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CPFA Exam WRITTEN PRACTICE SOLUTION
A) A TPA performs annual compliance testing. - >>>Which statement regarding service providers is TRUE? A) A TPA performs annual compliance testing. B) A recordkeeper has the legal obligation to provide an interpretation of a plan provision. C) An accountant processes the "money out" for a participant account. D) A plan advisor is responsible for drafting annual safe harbor notices. A) Provides efficient contribution and distribution processes. - >>>Which statement regarding bundled service arrangements is TRUE? A) Provides efficient contribution and distribution processes. B) Requires less fiduciary oversight than an unbundled service arrangement. C) Permits for specific single provider within the arrangement to be easily removed and replaced with another provider. D) Typical arrangement involves a TPA and an insurance company. A) Combining auto-enrollment with targeted education. - >>>Based on behavioral finance research, which of the following is a best practice for producing successful participant outcomes? A) Combining auto-enrollment with targeted education. B) Adding a self-directed brokerage option. C) Re-enrolling all participants into equity investments. D) Offering group meetings that focus on participants' rational decision making.
C) DEF has the right to "opt out" and be excluded from the related group. - >>>Company ABC and Company DEF are determined to be part of a related group of companies. All the following are TRUE except: A) The employees of both ABC and DEF may end up participating in one plan. B) ABC may be required to make contributions for its employees into DEF's plan. C) DEF has the right to "opt out" and be excluded from the related group. D) If DEF adopts a plan, ABC employees may be eligible for the plan. A) Adding an employer matching contribution equal to 25% up to 12% of compensation deferred. -
Which of the following plan designs may result in better participant deferral behavior? A) Adding an employer matching contribution equal to 25% up to 12% of compensation deferred. B) Adding a 3% nonelective safe harbor contribution. C) Adding a 1,000 hours of service requirement to receive the employer matching contribution. D) Adding a profit-sharing contribution. B) Can participants convert their existing contribution accounts to Roth accounts? - >>>An advisor is meeting with a Plan Sponsor to discuss contribution design in her plan. All of the following questions will help with this conversation, EXCEPT: A) Is there a goal that employees should be required to contribute to receive an employer contribution? B) Can participants convert their existing contribution accounts to Roth accounts? C) Is there a group of employees who are unlikely to participate in the plan? D) How important is it that employees are on track for adequate retirement income? B) Does the company have an established line of credit? - >>>Jake is a sole proprietor and has just established a software development company. He has recently hired two employees. Currently, the
B) Average deferral rate of participants in the plan. - >>>Which of the following reports can be used in measuring plan effectiveness and participant outcomes? A) Number of terminated participants who elected to roll their accounts into IRAs. B) Average deferral rate of participants in the plan. C) Independent accountant's required annual audit of the plan. D) Summary Annual Report. B) Participants receive a guarantee of lifetime income payments. - >>>All of the following are benefits of participant retirement readiness, EXCEPT: A) Employers can better manage their workforce needs. B) Participants receive a guarantee of lifetime income payments. C) Employees may be more satisfied with their jobs when working for an employer that actively promotes retirement readiness programs. D) Employers can work with service providers who have tools to assist participants in increasing retirement savings. A) What is the average life expectancy for the participants' beneficiaries? - >>>All of following are items to consider when developing a strategy to promote successful participant outcomes, EXCEPT: A) What is the average life expectancy for the participants' beneficiaries? B) Should investment advice be offered? C) Is senior level management interested in promoting "retirement readiness"? D) What type of participant education should be provided? D) Participant notices are not required. - >>>All of the following statements describe the re-enrollment process of reinvesting participant accounts in the plan's asset allocation funds, EXCEPT:
A) The re-enrollment of participant accounts is considered a behavioral finance method. B) Participants are given the opportunity to "opt-out" of the re-enrollment of their account balances. C) The goal of the re-enrollment process is to improve participant outcomes by automatically investing their account balances in asset allocation funds appropriate for their age. D) Participant notices are not required. C) Participant loans are allowed from a SIMPLE 401k plan but not a SIMPLE IRA. - >>>Which statement regarding IRA plans and 401k plans is TRUE? A) SIMPLE IRA plans are used to maximize plan benefits to owners. B) SIMPLE IRAs and 401ks have the same plan document requirements. C) Participant loans are allowed from a SIMPLE 401k plan but not a SIMPLE IRA. D) An employer may sponsor a SIMPLE IRA and a 401k plan in the same calendar year. B) An employer whose first priority is to maximize his or her retirement savings. - >>>A traditional 401k plan maybe an appropriate choice for all of the following employers, EXCEPT: A) An employer who feels strongly that his or her employees should take an active role in saving for retirement. B) An employer whose first priority is to maximize his or her retirement savings. C) An employer who is paternalistic and wants to help employees save by enacting automatic enrollment provisions. D) An employer who wants to encourage employee participation with matching contributions. D) SIMPLE IRA - >>>An owner-driven plan sponsor wants to retire in five to ten years. His company has a stable cash flow and ten employees. All of the following plan designs are compatible with the owner's goals, EXCEPT:
B) Plan advisor can assist the fiduciaries in compiling a list of potential service providers. C) Fiduciaries can make an "apples to apples" comparison of fees and services. D) The RFP and the responses can be part of the documentation that a prudent process was followed. D) Plan auditor - >>>All of the following service providers may assist with plan document maintenance, EXCEPT: A) ERISA attorney B) Recordkeeper C) TPA firm D) Plan auditor B) The party that distributes required notices to participants is considered a fiduciary. - >>>All of the following describe the required participant disclosure process, EXCEPT: A) The Plan Administrator or Plan Sponsor can hire a 3(16) fiduciary to distribute required participant notices. B) The party that distributes required notices to participants is considered a fiduciary. C) Generally, a TPA may prepare the safe harbor 401(k) notice. D) The Plan Administrator is responsible for the required disclosures being distributed to the participants. C) Willingness to provide revenue sharing to offset plan fees - >>>All of the following are important factors when selecting a service provider, EXCEPT: A) Service provider's financial stability B) Experience with plans of similar size and complexity
C) Willingness to provide revenue sharing to offset plan fees D) Qualifications of personnel that will service plan C) Adding a profit-sharing contribution based on years of service - >>>A 401(k) plan has poor participation among the rank-and-file employees. As a plan advisor, all of the following recommendations could boost plan participation, EXCEPT: A) Increasing the match amount from 25% to 50% of deferrals B) Allowing participant loans C) Adding a profit-sharing contribution based on years of service D) Add and auto-enrollment feature to the plan A) A 1,500 employee manufacturing firm - >>>A safe harbor 401(k) plan with a cross-tested profit- sharing contribution may be an appropriate choice for all of the following employers, EXCEPT: A) A 1,500 employee manufacturing firm B) A professional partnership with three partners and 50 employees C) A dentist's office with one owner and five employees D) A medical services company with 25 employees and two owners A) Participants and their beneficiaries - >>>ERISA requires that fiduciaries manage the plan for the exclusive benefit of which of the following parties? A) Participants and their beneficiaries B) Plan Sponsor C) Plan Administrator D) Business owner
D) Legal counsel who prepares the plan document - >>>All of the following may be named fiduciaries in a plan document, EXCEPT: A) Plan Sponsor B) Plan Administrator C) Plan Trustee D) Legal counsel who prepares the plan document A) Per Len's request, the Committee minutes will exclude the reason Len was asked to leave the committee. - >>>Sue is a plan advisor for the ABC Retirement Plan. On the agenda for the upcoming ABC Plan Committee meeting is an action item to replace Len and nominate a new member to the Committee. Len has been asked to leave the Committee due to his unsatisfactory attendance at monthly meetings. All of the following are best practices regarding fiduciary changes, EXCEPT: A) Per Len's request, the Committee minutes will exclude the reason Len was asked to leave the committee. B) Sue should educate the members on the importance of documenting fiduciary changes. C) The Committee minutes should document the process of naming Len's replacement. D) The new member should be informed of the goals of the Committee and attendance requirements. D) Make decision to replace funds on the watch list pursuant to the investment policy statement, prior to attending the investment committee meeting. - >>>Sharon is a 3(21) advisor. She is meeting with a potential client and is preparing for her meeting. All of the following are services that Sharon may offer the prospect, EXCEPT: A) Attend the client's investment committee meetings. B) Create the agendas for the client's investment committee meetings. C) Assist with the review of the investments.
D) Make decision to replace funds on the watch list pursuant to the investment policy statement, prior to attending the investment committee meeting. A) A Plan Trustee delegates some of his responsibilities to a discretionary trustee who he continues to monitor. - >>>All of the following represent potential breaches of fiduciary responsibility by plan fiduciaries, EXCEPT: A) A Plan Trustee delegates some of his responsibilities to a discretionary trustee who he continues to monitor. B) A Plan Sponsor chooses a bank's recordkeeping service without performing due diligence because the bank provides reduced rates on corporate banking services. C) A Plan Trustee deposits weekly payroll deferrals at the end of the quarter. D) A Plan Sponsor appoints a consultant to monitor the plan's service provider but then ignores the consultant's findings. D) A DOL investigation letter will usually ask for no more than five items related to the plan's operation. -
All of the following statements represent the DOL's role in overseeing plans, EXCEPT: A) Upon investigation the DOL may request information to identify whether a prohibited transaction has occurred. B) The DOL has provided correction methods for specific prohibited transactions. C) The DOL and IRS work together to coordinate enforcement on prohibited transaction issues. D) A DOL investigation letter will usually ask for no more than five items related to the plan's operation. C) The DOL website includes an online calculator that calculates earnings amounts to be paid to the plan. - >>>Which statement regarding the IRS and DOL correction programs is TRUE? A) The IRS and DOL correction programs cover identical plan errors.
practices, EXCEPT: A) Current fee benchmarking report for administration services B) Documentation of selection process for new payroll vendor C) Copies of retirement plan committee meeting minutes D) Copies of retirement plan committee agendas B) Plan document - >>>All of the following documents are updated annually, EXCEPT: A) 404(a)(5) participant fee disclosure B) Plan document C) Qualified default investment alternative notice D) Safe Harbor Matching 401(k) notices C) The corporate veil protects fiduciaries from personal liability. - >>>All of the following are consequences of fiduciary breaches, EXCEPT: A) A fiduciary should make good on any losses caused by his or her fiduciary breach. B) A fiduciary should restore any profits to the plan that had resulted due to his or her fiduciary breach. C) The corporate veil protects fiduciaries from personal liability. D) A fiduciary who has committed a breach may be removed and prohibited against serving as a fiduciary in the future. D) Owner-driven plans are not required to determine the reasonableness of plan fees due to their limited personnel and financial resources. - >>>All of the following are best practices for determining the reasonableness of plan fees, EXCEPT:
A) Determine whether each individual expense is reasonable. B) Research revenue sharing arrangements to determine the underlying cost of services. C) Determine whether any expenses paid to fiduciaries have violated the conflict of interest rules. D) Owner-driven plans are not required to determine the reasonableness of plan fees due to their limited personnel and financial resources. B) Fee associated with union negotiations regarding retirement plan benefits - >>>All of the following fees may be paid from the plan, EXCEPT: A) TPA fee for Form 5500 preparation B) Fee associated with union negotiations regarding retirement plan benefits C) Recordkeeper fee for maintaining participant accounts D) Investment advisory fee B) XYZ Inc., who is seeking to acquire STU, Inc. - >>>All of the following are parties-in-interest to the STU, Inc. Profit Sharing Plan, EXCEPT: A) Brian, who is a plan participant and the president's brother B) XYZ Inc., who is seeking to acquire STU, Inc. C) Independent auditor of the Plan's financial statements D) Legal counsel to the Plan B) Plan Accountant - >>>ERISA defines the following as plan fiduciaries, EXCEPT: A) Plan Sponsor B) Plan Accountant
C) A balanced fund qualifies as a QDIA. D) An appropriate QDIA qualifies for fiduciary safe harbor relief. A) Excess revenue sharing can revert to the plan sponsor. - >>>All of the following statements about revenue sharing are TRUE, EXCEPT: A) Excess revenue sharing can revert to the plan sponsor. B) Revenue sharing can be used to pay plan operational expenses. C) Revenue sharing can be credited to participant accounts. D) Revenue sharing is subject to the ERISA prudency rules. D) Investments that provide revenue sharing must be removed from the investment line-up. - >>>Jack is a plan advisor and is meeting with his client, the JKL 401(k) Plan Committee to conduct an investment review. All of the following are best practices in an investment review, EXCEPT: A) Investment performance is compared against the investment policy statement criteria. B) Jack discusses the plan's demographics and how changes impact participant outcomes. C) Investments are put on the watch list if they do not meet the investment policy statement criteria. D) Investments that provide revenue sharing must be removed from the investment line-up. B) Beneficiary's tax liability of account balance after participant's death - >>>All of the following are components of gap analysis, EXCEPT: A) Projection of participant's current account balance through retirement B) Beneficiary's tax liability of account balance after participant's death C) Participant's deferral rate D) Projected investment return
D) They require less fiduciary oversight than other types of funds. - >>>All of the following are characteristics of target date funds, EXCEPT: A) They are designed so that the equity portion decreases as the fund nears a specified date. B) They are diversified to minimize the risk of large losses. C) They can be used to reduce fiduciary liability under the qualified default investment alternative rules. D) They require less fiduciary oversight than other types of funds. B) They provide guaranteed retirement income for participants. - >>>All of the following are characteristics of asset allocation funds, EXCEPT: A) They are generally designed to be the sole investment holding for a participant. B) They provide guaranteed retirement income for participants. C) They have exposure to multiple asset classes. D) They are designed to meet a specific objective. B) Self-directed brokerage accounts may be offered only to investment savvy participants. - >>>The JKL Company recently established a 401(k) Plan and hired Larry as its plan advisor. The Plan Committee, with Larry's assistance, has just finalized the investment policy statement. The next step is to start the investment selection process. Larry is planning to discuss all the following issues regarding investment selection, EXCEPT: A) The investment line-up should be diversified. B) Self-directed brokerage accounts may be offered only to investment savvy participants. C) Investment fees must be reasonable. D) The investments selected should represent asset classes across a risk/reward spectrum.
up. The investment policy statement (IPS) does not include any selection criteria regarding socially responsible investing. The Committee may take all the following actions, EXCEPT: A) If the Committee decides to remove the fund, the IPS must be updated to permit this removal. B) The Committee must consider the participants' needs. C) No action can be taken due to the fund's superior performance. D) The issue should be documented A) They offer a professionally managed investment. - >>>Which statement describes a benefit of using target date funds as a qualified default investment alternative? A) They offer a professionally managed investment. B) They provide a guaranteed rate of interest. C) They require minimal fiduciary oversight. D) They guarantee against loss of principal. A) Asset allocation funds are designed to be the sole investment holding for a participant. - >>>Which statement regarding investment options is TRUE? A) Asset allocation funds are designed to be the sole investment holding for a participant. B) Collective investment funds are managed by insurance companies. C) Balanced funds are designed to shift to more conservative investments as the participant ages. D) Stable value funds are a good choice for a qualified default investment alternative. C) Passive funds generally offer significantly more revenue sharing than other investment options. -
All of the following statements generally describe passively managed investment funds, EXCEPT:
A) Funds that use a passive strategy manage to a market benchmark. B) Passive investment managers believe in market efficiency. C) Passive funds generally offer significantly more revenue sharing than other investment options. D) Passive funds generally have lower investment costs than actively managed funds. B) A plan is required to offer passively managed funds as part of an expanded core line-up. - >>>Louis is a plan advisor who is preparing for his initial meeting with the Investment Committee of a new client. While reviewing previous meeting minutes, he notices that the Committee wants to expand its core fund line-up. In the upcoming meeting, Louis may discuss all the following issues regarding a prudent investment selection process, EXCEPT: A) It is a best practice to document the process used for selecting the new investments. B) A plan is required to offer passively managed funds as part of an expanded core line-up. C) It is prudent to review the investment policy statement before making changes to the investment line-up. D) Expanding the core line-up is a fiduciary responsibility, but it does not need to be performed by a 3(21) or 3(38) advisol. D) An IPS must include a listing of all investments offered by the plan. - >>>All the following are prudent practices for creating an investment policy statement (IPS), EXCEPT: A) A plan advisor may assist the plan fiduciaries in drafting an IPS. B) An IPS should outline a prudent process for the monitoring of investments. C) An IPS should avoid the specificity that can be a "roadmap for a lawsuit." D) An IPS must include a listing of all investments offered by the plan. D) Target date funds and target risk funds both have glide paths. - >>>All the following are characteristics of asset allocation funds, EXCEPT:
