EA2b Partial Study Guide - Available for Download

[Traci]

I'm just curious -- did anyone use this last year?

Was it helpful? Should I keep it available?

Note that it has NOT been updated since last year -- if anyone studying this time around wants to update it - or add to it - please let me know. David Farber was kind enough to review my material before I released it - and if asked, he would likely review any additions or edits.

[Yank]

Yes, I found it very helpful.

[benjamce]

Can someone remind me how to get to the download section?

[Traci]

Download section is here:

http://www.actuarialoutpost.com/exams

[firetruck]

I found your notes to be very good and very helpful; I only wish is that you had done all of the material, which I will willingly pay for.

[Traci]

I found your notes to be very good and very helpful; I only wish is that you had done all of the material, which I will willingly pay for.
It's not a matter of paying -- I never did complete the study guide. The plan to publish the guide was scrapped - and so I just finished my own studying without putting any more chapters together.

I can tell you however - that putting those chapters together did more for me in terms of passing the exam than anything else. By concentrating on each topic area - trying to make sure I was being thorough - and well understood - it REALLY cemented the stuff in my head for the exam.

So again -- if anyone is interested in taking this approach and adding to or updating the study guide -- I recommend it as a great way to study. Just let me know if you are interested. There's no money involved -- just your name added to the credits. But you never know when that could come in handy!

[Mr. BoH]

I have been using this guide some and have found it very useful. I only wish it covered all the topics!

Anyway, I think I have 2 errata to share and then I have a question.

In the practice exercises following Chapter 4, I believe the answer for #1 should be $111,788 - the 415 limit should be reduced for 8 years of participation rather then 7.

In example 7-1, I think the unfunded vested benefit amount is 748,006, making the PBGC premium $10,066.


My question is about Example 8-5:

In determing the PC5 benefits for Jay and Finch, we have to find their vested benefit. I agree with the calculation of the accrued benefits ($875 for Jay, and $525 for Finch). Then the solution shows those amounts multiplied by their vesting percentages (60% for Jay, 20% for Finch).

But isn't some of their benefit due to employee contributions, which are always 100% vested? So shouldn't we project their EEcontrib account balance to 65 at the 30-year Treasury rate and then take the PV?

For example, if the 30-yr Treas is 5.00%, then Jay's account balance at 65 would be 850*(1+.05)^30=3,674. Then divide by a65 to get 3,674/11.794=312. So they Jay's vested benefit would be 312 + 60%*(875-312)=650.

Am I missing something?

[Traci]

Thanks Mr. Boh -- I appreciate your letting me know about the errata.

And as to example 8-5, I agree with you. In this example, I wanted to have the mandatory contributions to show the way the assets are allocated -- but I forgot about the vesting issue.

I really don't want to put the vesting calculation into this example -- because it's complicated enough already -- and the vesting calculation isn't part of what I was trying to show here.

So I'll have to think about how to restructure the example. In the meantime -- just ignore that issue -- as the example is really supposed to focus on the asset allocation.

[drctypea]

in examplel 8.5 when we calculate Brown's PC 3 liability why don't we multiply the 892.5 by 80% as he only has 6mths of service at age 62 and is not 100% vested? Is it because PC3 liability does not care bout vesting? Is it because he has a full 9 yrs at DOPT?

I also do not understand what it means in Rev Ruling 86-48 that a participants accrued benefit includes: early retirement subsidies, optional forms of benefit, and qualified pre-retirement survivor annuities. This comes into play in determining the PC 6 liability. Please someone explain this to me.

Lastly in Example 8.7 what if the assets for green were 40k? Would the amount the PBGC is liable for be 52530 - 40000 or would it be (52530 - 3000 (PC1) - 2000 (PC2)) - 40000? Please help.

Thanks.

[Traci]

in examplel 8.5 when we calculate Brown's PC 3 liability why don't we multiply the 892.5 by 80% as he only has 6mths of service at age 62 and is not 100% vested? Is it because PC3 liability does not care bout vesting? Is it because he has a full 9 yrs at DOPT?
I don't believe the 80% vesting would come into play here -- because we are looking for the portion of the accrued benefit. But I could be wrong about that. Someone please correct me if that's not right.

I will clarify my example to allow for 100% vesting upon eligibility for ER - as I didn't intend for that to be an issue.


I also do not understand what it means in Rev Ruling 86-48 that a participants accrued benefit includes: early retirement subsidies, optional forms of benefit, and qualified pre-retirement survivor annuities. This comes into play in determining the PC 6 liability. Please someone explain this to me.
An example -- a person aged 60 with an accrued benefit of $1,000 per month. This accrued benefit is supposed to be payable at age 65. But if the Plan offers Early Retirement subsidies -- such as 3% per year prior to NR.

Then when you calculate the present value of that benefit -- you don't use $1,000 times a deferred to 65 annuity factor -- you would use $1000 * .85 * an immediate annuity factor -- as this is a more valuable benefit.

The same is true if the plan offers to pay the accrued benefit as a joint and survivor benefit with no reduction in the amount -- this is a subsidy -- and must be accounted for in the present value calculations.

Does that help?

Lastly in Example 8.7 what if the assets for green were 40k? Would the amount the PBGC is liable for be 52530 - 40000 or would it be (52530 - 3000 (PC1) - 2000 (PC2)) - 40000?
It would be 52530 - 40000. Assets ran out in category 4 -- so PC1 and PC2 have already been accounted for.

[drctypea]

traci - thx for the reply

i think i understand what you are saying in relation to 86-48, but let me see if i can further the discussion. The ruling also accounts for optional forms of benefit - does this mean (trying to keep my thinking in line with what you wrote) that we would theoretically need to calculate the AB under each different optional form provided and this would serve as our PC 6 liability? (minus of course benefits accounted for in other PC's)

the ruling also says that the items listed are included in teh PC6 liability even if participant has not yet satisfied the eligibility requirement. Does this mean that in your exmple below if the person was only say 58, but the ER eligibility/subsidies kicked in at 60, that we would assume for PC6 sake that the person obtained age 60.

Also - in your Example 8-9 you say that "Smith is assumed to be single as of the deemed distribution date." You then go on to solve the problem with this assumption. I then go to do Problem 15 from the 2001 exam. Here the problem also states that the participant is single - but then uses missing participant annuity assumptions assuming the J&S benefit (since we need the most valuable benefit). How come you did not do this in your example? Please explain.

Sry for being naive with this stuff.not much experience to help me out and this stuff i find very hard. ..thx

[Traci]

Okay -- I'm going to start over -- I apologize, I'm not doing a very good job of explaining this.

It's one of those things that when you get it - you just get it - but it's kind of tough to spell out ...

Anyway -- Okay - here we go:

Let's say that my accrued benefit is $1000 per month. The Normal Form of benefit is a life annuity - with optional forms of payment calculated using the actuarial equivalent.

To calculate my present value - there is no need to look at each optional form because the Plan states that all optional forms are AE -- so all we need to do is calculate the PV of the LA.

NOW -- sometimes a plan will say that the normal form is a life annuity but that the conversion to a J&S form of payment is something like .95 -- as opposed to the AE.

In that case -- the J&S benefit is being subsidized -- and so the J&S benefit is more valuable than the LA benefit. So we must include that subsidy (whether the participant is married at the time or not)

In my example 8-9 - no mention was made of any optional form subsidy -- but in 2001 #15, you are given a J&S reduction factor that ends up being a better deal for the participant than the LA -- and so you use it.

The same is true if ER is subsidized -- we must include the subsidies even if the participant has not yet reached eligibility for them.

For example -- Let's say NR = 65 and ER = 60 with a 3% per year reduction.

For a participant with AB = 1000 who is age 55 -- we would calculate the PV by taking the 1000 * .85 and multiply this by N(12)60/over D55 to get the present value.

This gives the participant the benefit of the ER subsidy.

If it's not clear whether ER is subsidized -- for example if the reduction is say 7% per year -- that may or may not be better than the annuity deferred to 65. Then you must calculate it both ways to make sure the participant is getting the most valuable benefit.

How are we doing???

[drctypea]

crystal clear

thanks for takign the time to explain it - appreciate it.

one more quick thing however - say the j&s reduction in problem 15 was 12%. This would give us a LS amount of 126.3*75*(1-.12) = 8335.8. This would be less than the life annuity LS of 116.8*75 = 8760. Are you saying then we would use the life annuity in this case because it is more valuable. This makes sense but the reg specifically says to assume the person is married: "4050.5(b)(2)..."

dont mean to harp on small points but this ties into my logic on thinking bout other questions.thx

[Traci]

one more quick thing however - say the j&s reduction in problem 15 was 12%. This would give us a LS amount of 126.3*75*(1-.12) = 8335.8. This would be less than the life annuity LS of 116.8*75 = 8760. Are you saying then we would use the life annuity in this case because it is more valuable. This makes sense but the reg specifically says to assume the person is married: "4050.5(b)(2)..."
Yes -- I think you would use the LA in that case - because even if they were married they would have the option to choose the most valuable form of payment.

Again - someone correct me if I'm wrong.

[OC girl]

Traci,

I am trying to download the study notes that you wrote, since everyone is saying how great it is. However, when I clicked on the link that is shown, I get an error message. Could you please let me know how I can download that study notes? Is there another link that I can try?

Thanks for your help in advance!

[Traci]

Hmmm -- I'm not sure why you're getting an error -- when I click on the link, it brings up the file.

If you would like, I can e-mail the word file to you -- just LMK -- I hope you find them helpful!

[student_actuary]

Traci,

I am trying to download the study notes that you wrote, since everyone is saying how great it is. However, when I clicked on the link that is shown, I get an error message. Could you please let me know how I can download that study notes? Is there another link that I can try?

Thanks for your help in advance!


I get an error too. Can you change the link or put it in some other place

Thanks a lot

[cb400f]

Try this:
http://www.actuarialoutpost.com/examlinks.html#ea

[colby2152]

This has to be outdated at this point...

[chipper28]

His study tips are available at http://www.studymanuals.com/excerpts/EA2B_2010_Study%20Tips_11-19-09.pdf.

But since you were looking last year, maybe you don't care!

[BadBeatMe]

I just wanted to provide the outline I made when I was studying for the 2010 EA-2B exam. It pretty much follows the order that Rick covers everything.

I make no guarantees about the content or quality of this. It's not even 6 full pages so it clearly doesn't contain everything you need to know. I felt like it was a good general overview of the important syllabus material so feel free to look through it and see if it helps you focus your studying.

Good luck!

[lg3]

This is just notes for 415 limit problems. They're not complete, but some people have found them helpful for remembering the ins and outs of all the crazy rules. Hope someone finds them helpful. Used these for the 2012 exams.