CEBS RPA 2 ACTUAL EXAM SCRIPT 2025/2026 QUESTIONS
WITH SOLUTIONS GRADED A+
✔✔Wage-related formula technique to reduce impact of postretirement inflation on
pension income: - ✔✔Measured on the basis of current wage measures to adjust
benefits.
✔✔If fail to comply w/ Sec 404(c) - ✔✔Statutory relief from fiduciary liability not
available
✔✔Traditional DB plan (often final avg pay) or cash balance plan combined, offering
participants both options: - ✔✔Minimum balance pension plan
✔✔SPD to be provided w/in how many days: - ✔✔90
✔✔Factor w/ highest impact in Black-Scholes pricing model: - ✔✔Expected volatility of
underlying stock's market price
✔✔Tax advantage of ISOs is that there is no regular income tax levied at grant or
exercise. However, tax applies in the following way(s): - ✔✔Bargain element upon
exercise of ISO is adjustment item for individual AMT purposes and participant of ISO
plan is taxed only when he/she sells the stock.
✔✔Penalties assessed on fiduciary for breach or violations: - ✔✔Personally liable;
excise tax of % of amount involved (15%); will NOT cause disqualification of plan.
✔✔Plans that allow sponsors to make contributions on discretionary basis: - ✔✔Age-
weighted profit sharing plans and New Comparability Plans.
✔✔Investment policy statement for qualified retirement plans for participant directed
includes: - ✔✔Number of options permitted, the range of investment options allowed
and default investment options.
✔✔Investment policy statement for qualified retirement plans for NOT participant
directed includes: - ✔✔Targeted asset allocation and frequency of rebalancing.
✔✔DB hybrid plan disadvantages: - ✔✔May erode sponsor's fundamental objective of
providing retirement benefits and younger participant's not perceiving sufficient value
quickly enough.
✔✔Proposed asset valuation for DB plan, statutory requirements %: - ✔✔Valuation b/w
90-110% of FMV
, ✔✔Pension equity plans are based on what? - ✔✔Final average pay and % credits that
worker receives each year he/she is plan participant
✔✔Reasons for deferring current income through deferred comp agreement: -
✔✔Extending exec.'s income beyond normal working years into retirement; spreading
bonuses over wider span of years; tying exec. to ER by stipulating conditions for receipt
of deferred amounts.
✔✔Minimum funding, as required by PPA: - ✔✔Present value of benefits expected to
accrue during plan year; increases in past service benefits b/c of expected increases in
comp during year; and current value of plan assets.
✔✔New comparability plans allocated group selection: - ✔✔Plan sponsors have wide
latitude in criteria used to establish allocation group..
✔✔Funds that represent the ultimate form of passive investing: - ✔✔Index funds
✔✔Equity index fund - ✔✔Replicates a particular index such as S&P 500 and designed
to generate a beta of 1.0 (rate of return on fund is expected to be equal to that of S&P
500); Based on the efficient market hypothesis (EMH), which states that securities
markets are efficient in processing of information (i.e., based on correct evaluation of all
info available at time).
✔✔Target Benefit Plans - ✔✔DC plans; not guaranteed; individual participant account
values reflect actual gains and losses from investments.
✔✔Two key events addressing implication of conversion from traditional DB plan to
hybrid plans: - ✔✔(1) Cash balance plans generally are and always have been legal
and (2) that DB plans are not age discriminatory if participant's accrued benefit is at
least equal to the accrued benefit of any similarly situated, younger individual.
✔✔Disadvantage of solo 401(k) plan - ✔✔Plan is required to comply w/ most of the
admin requirements of non-solo 401(k) plans.
✔✔Solo 401(k) plan - ✔✔401(k) offered to a one-person firm or a two-person firm,
usually composed of owner and spouse, that must comply w/ 401(k) admin
requirements except for 5500 filing--provided that assets are $250,000 or less.
✔✔EGTRRA change to solo 401(k) - ✔✔Elective deferral limits were increased
✔✔Keogh contribution formula: - ✔✔Keogh contribution rate X (net income minus EE
contributions minus 1/2 self-employment taxes) divided by (1 + Keogh contribution rate)
WITH SOLUTIONS GRADED A+
✔✔Wage-related formula technique to reduce impact of postretirement inflation on
pension income: - ✔✔Measured on the basis of current wage measures to adjust
benefits.
✔✔If fail to comply w/ Sec 404(c) - ✔✔Statutory relief from fiduciary liability not
available
✔✔Traditional DB plan (often final avg pay) or cash balance plan combined, offering
participants both options: - ✔✔Minimum balance pension plan
✔✔SPD to be provided w/in how many days: - ✔✔90
✔✔Factor w/ highest impact in Black-Scholes pricing model: - ✔✔Expected volatility of
underlying stock's market price
✔✔Tax advantage of ISOs is that there is no regular income tax levied at grant or
exercise. However, tax applies in the following way(s): - ✔✔Bargain element upon
exercise of ISO is adjustment item for individual AMT purposes and participant of ISO
plan is taxed only when he/she sells the stock.
✔✔Penalties assessed on fiduciary for breach or violations: - ✔✔Personally liable;
excise tax of % of amount involved (15%); will NOT cause disqualification of plan.
✔✔Plans that allow sponsors to make contributions on discretionary basis: - ✔✔Age-
weighted profit sharing plans and New Comparability Plans.
✔✔Investment policy statement for qualified retirement plans for participant directed
includes: - ✔✔Number of options permitted, the range of investment options allowed
and default investment options.
✔✔Investment policy statement for qualified retirement plans for NOT participant
directed includes: - ✔✔Targeted asset allocation and frequency of rebalancing.
✔✔DB hybrid plan disadvantages: - ✔✔May erode sponsor's fundamental objective of
providing retirement benefits and younger participant's not perceiving sufficient value
quickly enough.
✔✔Proposed asset valuation for DB plan, statutory requirements %: - ✔✔Valuation b/w
90-110% of FMV
, ✔✔Pension equity plans are based on what? - ✔✔Final average pay and % credits that
worker receives each year he/she is plan participant
✔✔Reasons for deferring current income through deferred comp agreement: -
✔✔Extending exec.'s income beyond normal working years into retirement; spreading
bonuses over wider span of years; tying exec. to ER by stipulating conditions for receipt
of deferred amounts.
✔✔Minimum funding, as required by PPA: - ✔✔Present value of benefits expected to
accrue during plan year; increases in past service benefits b/c of expected increases in
comp during year; and current value of plan assets.
✔✔New comparability plans allocated group selection: - ✔✔Plan sponsors have wide
latitude in criteria used to establish allocation group..
✔✔Funds that represent the ultimate form of passive investing: - ✔✔Index funds
✔✔Equity index fund - ✔✔Replicates a particular index such as S&P 500 and designed
to generate a beta of 1.0 (rate of return on fund is expected to be equal to that of S&P
500); Based on the efficient market hypothesis (EMH), which states that securities
markets are efficient in processing of information (i.e., based on correct evaluation of all
info available at time).
✔✔Target Benefit Plans - ✔✔DC plans; not guaranteed; individual participant account
values reflect actual gains and losses from investments.
✔✔Two key events addressing implication of conversion from traditional DB plan to
hybrid plans: - ✔✔(1) Cash balance plans generally are and always have been legal
and (2) that DB plans are not age discriminatory if participant's accrued benefit is at
least equal to the accrued benefit of any similarly situated, younger individual.
✔✔Disadvantage of solo 401(k) plan - ✔✔Plan is required to comply w/ most of the
admin requirements of non-solo 401(k) plans.
✔✔Solo 401(k) plan - ✔✔401(k) offered to a one-person firm or a two-person firm,
usually composed of owner and spouse, that must comply w/ 401(k) admin
requirements except for 5500 filing--provided that assets are $250,000 or less.
✔✔EGTRRA change to solo 401(k) - ✔✔Elective deferral limits were increased
✔✔Keogh contribution formula: - ✔✔Keogh contribution rate X (net income minus EE
contributions minus 1/2 self-employment taxes) divided by (1 + Keogh contribution rate)
