CEBS RPA 2 QUESTIONS AND ANSWERS RATED
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✔✔Tactical - ✔✔systematic market timing to determine when allocation changes will
occur. Under this approach, the asset allocation path is not prescribed; it will vary with
the manager's assessment of financial market conditions and the relative valuations for
various asset classes.
✔✔Growth of Target Date Funds - ✔✔1. a means to simplify the retirement investment
decisions of plan participants
2. designation by the U.S. Department of Labor of TDFs as one type of qualified default
investment alternative
✔✔Qualified Default Investment Alternative (QDIA) - ✔✔A default investment used to
invest a participant's money if that participant did not choose an investment. It is
diversified to minimize the risk of large losses. A "qualified" default investment
alternative is a safe harbor for fiduciary standards.
✔✔Four key considerations in evaluating and adopting TDFs - ✔✔1. Asset allocation
glide path
2. Passive or active management
3. Packaged or customized solution
4. Impact on participant portfolios.
✔✔Hybrid retirement plans - ✔✔Blend attributes of traditional defined benefit pension
plans and traditional defined contribution plans. Are implemented to meet plan
objectives that plan sponsors find difficult to achieve with either traditional defined
benefit or traditional defined contribution plans, alone or in pairs.
✔✔Features of defined benefit hybrid plans - ✔✔Promise a specific benefit level for
participants. Plan sponsors manage investing plan assets and bears the investment
risk. Subject to ERISA. Distribution of benefits in annuity form or lump sum payments.
, ✔✔Difference in Cash Balance Plan - ✔✔More accrual takes place in early years of
service. More favorable to younger workers because of portability and earlier benefit
accrual.
✔✔Minimum balance pension - ✔✔A cash balance variant that offers participants the
greater benefit of either a traditional defined benefit pension plan, often final average
pay, or the benefit accumulated by the cash balance method, based on career average
pay.
✔✔Pension wear-away - ✔✔when switching from a DB to cash balance plan, older
people lose benefits, PPA prohibits after June 29, 2005.
✔✔Approaches to converting from DB plan to Hybrid plan - ✔✔Allow all employees to
choose between the old and new plans. Allow employees option to remain on old plan.
Make adjustments to initial account balances of the new plan. Make additional
contributions to other employer-sponsored plans.
✔✔Pension Protection Act - ✔✔Amended ERISA and offered legislation to strengthen
and protect many types of pensions. Amended IRC, ADEA to provide benefits that are
not age-discriminatory.
✔✔Defined contribution hybrid plan - ✔✔Combines DC plan structure with attributes of
a DB plan. The DB attributes are the ability to allocate benefits in favor of specific
participant groups or to make plan sponsor contributions determined actuarially and set
as fixed obligations. DC hybrid plans include target benefit plans, age-weighted profit-
sharing plans and new comparability plans.
✔✔Contributions under target benefit plan - ✔✔Determined actuarially to meet income
replacement targets established in the plan at inception. Once an initial contribution
formula is established, subsequent adjustments to actuarial assumptions are not made.
Contributions heavily weighted by age to favor older participants in target benefit plans.
✔✔Age-weighted profit sharing plan - ✔✔traditional profit-sharing plan structure is the
base plan for plan qualification purposes. Age factors are used to allocate contributions
more heavily to older participants. Tend to appeal to smaller employers with older
executive staff and younger rank-and-file employees.
✔✔New comparability plans - ✔✔Divide participants into separate allocation groups to
provide larger percentage contributions to select participants. Plan sponsors use criteria
to establish allocation groups, such as job descriptions, ownership interest, age and
length of service, and have flexibility in determining how the allocation process will work
under these plans.
✔✔Cross-testing - ✔✔Referred to as benefits testing. Used to satisfy nondiscrimination
testing in age-weighted profit sharing plans and new comparability plans.
A+
✔✔Tactical - ✔✔systematic market timing to determine when allocation changes will
occur. Under this approach, the asset allocation path is not prescribed; it will vary with
the manager's assessment of financial market conditions and the relative valuations for
various asset classes.
✔✔Growth of Target Date Funds - ✔✔1. a means to simplify the retirement investment
decisions of plan participants
2. designation by the U.S. Department of Labor of TDFs as one type of qualified default
investment alternative
✔✔Qualified Default Investment Alternative (QDIA) - ✔✔A default investment used to
invest a participant's money if that participant did not choose an investment. It is
diversified to minimize the risk of large losses. A "qualified" default investment
alternative is a safe harbor for fiduciary standards.
✔✔Four key considerations in evaluating and adopting TDFs - ✔✔1. Asset allocation
glide path
2. Passive or active management
3. Packaged or customized solution
4. Impact on participant portfolios.
✔✔Hybrid retirement plans - ✔✔Blend attributes of traditional defined benefit pension
plans and traditional defined contribution plans. Are implemented to meet plan
objectives that plan sponsors find difficult to achieve with either traditional defined
benefit or traditional defined contribution plans, alone or in pairs.
✔✔Features of defined benefit hybrid plans - ✔✔Promise a specific benefit level for
participants. Plan sponsors manage investing plan assets and bears the investment
risk. Subject to ERISA. Distribution of benefits in annuity form or lump sum payments.
, ✔✔Difference in Cash Balance Plan - ✔✔More accrual takes place in early years of
service. More favorable to younger workers because of portability and earlier benefit
accrual.
✔✔Minimum balance pension - ✔✔A cash balance variant that offers participants the
greater benefit of either a traditional defined benefit pension plan, often final average
pay, or the benefit accumulated by the cash balance method, based on career average
pay.
✔✔Pension wear-away - ✔✔when switching from a DB to cash balance plan, older
people lose benefits, PPA prohibits after June 29, 2005.
✔✔Approaches to converting from DB plan to Hybrid plan - ✔✔Allow all employees to
choose between the old and new plans. Allow employees option to remain on old plan.
Make adjustments to initial account balances of the new plan. Make additional
contributions to other employer-sponsored plans.
✔✔Pension Protection Act - ✔✔Amended ERISA and offered legislation to strengthen
and protect many types of pensions. Amended IRC, ADEA to provide benefits that are
not age-discriminatory.
✔✔Defined contribution hybrid plan - ✔✔Combines DC plan structure with attributes of
a DB plan. The DB attributes are the ability to allocate benefits in favor of specific
participant groups or to make plan sponsor contributions determined actuarially and set
as fixed obligations. DC hybrid plans include target benefit plans, age-weighted profit-
sharing plans and new comparability plans.
✔✔Contributions under target benefit plan - ✔✔Determined actuarially to meet income
replacement targets established in the plan at inception. Once an initial contribution
formula is established, subsequent adjustments to actuarial assumptions are not made.
Contributions heavily weighted by age to favor older participants in target benefit plans.
✔✔Age-weighted profit sharing plan - ✔✔traditional profit-sharing plan structure is the
base plan for plan qualification purposes. Age factors are used to allocate contributions
more heavily to older participants. Tend to appeal to smaller employers with older
executive staff and younger rank-and-file employees.
✔✔New comparability plans - ✔✔Divide participants into separate allocation groups to
provide larger percentage contributions to select participants. Plan sponsors use criteria
to establish allocation groups, such as job descriptions, ownership interest, age and
length of service, and have flexibility in determining how the allocation process will work
under these plans.
✔✔Cross-testing - ✔✔Referred to as benefits testing. Used to satisfy nondiscrimination
testing in age-weighted profit sharing plans and new comparability plans.
