CPC Fiduciary Responsibility & Compliance Standards 4

Question 1

A pension consultant recommends that a plan trustee invest 60% of plan assets in the employer's own stock. This recommendation most likely violates which ERISA principle?

Accepted Answer

The diversification requirement under Section 404(a)(1)(C)

Answer

ERISA Section 404(a)(1)(C) requires fiduciaries to diversify plan investments to minimize the risk of large losses, and concentrating 60% in employer stock would likely violate this duty.

Question 2

The 'prudent expert' standard under ERISA differs from the common law 'prudent man' standard in that it requires:

Accepted Answer

The care, skill, prudence, and diligence of a knowledgeable person familiar with pension matters

Answer

ERISA's prudent expert standard is higher than the common law prudent man standard—it requires the skill of a knowledgeable person familiar with matters of pension fund management.

Question 3

Which exemption allows a plan to pay reasonable compensation to a party in interest for office space or legal, accounting, or other services?

Accepted Answer

ERISA Section 408(b)(2) statutory exemption

Answer

ERISA Section 408(b)(2) provides a statutory exemption allowing plans to pay reasonable compensation to parties in interest for necessary services including office space, legal, and accounting services.

Question 4

Under ERISA Section 404(c), a plan can shift investment decision liability to participants if the plan provides:

Accepted Answer

At least 3 diversified investment options with different risk/return profiles and sufficient investment information

Answer

Section 404(c) protection requires at least three diversified investment options with materially different risk/return profiles, adequate investment information, and the ability to give investment instructions.

Question 5

A fiduciary breach results in a $200,000 loss to the plan. Under ERISA Section 409, the breaching fiduciary is personally liable for:

Accepted Answer

The full $200,000 loss plus any profits made through the breach and equitable relief

Answer

ERISA Section 409 holds breaching fiduciaries personally liable to restore all plan losses and disgorge any profits realized through the breach, plus the plan may seek other equitable relief.

(CPC) Certified Pension Consultant Practice Test

(CPC) Certified Pension Consultant Practice Test

CPC Fiduciary Responsibility & Compliance Standards 4