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CPFA PASSED TESTPRACTICE exam
Under the DOL regulation, many advisors to retirement plans and their participants will be - >>>3(21) fiduciaries. They will act alongside other fiduciary service providers who are also not necessarily named in the plan document but who exercise discretionary control over plan provisions or plan investments. The advisor should educate the - >>>plan sponsor about hiring fiduciary service providers, including the different roles service providers, including the different roles service providers may take on within the plan, how to select a qualified candidate, and the plan sponsor's ongoing responsibility to monitor them. The fiduciary definition has two parts: - >>>who is a fiduciary to what extent the person is a fiduciary Clarifying fiduciary status is arguably incomplete without addressing both. A best practice for a service provider's formal description of services might therefore include two parts: -
a. an acknowledgment of fiduciary status b. clarification as to the extent of responsibilities As a non-fiduciary advisor, you can - >>>educate your client and present possible investments for the Retirement Plan Committee consideration. If you recommend a specific fund replacement to the plan sponsor or plan participants, you are considered to be - >>>giving investment advice and are therefore a functional fiduciary to the plan. If fiduciaries of participants use your recommendations - as opposed to information - to make investment decisions, this could be considered - >>>a fiduciary act
As a non-fiduciary advisor, you can meet with your client on a recurring basis (quarterly, annually, etc) if providing - >>>general investment reports or discussing the appropriateness of the investments to the plan without making specific investment suggestions. Plan fiduciaries will almost always have to hire - >>>service providers for their plan under their ERISA "duty to obtain expert assistance." As a best practice, the advisor can help fiduciaries select: - >>>the service providers, which usually includes a TPA and a record keeper. In owner driven smaller plans, the advisor can assist the - >>>plan sponsor's HR staff - which is likely to be one person in working with the various plan service providers. In larger participant driven plans, the advisor can work with - >>>the HR director, CFO, and the retirement plan committee to evaluate service providers. A 3(21) fiduciary does not serve as a fiduciary investment manager, but instead usually as -
investment advice fiduciary f your client wants an advisor to manager plan investments, or just the QDIA, they can hire a - >>>3(38) fiduciary advisor. A 3(21) fiduciary advisors can recommend investments but the final decision on which investments to choose is up to the - >>>plan fiduciaries. A 3(16) plan administrator can take on administrative duties for the plan but does not act in - >>>an investment capacity. A non-fiduciary advisors can provide - >>>education
For example: Are there any plan amendments? Does he or she have copies of the required participant notices (including participant fee disclosure) and account statements? Where are the 408(b)(2) fee disclosure notices? Does he or she have evidence that looked at the fee disclosure to determine if plan fees are reasonable? You can also assist the plan sponsor in identifying the - >>>plan service providers who may have copies of these documents, and assist him in setting up a fiduciary file. You may also want to show the sponsor a - >>>sample DOL investigation letter, so he is aware of what the DOL might ask in advance of an investigation. You can point out that unsigned documents or amendments and/or missing and incomplete plan documentation may put him at risk in an audit. You should assure the that Plan Sponsor is aware of - >>>both your role as an investment fiduciary regulations and what documentation she may need to review based on specific financial institution requirements. The advisor or the CPA is not responsible for - >>>the required plan amendments. The TPA or ERISA counsel can prepare the required amendment. The plan docs need to be amended when - >>>there is a law change that impacts the plan, or when the fiduciaries are changing the plan provisions. It is the fiduciaries' responsibility to - >>>distribute fee disclosures notices, the record keeper is the one who prepares them. The plan document, IPS, and SPD are only required to be updated if - >>>changes have been made by the plan fiduciaries or law changes require a plan amendment and changes to the SPD.
Fiduciaries have personal liability for - >>>a "breach" of their duties. It is important to remind the fiduciaries that an investment involving a party in interest is prohibited even if - >>>it has been beneficial to the plan participants and beneficiaries. The prohibited transaction still must be corrected. Correcting prohibited transactions may or may not be done through - >>>the DOL Voluntary Fiduciary Corrections Program (VFCP). Regardless, it is not the advisor's role to correct prohibited transactions. Fiduciaries should consult an ERISA attorney to identified prohibited transactions and assist in correcting the transactions. Transactions should be corrected as soon as possible to avoid additional taxation. Non-traditional plan investments can be associated with - >>>prohibited transactions It is a best practice to recommend that an ERISA attorney review - >>>non-traditional plan investments to identify potential prohibited transactions. Spouses and lineal relatives of plan fiduciaries, such as children, are - >>>parties in interest Service providers to the plan, such as CPAs doing audits, ERISA counsel, and plan advisors are also -
parties in interest Deferrals must be - >>>deposited as soon as possible after the payroll is run or it is a fiduciary breach. Not only are late deferral deposits and investing with a party in interest prohibited transactions, they may be fiduciary breaches as well. Fiduciaries are liable for these transactions and should contact ERISA counsel on how to remedy them. Improper valuation of privately held employer stock and purchasing a stock investment based on a tip from a broker are errors that - >>>cannot be corrected using the DOL correction program.
appointment of a TPA who serves as the named Plan Administrator: - >>>they are not directly liable for the duties delegated, although they are still responsible for overseeing the service providers for whom they delegated the duties. The main responsibilities of the plan sponsor are - >>>prudently selecting and monitoring named fiduciaries and maintaining plan records. Safekeeping of plan assets is a responsibility of the - >>>plan trustee Providing summary plan descriptions to participants is a responsibility of - >>>the plan administrator The trustee is responsible for - >>>safekeeping of plan assets, including pursuing monies owed to the plan, overseeing investment managers and serving on an investment committee (typical of a larger plan) Plan administrators are responsible for - >>>operation of the plan, which includes filing required forms and providing information to participants. ERISA requires that fiduciaries manage the plan for the exclusive benefit of which of the following parties? - >>>participants and their beneficiaries June is a Plan Sponsor of a small plan and decided she'll be acting as the sole fiduciary of the plan. All of the following are her responsibilities except? - >>>Give investment advice to participants Under ERISA, the Plan Admin has the following roles, except? - >>>Redesigning the plan's employer matching contribution formula Under ERISA, all of the following are Plan Trustee responsibilities, except? - >>>Oversee the plan administrator
All of the following may be named fiduciaries in a plan document, except? - >>>Legal counsel who prepares the plan document 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? - >>>Per Len's request, the Committee minutes will exclude the reason Len was asked to leave the committee. 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? - >>>Make decisions to replace funds on the watch list pursuant to the investment policy statement, prior to attending the investment committee meeting. All of the following represent potential breaches of fiduciary responsibility by plan fiduciaries, except? -
A plan trustee delegates some of his responsibilities to a discretionary trustee who he continues to monitor. All of the following statements represent the DOL's role in overseeing plans, except? - >>>A DOL investigation letter will usually ask for no more than five items related to the plan's operation. Which statement regarding the IRS and the DOL corrections programs is true? - >>>The DOL website includes an online calculator that calculates earnings earnings amounts to be paid to the plan. All of the following statements describe characteristics of ERISA fidelity bonds and fiduciary insurance, except? - >>>An ERISA fidelity bond protects the employee from any error made when submitting contributions to a service provider. Larry is the owner of DEF company. Which of Larry's activities is considered a fiduciary function? - Hires the plans investment advisor.
Business structure and type: - >>>1. What type of business entity is the plan sponsor?
- What does the census data look like for the employer? Related company ownership: - >>>1. Who are the owners of the business and what percent do they own? (family members, what relationship?)
- Do the owners of the current business or the current business own any other businesses?
- Do the family members of the owners of the current business own any other businesses? Business cash flow and budget: - >>>1. What is the contribution budget available?
- Does the business have stable cash flow? Advisors can add value by pointing out the advantages and disadvantages of different eligibility requirements. Examples: - >>>1. Do your current plan eligibility provisions work well with your plan goals?
- Do you know why they were selected?
- Can your HR staff and/or payroll system effectively handle employees who are immediately eligible for the plan?
- Would staff be able to process immediate entry into the plan along with automatic enrollment?
- Are you comfortable making matching contributions every payroll period?
- Do you have a lot of turnover?
- Would a one-year wait help manage the impact of that turnover?
- Would a requirement to work on the last day of the plan year help manage the cost of turnover?
- Are there employee groups that you would like to exclude from the plan if it is possible to do? Contributions can have a major impact in - >>>supporting plan goals as well as plan costs.
Advisors should be familiar with different contribution provisions and consider the following when designing contribution provisions: - >>>1. Is there a philosophy on making employer contributions?
- Is the objective to maximize contributions to the principal employees?
- What is the objective and budget for non-principal employees?
- Is there one or more group of employees who may not need the plan or who are unlikely to participate in the plan?
- How important is it that your employees be on track for an adequate retirement income?
- What is the company's cash flow?
- What is the approximate budget for plan contributions? Vesting schedules add to a - >>>plan's administrative complexity for record keepers and TPAs, and can add to the plan's cost. However, employers often consider forfeitures advantageous for cost savings and therefore may prefer vesting schedules that do not vest participants 100% immediately. It is important to remind employers that not all their contributions are subject to - >>>vesting, especially safe harbor contributions that are always 100% vested. Advisors should discuss loan and hardship withdrawal provisions with - >>>plan sponsors and plan fiduciaries. Because these provisions are optional, plans whose goal is for participants to save for retirement do not have to offer them. However, many participants will not defer if they believe they cannot get their money out until they retire or leave the company. Loans and hardships have a track record of - >>>encouraging participation Loan provisions in particular can be - >>>tailored to a plan's employee demographics, offering one loan at a time, requiring payroll deduction repayment and/or limiting loan amounts. Although these options increase costs for administration, fees are charged to the participants taking the loan or the hardship withdrawal, so they don't affect participants not taking loan or hardships.
- Subject to ADP/ACP testing, unless the plan uses a safe harbor design SEP or SIMPLE plans are attractive to start up firms because - >>>they are less expensive to administer. The other problem typically seen in SIMPLE IRAs is that - >>>employers do not realize the plans have a required contribution component and often have not made those contributions to the plan. Although 401k plans are more complicated to administer, they allow - >>>more flexibility in design for both owners and employees to save for retirement. A partnership that has stable long-term cash flow and wants to speed up retirement contributions for the partners, might want to consider a - >>>DB/cash balance or hybrid combination plan design. Both plan designs are based on employee demographics and both require a fixed annual contribution. The DB/DC combination has little contribution flexibility. These types of plans are also more complex and expensive to administer. Plan features that often increase administration costs and HR staff time include - >>>eligibility, vesting and compensation definitions SIMPLE IRAs are designed for - >>>smaller employers, limited to 100 participants, and cannot be offered in conjunction with another plan. A SIMPLE IRA is - >>>less expensive than a 401k because it doesn't require a plan document or testing and has also limited reporting and disclosure requirements. SIMPLE IRAs require either an employer non-elective contribution or a match contribution. 401ks, on the other hand, have contributions limits that are - >>>two times greater that the SIMPLE IRA. Although 401ks complex to administer, they can grow as the sponsor grows.
SIMPLE IRA plans usually do not have - >>>administrative fees that are billable to the employer, but there is an employer contribution that the owner should be made aware of. There are NO forfeitures in a SIMPLE IRA. ERISA participant rights and IRS maximum dollar amount contribution limits are found in the base plan document, not in the - >>>adoption agreement Behavioral finance research shows that participants are better off with - >>>"opt out" features rather than "opt-in" features. As a result, auto enrollment and re-enrollment in the plan's QDIA can produce better participant outcomes that just participant education in a traditional 401k plan. Although the DOL provides informal guidance, it does not provide - >>>regulations for the service provider selection process. It is a best practice to use RFPs (Requests for Proposals) and formal search processes for large plans and less formal solicitation of proposals and search processes for small plans. If the TPA and record keeper are separate, it is considered an - >>>unbundled arrangement Which statement regarding service providers is TRUE? - >>>A TPA performs annual compliance testing All of the following are important factors when selecting a service provider, except? - >>>Willingness to provide revenue sharing to offset plan fees. Which statement regarding bundled service arrangements is TRUE? - >>>Provides efficient contribution and distribution processes. Based on behavioral finance research, which of the following is a best practice for producing successful participant outcomes? - >>>Combining auto-enrollment with targeted education
A traditional 401k plan may be an appropriate choice for all of the following employers, except: - >>>an employer whose first priority is to maximize his or her retirement savings An owner driven plan sponsor wants to retire in 5-10 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: - >>>a simple ira A 401k plan has poor participation among the rank and file employees. As a plan advisor, all of the following recommendations could boost plan participation except - >>>adding a profit-sharing contribution based on years of service An owner driven plan sponsor wants to know the advantages of a safe harbor 401k plan. Which is a disadvantage? - >>>safe harbor contributions are discretionary All of the following plan features are typically located in the plan's adoption agreement, except? -
definition of ERISA fiduciary roles and responsibilities All of the following are advantages of the request for proposal (RFP) process in a participant driven plan, except: - >>>the RFP allows the fiduciaries to delegate the selection of finalists to the plan advisor and the TPA All of the following service providers may assist with plan document maintenance, except: - >>>plan auditor A safe harbor 401k plan with a cross tested profit sharing contribution may be an appropriate choice for all of the following employers, except: - >>>a 1500 employee manufacturing firm All of the following describe the required participant disclosure process, except: - >>>the party that distributes required notices to participants is considered a fiduciary.
Sponsors cannot devise and implement a comprehensive investment fiduciary process without - >>>the help of investment experts. A balanced fund can be used as a - >>>QDIA Documentation of investment education can be done in the - >>>retirement committee meeting minutes and the IPS. The duty of a fiduciary to obtain expert assistance is - >>>the key to the retirement plan advisor's role in assisting fiduciaries. An experienced advisor can help fiduciaries select and review the myriad of investment choices available to plans, as well as to evaluate fees inherent in those investments, keeping in mind the plan's goals and objectives and the rules of ERISA. Although actively managed funds may have higher fees they are not designed to - >>>perform better than passive funds that are tied to an index the committee members have the responsibility to make the ultimate decision about - >>>whether or not to replace a fund The IPS should be a guide for investment selection and review, and not contain details that make it difficult for fiduciaries to use as a guide, including - >>>1. There is no required plan document provision summary for an IPS
- A list of active and passive funds could bring too much detail
- A list of service providers is not necessary The IPS is not - >>>an ERISA requirement.
- Review investments to ensure they meet plan and participant goals
- Review and document fees for services provided, expenses and revenue sharing
- Review compliance with 404(c), if applicable
- Review employe stock allocation; document its suitability as an investment option
- Document investment review and decision making processes
- Document the history of investment selection and replacement
- Comply with plan default investment rules in the IPS and review QDIA investments
- Update the IPS if necessary Which statement regarding "to" and "through" target date funds is TRUE? - >>>a key difference between "to" and "through" target date funds are their gilded paths All of the following describe qualified investment alternative (QDIA) rules, except? - >>>a plan must use a QDIA as its default fund All of the following are components of gap analysis, except? - >>>beneficiary's tax liability of account balance after participant's death All of the following are characteristics of target date funds, except? - >>>they require less fiduciary oversight than other types of funds. Which of the following parties typically maintains the investment policy statement? - >>>plan advisor The following statement regarding the timing of investment meetings is not true: - >>>A IPS must specifically state how often the investments are reviewed. Which statement describes a benefit of using target date funds as a qualified default investment alternative? - >>>they offer a professionally managed investment
Which statement regarding investment options is true? - >>>asset allocation funds are designed to be the sole investment holding for a participant When it comes to plan errors, an advisor's role is not to correct them, but to - >>>help avoid them The form 5500, plan audit, and meeting minutes are not required to - >>>be sent to participants. The plan administrator in the plan document has the responsibility for - >>>overseeing the prudent process of adding or changing fiduciaries. It is also critical that the process for changing fiduciaries be documented as part of plan best practices. When a plan contemplates a change in service providers, the advisor can assist with - >>>the prudent process, the fiduciaries must follow to select new service providers. It is the advisor's responsibility to - >>>coordinate the timeline of conversion. It is the recordkeeper/TPA's responsibility to - >>>provide the conversion timeline. It is the recordkeeper/TPA's responsibility to - >>>provide disclosure notices. It is the plan fiduciary's responsibility to - >>>distribute disclosure notices. It is the responsibility of the record keeper to - >>>provide documentation of the conversion process. It is the plan fiduciary's responsibility to - >>>retain conversion due diligence documents.
