Practice Test Geeks(CPC) Certified Pension Consultant Practice Test
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Financial Planning & Investment Strategies Flashcards

7 cards from real CPC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Financial Planning & Investment Strategies flashcards as text

  1. A pension consultant recommends rebalancing a portfolio from 65/35 equity/bond back to target weights after a strong equity rally. This practice primarily manages:

    Answer: Drift risk and unintended asset allocation exposure

    Rebalancing corrects drift from target allocations caused by differential asset class returns, preventing unintended concentration risk.

  2. The Sharpe ratio measures a portfolio's excess return per unit of:

    Answer: Total risk (standard deviation)

    The Sharpe ratio equals (portfolio return − risk-free rate) ÷ portfolio standard deviation, rewarding returns per unit of total volatility.

  3. Which type of investment manager benchmark is MOST appropriate for evaluating a passive index fund?

    Answer: The exact index the fund replicates

    Passive index funds should be evaluated against the specific index they track, as their goal is to replicate — not beat — that index.

  4. Under ERISA Section 404(c), plan fiduciaries are relieved of liability for participant investment losses when:

    Answer: The plan offers at least three diversified investment options and participants exercise independent control

    ERISA 404(c) relief applies when the plan offers a broad range of investment alternatives (at least three diversified options) and participants exercise control over their accounts.

  5. A pension plan holds alternative investments including private equity and hedge funds primarily to achieve:

    Answer: Enhanced returns and diversification through low correlation with public markets

    Alternatives offer return premiums (illiquidity premium) and low correlations to public equity and bonds, improving portfolio efficiency.

  6. When evaluating an active equity manager, which statistic BEST isolates skill from luck over a short time period?

    Answer: Information ratio (IR)

    The information ratio (active return ÷ tracking error) measures consistency of outperformance, making it a better indicator of manager skill than raw returns.

  7. A cash balance plan credits participant accounts with a fixed pay credit and an interest credit. The interest rate risk in a cash balance plan is borne by:

    Answer: The plan sponsor, since they must fund the guaranteed interest credit

    In a cash balance plan, the employer (plan sponsor) guarantees both pay credits and interest credits, assuming investment and interest rate risk.