CPC Fiduciary Responsibility & Compliance Standards 3 — Questions and Answers
Question 1: Under ERISA Section 3(38), an 'investment manager' must be all of the following EXCEPT:
- A registered investment adviser under the Investment Advisers Act
- A bank or insurance company
- Acknowledged in writing to be a plan fiduciary
- A licensed broker-dealer registered with FINRA (Correct answer)
Correct answer: A licensed broker-dealer registered with FINRA
ERISA Section 3(38) defines an investment manager as an RIA, bank, or insurance company that acknowledges fiduciary status in writing; broker-dealer registration alone does not qualify.
Question 2: The 'named fiduciary' requirement under ERISA Section 402(a) serves what primary purpose?
- To limit the number of individuals who can manage plan investments
- To identify at least one person with authority to control and manage plan operations, ensuring accountability (Correct answer)
- To designate who must sign the Form 5500
- To determine who receives fiduciary liability insurance coverage
Correct answer: To identify at least one person with authority to control and manage plan operations, ensuring accountability
ERISA requires every plan to have a named fiduciary so participants and the DOL can identify who is responsible for plan management and operations.
Question 3: Which of the following is NOT a fiduciary duty under ERISA's Section 404 standards?
- Acting with care, skill, prudence, and diligence
- Diversifying plan investments to minimize risk of large losses
- Maximizing investment returns regardless of risk (Correct answer)
- Acting in accordance with plan documents
Correct answer: Maximizing investment returns regardless of risk
ERISA requires prudence and diversification, not return maximization—fiduciaries must balance risk and return, not simply chase the highest returns.
Question 4: A plan administrator fails to provide a participant with a requested Summary Plan Description within the ERISA-mandated timeframe. The maximum civil penalty per day is:
- $50
- $110 (Correct answer)
- $250
- $1,000
Correct answer: $110
The DOL can assess a civil penalty of up to $110 per day (periodically adjusted for inflation) for failing to provide required documents to participants upon request.
Question 5: The concept of 'settlor functions' is important in fiduciary analysis because:
- Settlor functions trigger the highest level of fiduciary scrutiny
- Decisions about plan design and establishment are generally not fiduciary acts (Correct answer)
- Only settlor functions can be delegated to third parties
- Settlor functions automatically make the employer a plan fiduciary
Correct answer: Decisions about plan design and establishment are generally not fiduciary acts
Courts and the DOL distinguish between settlor functions (plan design, amendment, termination) which are business decisions, and fiduciary functions (plan administration) which trigger ERISA duties.
Question 6: Under the DOL's investment advice fiduciary rule, a financial professional giving rollover recommendations is subject to fiduciary standards when the recommendation:
- Is made in writing only
- Is part of a regular business relationship and is individualized to the investor (Correct answer)
- Involves only mutual funds and not other securities
- Is provided free of charge without compensation
Correct answer: Is part of a regular business relationship and is individualized to the investor
The DOL's fiduciary rule applies when advice is provided as part of a regular business relationship, is individualized, and the adviser receives compensation directly or indirectly.
Question 7: ERISA Section 412 requires that every fiduciary of an employee benefit plan be bonded. The bond amount must be at least:
- $1,000 or 5% of plan assets, whichever is less
- 10% of the amount of funds handled, up to $500,000 ($1,000,000 for plans holding employer securities) (Correct answer)
- 25% of annual employer contributions
- $100,000 regardless of plan size
Correct answer: 10% of the amount of funds handled, up to $500,000 ($1,000,000 for plans holding employer securities)
ERISA Section 412 requires a fidelity bond of at least 10% of plan assets handled (minimum $1,000), with a cap of $500,000 or $1,000,000 for plans with employer securities.
CPC Fiduciary Responsibility & Compliance Standards 3
Under ERISA Section 3(38), an 'investment manager' must be all of the following EXCEPT: