CGFO Pension Administration 3

Question 1

Under ERISA principles adapted for public plans, 'fiduciary duty of loyalty' requires pension trustees to:

Accepted Answer

Act solely in the interest of plan participants and beneficiaries

Answer

The duty of loyalty obligates fiduciaries to act exclusively for the benefit of plan participants and beneficiaries, not for political, social, or employer interests.

Question 2

The 'prudent investor rule' in pension fund management requires trustees to:

Accepted Answer

Manage the portfolio as a whole with risk-return considerations

Answer

The prudent investor rule requires fiduciaries to consider the risk and return of the total portfolio rather than judging each investment in isolation.

Question 3

A Cost-of-Living Adjustment (COLA) in a government pension plan is typically funded by:

Accepted Answer

Actuarial valuation projections built into contribution rates

Answer

COLAs granted in a defined benefit plan are typically projected in actuarial valuations and funded through the ongoing contribution rate-setting process.

Question 4

Which funding ratio threshold is commonly cited as a benchmark for a 'healthy' public pension plan?

Accepted Answer

80%

Answer

An 80% funded ratio (actuarial assets ÷ actuarial accrued liability) is commonly referenced as the minimum benchmark for a reasonably healthy pension plan, though 100% is the true goal.

Question 5

A pension plan's 'assumed rate of return' directly affects employer contributions because:

Accepted Answer

Higher assumed returns reduce the present value of liabilities and lower required contributions

Answer

A higher assumed investment return reduces the present value of future benefit obligations, resulting in lower calculated liabilities and employer contributions.

(CGFO) Certified Government Finance Officer Practice Test

(CGFO) Certified Government Finance Officer Practice Test

CGFO Pension Administration 3