts no later than 210 days after plan year in which changes were made ends. QLAC - Answer- Qualified Longevity Annuity Contract; individual purchases contract. Allows individual to delay withdrawing money from retirement account. Must start by distributions by age 85; Amt of QLAC is not included in amount determined for an RMD Plan document should include: - Answer- (a) The name(s) of the plan fiduciary(ies) (b) Policies and procedures relating to plan administration (c) Funding requirements (d) A description of how benefit payments will be made (e) Claims and appeals procedures (f) Plan amendment and termination authority and procedures (g) Method for distribution of plan assets upon plan termination (h) A statement that plan assets can be used to pay reasonable costs of plan administration. Plan Document - Answer- No set requirements; include plan name, fiduciary, claims review procedures; funding; eligibility Summary of Material Modification (SMM) - Answer- Must be delivered within 210 days after the end of the plan year, or within 60 days after a "material reduction" in benefits of a group health plan. penalty up to $110/day for not delivering within 30 of ppt/beneficiary's request Social Insurance-Fully Insured - Answer- 40 credits/quarters of coverage 1 credit for each $x earned (2017-$1300) Adjusted for inflation Must be fully insured to be eligible for retirement benefits Currently Insured - Answer- At least 6 credits in last 13 calendar quarters ending with quarter of death, disability, or entitlement to retirement benefits. Disability Insured - Answer- Two work tests: 1) recent work test; depends on age at disability. and 2)duration of work test (doesn't require work within a certain period of time) FASB ASC 960 - Answer- Defined Benefit Plans; establishes the accounting and financial reporting standards. Under DOL ERs can file one set FASB ASC 960-which plans - Answer- All ongoing plans-Funded and Unfunded that provide pension benefits a) plans subject to ERISA b) plans not subject to ERISA c) plans without intermediary funding agencies or plans financed through trusts, contracts of insurance or a combination thereof DOES NOT APPLY to gov sponsored SS plans FASB ASC 960-Acctg and Reporting - Answer- a) accrual basis, include statement of net assets available at the end of the year and a statement of a change in assets b) plan investments- FAIR value except for insur contracts c) info on actuarial PV and sig changes d) accumulated plan benefits one of three options: -face of statement -net assets available for benefits -separate statements or in notes of fin statements e) actuarial PV of accumulated plan benefits baed on EE earnings 2014 DOL Audit quality study - Answer- Almost 40% of benefit plan audits had unacceptable major deficiencies 3 types of deficiencies/weaknesses - Answer- 1)Internal Plan Processes 2)Regulatory requirements 3) Outside Service Providers Deficiency-408(b)(2) - Answer- Lack of proper monitoring of service provider fees and disclosures. Impt b/c a service provider is a party in interest. If not written down, they are considered unreasonable Two types of fraud - Answer- 1)Misappropriation-illegal use of property or funds of another for one's own use or unauthorized purpose 2)Financial statement fraud-area of biggest concern; deceive plan participants Three types of fraud risk - Answer- 1) incentives to commit fraud 2) opportunities to carry out fraud 3) attitudes and rationalizations to justify the fraud Common methods of detecting fraud - Answer- Internal Audit Management review Reconciliations External Audit Surveillance Confessions Depts most/least likely to have fraud - Answer- MOST likely: Accounting, operations, upper management LEAST likely: HR, legal, BOD SOA/SCL-Retirement Income Generators (RIGs) - Answer- 1) SWP 2) Guaranteed lifetime annuities through insurance 3) Temp payout from plan assets that delays SS in order to increase total retirement income Due Diligence-convert DC assets to retirement income - Answer- a) assess needs and responsibilities b)learn about RIGs c)learn what can be supported by current plan sponsor d) develop criteria for retirement income program, and assess how each RIG meets criteria e) develop a timetable QLAC-which plans - Answer- Only DC plans (401k, 403b, IRAs, 457b) QLAC-Maximum Premium - Answer- Lesser of $125k of 25% of aggregate account balance QLAC-prohibited features - Answer- Variable contracts, indexed contracts, contracts with commutation benefits or cash surrender values. Restrictions on death benefits MPT and diversification requirement - Answer- Risk/reward. MPT is a bedrock tenet of ERISA, the diversification aspect is impt; reduces risk of large losses. IPS for Innovative Investments - Answer- Not required, but good practice -more detailed -flexible -not too detailed that it requires updates -designed so as not to increase risk of failure -carefully drafted -written in context of meeting needs of ppts Sulyma v Intel - Answer- Intel Plantiffs said fund underperformed a passive index and said it was imprudent. Prudent investing is NOT judged on results in hindsight, but by the process to investigate and monitor the investment. Mutual Funds - Answer- a) Liquidity: redeemable shares; liquid in normal market b) not subject to direct ERISA regulation, but under Investment Company Act of 1940; must meet regulatory standards of liquidity c) must provide required disclosure documents Closed End, Open End, and ETF - Answer- Close End Funds: Generally DO NOT redeem shares, but may at certain intervals. Investors sell shares on the market to other investors---PROBLEM for ppt directed plans. Tend to be actively managed and therefore more expensive Collective Investment Trust - Answer- pooled investment funds offered by a bank that acts as a trustee and is managed by the trustee or a professional investment manager Offered ONLY to benefit plans. Similar to mutual funds---subject to ERISA, but not to disclosure requirements Fiduciary duties for annuity contracts purchased by ERISA plan - Answer- Document conclusions on how annuity provider meets criteria outlined in the regs. Items included in an Investment Management Agreement - Answer- -guidelines for investment and proxy voting - identification of any special brokerage arrangements or restrictions -manager's compensation -representation of manager regarding fiduciary status and professional qualifications -protection of confidentiality of info -Indemnity provision -Identification of threshold insurance requirements -Recordkeeping expectations -Amendment/Term provisions White label funds - Answer- Separate accts that invest directly in stocks, bonds, or other types of individual securities instead of a pooled fund. Plan manager. White label funds-concerns - Answer- -significant cos