CPC Fiduciary Responsibility & Compliance Standards

Question 1

What is a fiduciary's primary duty?

Accepted Answer

Act in the participants' best interest

Answer

A fiduciary's primary duty in managing a retirement plan is to act solely in the best interest of the plan participants and beneficiaries. This 'duty of loyalty' requires fiduciaries to make decisions that prioritize the financial well-being and retirement security of those covered by the plan. They must put participants' interests above all other considerations, including their own or the employer's.

Question 2

Which law defines fiduciary responsibilities for retirement plans?

Accepted Answer

ERISA

Answer

The Employee Retirement Income Security Act of 1974 (ERISA) is the federal law that explicitly defines the fiduciary responsibilities for individuals and entities involved in managing private sector retirement plans. ERISA establishes strict standards of conduct, requiring fiduciaries to act prudently, diversify investments, and operate solely in the interest of plan participants and beneficiaries. This legal framework protects retirement savings.

Question 3

What action should a fiduciary take to avoid conflicts of interest?

Accepted Answer

Disclose and avoid conflicts

Answer

To uphold their fiduciary duty, individuals must proactively identify and address potential conflicts of interest. The appropriate action is to disclose any situations where personal interests might influence plan decisions and, crucially, to take steps to avoid such conflicts entirely. This ensures impartiality and protects participants' interests, maintaining the integrity of the fiduciary role.

Question 4

Which best describes the 'prudent man' standard?

Accepted Answer

Act with care and diligence

Answer

The 'prudent man' standard, often referred to as the 'prudent expert' standard in ERISA, requires fiduciaries to act with the care, skill, prudence, and diligence that a prudent person familiar with such matters would use in similar circumstances. This means making informed decisions based on thorough research and professional advice, prioritizing the security and growth of plan assets for the benefit of participants.

Question 5

What is a fiduciary breach?

Accepted Answer

Failing to act in participants' best interests

Answer

A fiduciary breach occurs when an individual or entity with fiduciary responsibility fails to uphold their legal and ethical duties to a retirement plan. This typically involves making decisions or taking actions that are not solely in the best interest of the plan participants and beneficiaries. Such a failure can lead to financial harm for participants, non-compliance with regulations, and potential legal consequences for the fiduciary.

(CPC) Certified Pension Consultant Practice Test

(CPC) Certified Pension Consultant Practice Test

CPC Fiduciary Responsibility & Compliance Standards