Exam (elaborations)
CPFO EXAM – RISK, BENEFITS AND PROCUREMENT EXAM QUESTIONS AND VERIFIED ANSWERS
- Course
- Institution
CPFO EXAM – RISK, BENEFITS AND PROCUREMENT EXAM QUESTIONS AND VERIFIED ANSWERS...
[Show more]
Content preview
CPFO EXAM – RISK, BENEFITS ANDPROCUREMENT EXAM QUESTIONS AND
VERIFIED ANSWERS
How many full-time public employees are covered by defined benefit plans? -
ANSWER Ninety-one percent
How many full-time public employees are covered by defined contribution
plans? - ANSWER nine percent
Prudent-Person Rule - ANSWER Requires each retirement board member to
perform his or her duties as a prudent person would when acting in a like
capacity and in a similar situation.
Defined Benefit Plan - ANSWER Provides for a guaranteed benefit at
retirement using a formula generally based on age, length of service and salary.
Defined Contribution Plan - ANSWER Provides for benefits based on the
assets available in employees' individual accounts.
Defined Benefit Plan - Employer Perspective - ANSWER "Funding Certainty:
Liabilities vary depending on the actuarial assumptions concerning future salary
increases, investment earnings, employee separations and plan experience.
Predictable Costs: Annual contributions vary depending on the year in which
the actuarial assumptions are made. Many plans are funded on the basis of a
fixed rate of contribution determined by statute. Recruitment Tool: Not usually
,portable to another employer, except if both employers are under same umbrella
system. Example = WRS Reward Long-service Employees: Benefits are usually
based on final year(s) of salary. Administrative Expenses: Actuarial valuation,
record keeping, investment management. Investment Risk: Taken by the
employer.
Defined Benefit Plan - Employee View - ANSWER "Benefit Potential:
Benefits paid at retirement are for life and are guaranteed by the plan's formula.
COLAs common. Understanding benefits: Require explanation based on set of
variables. Normally no separate accounts. Access to Assets while Employed:
Normally benefits cannot be withdrawn during active employment. Reward
long-service Employees: Based on final year(s) salary. Recruitment Tool:
Benefits are not portable Investment Risk: Employer assumes the risk.
Defined Contribution Plan - Employer Perspective - ANSWER Funding
Certainty: Employer liability is met each year in that the contributions to
employee accounts are usually fixed as a % of payroll. Predictable Costs:
Annual cash requirements are more predictable as they are based upon a known
% of employee salaries. Recruitment tool: benefits are portable Reward long
service: Benefits depend upon accumulated contributions and earnings earned
Admin Expenses: Lower, as no actuarial valuation required. Employee
education expense and record-keeping possibly higher Investment Risk:
Employee takes the risk.
Defined Contribution Plan - Employee Perspective - ANSWER "Benefit
Potential: Based on contributions and earnings. The final retirement benefit can
be eroded by pre-retirement distributions and inflation. Understanding benefits:
Benefits based on a percentage of salary. No other variables need to be
considered. Each individual has a separate account. Access to Assets while
Employed: Benefits may be withdrawn under certain circumstances eg loans,
death, or disability per IRS guidelines. Rewards long-service employees: Not
really, based on accumulated earnings and contributions.
, Retirement plan funding objectives - ANSWER 1. Stable contribution rates 2.
Eliminate the unfunded accrued liability within a certain timeframe 3. Maintain
intergenerational equity by not passing current costs to future generations 4. Use
techniques to hedge against unexpected adverse experience.
Retirement plan funding methods - ANSWER Level: generate contribution
rates based on a uniform percentage of payroll. Graduated: finances benefits
through increasing the percentage of payroll contribution throughout a person's
career.
Unfunded Accrued Liability (UAL) - ANSWER The difference between the
total liabilities at present and in the future, minus the current assets and the
present value of future normal costs.
Closed Amortization - ANSWER Financing the UAL over a specific number
of years with the number of years declining as each year passes.
Open Amortization - ANSWER Number of years to pay off the UAL may
remain constant from year-to-year.
Three ways in which assets may be valued - ANSWER 1. Book Value: is the
total actual cost of purchasing the assets. 2. Market Value: Values the assets on
a sale basis, and results in the volatility of asset values. 3. Smoothed Market
Value: Recognize only a portion (ie 20%) of the unrealised gains and losses
each year. In this way there is a much 'smoother' asset trend, and it best supports
a funding policy of stable contribution rates over time.
Annuity - ANSWER A stream of fixed periodic payments for a fixed period in
the future or for life.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller luzlinkuz. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $11.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
72042 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now
