My question is about
Achievable…"
You may note my frustration in this post. Please know I am very happy with Achievable.
I answered the question correctly selecting “57 y ear old with a $850,000 annual salary”. I am continually baffled by the questions/content about defined benefit plans. My context comes from years of managing most aspects of many qualified plans, including defined benefit plans and 401(k) retirement plans, except for performing actuarial services, early in my career. I also took a Pension course from Wharton. Very little from those early experiences matches what this exam prep stresses about defined benefit plans. I suspect that must be based on the actual exam content.
Does the Series 65, or the other FINRA exams for that matter, look at defined benefits plans solely on the basis of salary and proximity to retirement? If so, this is contrary to how defined benefit plans work in real life – years of service is nearly always a major variable in determining an accrued vested benefit. In fact many defined benefit plans have a slightly higher weight on service than salary! The other key variable is the plan’s definition of salary, such as final average salary (highest 5 years, or average of last 3 years, for example).
Do you know for certain that the exam I will take, Series 65, ignores the issue of years of service? If so, then I can most likely come up with the correct answer. However, in real life, more information would be needed to answer depending on the answer choices. A 57 year old employee who is a recent hire might retire at 65 with only 7 years of service. While that employee would be vested according to ERISA, the low years of service might produce an annual benefit of about 10.5% to 15.5% of salary whereas a 30 to 35 years of service retiree might have an annual benefit of 45% to 74% of salary. I used percentage ranges to reflect variations in quick and dirty formulas (1.5% to 2.2% of salary per year), for example).
I guess I am stumped and disappointed that FINRA would take an incorrect view of a qualified retirement plan. Yet, they are much more accurate with 401(k) plans. Any idea why this this? Does it some how make sense that I am not seeing?
It is true defined benefit plans are less common though they still exist for about 15% of private sector employees and about 86% of public employees.
Sorry this is long-winded.
Emilio_Rogahn