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Sample CPFA Practice Questions
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1The numbering in ERISA fiduciary roles 3(16), 3(21), and 3(38) refers to which part of ERISA?
A.Section 3, which contains the statute's definitions
B.Title III of the regulations
C.The third Department of Labor field assistance bulletin
D.Section 3 of the Internal Revenue Code
Explanation: The '3' in 3(16), 3(21), and 3(38) comes from Section 3 of ERISA, the definitions section. Each parenthetical number is a specific subsection defining a particular fiduciary role.
2Which fiduciary role is defined under ERISA Section 3(16)?
A.Investment manager with discretion over plan assets
B.Plan administrator responsible for plan operations and required disclosures
C.Investment adviser who only makes recommendations
D.Trustee who holds title to plan assets
Explanation: ERISA 3(16) defines the plan administrator, responsible for administrative functions such as reporting, required disclosures, and operating the plan. A 3(16) fiduciary handles administrative rather than investment decisions.
3A 3(21) investment fiduciary differs from a 3(38) investment manager primarily because the 3(21) fiduciary:
A.Takes full discretionary control and shifts investment liability away from the plan sponsor
B.Handles only Form 5500 filings
C.Provides recommendations that the plan sponsor must approve or reject
D.Cannot be compensated for advice
Explanation: A 3(21) fiduciary provides investment advice and recommendations, but the plan sponsor retains final decision-making authority and shares liability. A 3(38) manager has discretionary authority and assumes investment liability.
4When a plan sponsor hires a 3(38) investment manager, what is the sponsor's remaining fiduciary responsibility?
A.No fiduciary duty remains for any aspect of the plan
B.Filing the manager's Form ADV with the SEC
C.Approving every individual investment trade
D.Prudently selecting and monitoring the 3(38) manager
Explanation: Appointing a 3(38) manager shifts investment-selection liability to the manager, but the sponsor retains the duty to prudently select and monitor the manager. This selection-and-monitoring duty cannot be delegated away.
5ERISA's duty of loyalty requires that a fiduciary act:
A.Solely in the interest of plan participants and beneficiaries
B.In the best interest of the plan sponsor's shareholders
C.To maximize the service provider's compensation
D.To minimize the employer's tax liability
Explanation: ERISA's duty of loyalty (the exclusive benefit rule) requires fiduciaries to act solely in the interest of participants and beneficiaries for the exclusive purpose of providing benefits and defraying reasonable plan expenses.
6ERISA's 'prudent expert' standard of care requires a fiduciary to act with the care, skill, and diligence that:
A.An average layperson would use with personal savings
B.A prudent person familiar with such matters would use
C.The plan's most aggressive participant would prefer
D.A government regulator would mandate in writing
Explanation: ERISA's duty of prudence requires fiduciaries to act with the care, skill, prudence, and diligence that a prudent person familiar with such matters would use. This is judged by the process used, not solely by investment outcomes.
7The ERISA duty to diversify plan investments is intended primarily to:
A.Guarantee a minimum rate of return
B.Eliminate all investment expenses
C.Minimize the risk of large losses unless clearly prudent not to
D.Ensure participants hold employer stock
Explanation: ERISA requires fiduciaries to diversify plan investments to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. Diversification reduces concentration risk.
8Under ERISA, a person is a functional fiduciary when they:
A.Are merely listed as a plan recordkeeper
B.Are named in the summary plan description as an employee
C.Receive a W-2 from the plan sponsor
D.Exercise discretionary authority or control over plan management or assets
Explanation: ERISA imposes fiduciary status based on function: anyone who exercises discretionary authority or control over plan management, plan assets, or administration is a fiduciary, regardless of title. Rendering investment advice for a fee also confers fiduciary status.
9The ERISA 'exclusive benefit rule' requires plan assets to be held for the exclusive purpose of:
A.Providing benefits to participants and defraying reasonable plan expenses
B.Funding the employer's general operating budget
C.Building reserves for the recordkeeper
D.Reimbursing the plan sponsor's marketing costs
Explanation: The exclusive benefit rule mandates that plan assets be used only to provide benefits to participants and beneficiaries and to pay reasonable expenses of administering the plan. Diverting assets to the employer violates this rule.
10A fiduciary's adherence to the 'duty to follow plan documents' under ERISA means the fiduciary must:
A.Always follow the plan document even if it violates ERISA
B.Follow the plan document insofar as it is consistent with ERISA
C.Ignore the plan document when participants object
D.Amend the plan document at each board meeting
Explanation: ERISA requires fiduciaries to act in accordance with plan documents, but only to the extent the documents are consistent with ERISA. A provision that conflicts with ERISA cannot be followed.
About the CPFA Practice Questions
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