NAPA CPFA CERTIFICATION EXAM 2026 - CERTIFIED PLAN FIDUCIARY – EXAM-
STYLE QUESTIONS AND ANSWERS | VERIFIED AND WELL DETAILED ANSWERS |
PLUS RATIONALES | GUARANTEED PASS | 2026/27 LATEST UPDATE | EXAM PREP |
STUDY GUIDE | PRACTICE TEST
1. Under the Employee Retirement Income Security Act of 1974 (ERISA), which
of the following best describes the "prudent man" rule as applied to a plan
fiduciary?
A. A fiduciary must act with the care, skill, and diligence that a prudent person
acting in a like capacity and familiar with such matters would use.
B. A fiduciary must guarantee a specific rate of return on all plan investments to
ensure participant benefits are met.
C. A fiduciary must avoid all investments that carry any degree of risk, prioritizing
only the safest available options.
D. A fiduciary must act primarily in the interest of the plan sponsor, ensuring the
plan remains cost-effective for the company.
Correct Answer: A. A fiduciary must act with the care, skill, and diligence that a
prudent person acting in a like capacity and familiar with such matters would
use.
Rationale: This is the foundational standard of fiduciary conduct under ERISA
Section 404(a)(1)(B). It requires a fiduciary to act with the care, skill, prudence, and
diligence that a prudent person familiar with such matters would use. Options B,
C, and D are incorrect; ERISA does not require guarantees, prohibits avoiding all
risk (as some risk is inherent in investing), and mandates that the fiduciary act in
the interest of plan participants and beneficiaries, not solely the plan sponsor.
,2. A defined contribution plan sponsor is evaluating a new service provider.
Which of the following actions would best satisfy the fiduciary requirement to
act solely in the interest of plan participants?
A. Selecting the provider with the lowest cost, regardless of the quality or range
of services offered.
B. Selecting the provider that offers the most comprehensive investment menu,
regardless of administrative fees.
C. Selecting the provider after a competitive bidding process that considers fees,
services, experience, and fiduciary capabilities.
D. Selecting the provider recommended by the plan’s recordkeeper to simplify
the transition and maintain consistency.
Correct Answer: C. Selecting the provider after a competitive bidding process
that considers fees, services, experience, and fiduciary capabilities.
Rationale: A prudent process, such as a competitive Request for Proposal (RFP)
that evaluates all relevant factors, is a hallmark of meeting the exclusive purpose
rule. It demonstrates a thorough, objective decision-making process. Options A
and B are flawed because they focus on a single factor. Option D is incorrect
because reliance on a single recommendation without independent review does
not constitute a prudent process.
3. Which of the following is a "prohibited transaction" under ERISA Section
406?
A. The sale of property between a plan and a party-in-interest.
B. The payment of reasonable compensation to a plan fiduciary for services
rendered to the plan.
,C. The investment of plan assets in a diversified mutual fund managed by a
registered investment advisor.
D. The acquisition of employer securities by a plan, if the plan is a defined
contribution plan.
Correct Answer: A. The sale of property between a plan and a party-in-interest.
Rationale: ERISA Section 406 explicitly prohibits certain transactions between a
plan and a party-in-interest, including the sale, exchange, or leasing of property.
Options B and C describe permissible activities; Option D is permitted under
specific conditions (e.g., an eligible individual account plan), but the general
principle is that the transaction itself is prohibited.
4. A plan fiduciary is reviewing the investment policy statement (IPS). Which of
the following is the PRIMARY purpose of an IPS?
A. To establish a legally binding contract between the plan sponsor and
investment managers.
B. To document the plan's investment objectives, risk tolerance, and guidelines for
selecting and monitoring investments.
C. To guarantee a specific rate of return for the plan's participants.
D. To comply with the Department of Labor's (DOL) requirement for a written
investment policy.
Correct Answer: B. To document the plan's investment objectives, risk
tolerance, and guidelines for selecting and monitoring investments.
Rationale: The IPS is a roadmap for the investment process, defining goals and
constraints. While the DOL suggests an IPS is a best practice, it is not legally
, required, making Option D incorrect. It is a management tool, not a contract
(Option A), and it does not guarantee returns (Option C).
5. A fiduciary is considering adding a private equity fund to a defined benefit
plan's investment menu. What is the MOST important consideration regarding
this decision?
A. The potential for higher returns compared to public equity markets.
B. The fund's historical performance relative to its benchmark.
C. The fund's liquidity profile and its alignment with the plan's benefit payment
obligations.
D. The reputation of the private equity fund's general partner.
Correct Answer: C. The fund's liquidity profile and its alignment with the plan's
benefit payment obligations.
Rationale: Defined benefit plans must be able to pay benefits as they come due.
Private equity is illiquid, and investing a significant portion of the plan in such
assets could create a mismatch with liabilities. Liquidity is the paramount concern
in this scenario. Options A, B, and D are important factors but are secondary to
the fundamental need for liquidity to meet the plan's obligations.
6. In the context of plan governance, which action best demonstrates that a
fiduciary committee is meeting its obligations effectively?
A. The committee meets annually to approve the investment menu for the
upcoming year.
B. The committee meets quarterly, reviews investment performance, documents
STYLE QUESTIONS AND ANSWERS | VERIFIED AND WELL DETAILED ANSWERS |
PLUS RATIONALES | GUARANTEED PASS | 2026/27 LATEST UPDATE | EXAM PREP |
STUDY GUIDE | PRACTICE TEST
1. Under the Employee Retirement Income Security Act of 1974 (ERISA), which
of the following best describes the "prudent man" rule as applied to a plan
fiduciary?
A. A fiduciary must act with the care, skill, and diligence that a prudent person
acting in a like capacity and familiar with such matters would use.
B. A fiduciary must guarantee a specific rate of return on all plan investments to
ensure participant benefits are met.
C. A fiduciary must avoid all investments that carry any degree of risk, prioritizing
only the safest available options.
D. A fiduciary must act primarily in the interest of the plan sponsor, ensuring the
plan remains cost-effective for the company.
Correct Answer: A. A fiduciary must act with the care, skill, and diligence that a
prudent person acting in a like capacity and familiar with such matters would
use.
Rationale: This is the foundational standard of fiduciary conduct under ERISA
Section 404(a)(1)(B). It requires a fiduciary to act with the care, skill, prudence, and
diligence that a prudent person familiar with such matters would use. Options B,
C, and D are incorrect; ERISA does not require guarantees, prohibits avoiding all
risk (as some risk is inherent in investing), and mandates that the fiduciary act in
the interest of plan participants and beneficiaries, not solely the plan sponsor.
,2. A defined contribution plan sponsor is evaluating a new service provider.
Which of the following actions would best satisfy the fiduciary requirement to
act solely in the interest of plan participants?
A. Selecting the provider with the lowest cost, regardless of the quality or range
of services offered.
B. Selecting the provider that offers the most comprehensive investment menu,
regardless of administrative fees.
C. Selecting the provider after a competitive bidding process that considers fees,
services, experience, and fiduciary capabilities.
D. Selecting the provider recommended by the plan’s recordkeeper to simplify
the transition and maintain consistency.
Correct Answer: C. Selecting the provider after a competitive bidding process
that considers fees, services, experience, and fiduciary capabilities.
Rationale: A prudent process, such as a competitive Request for Proposal (RFP)
that evaluates all relevant factors, is a hallmark of meeting the exclusive purpose
rule. It demonstrates a thorough, objective decision-making process. Options A
and B are flawed because they focus on a single factor. Option D is incorrect
because reliance on a single recommendation without independent review does
not constitute a prudent process.
3. Which of the following is a "prohibited transaction" under ERISA Section
406?
A. The sale of property between a plan and a party-in-interest.
B. The payment of reasonable compensation to a plan fiduciary for services
rendered to the plan.
,C. The investment of plan assets in a diversified mutual fund managed by a
registered investment advisor.
D. The acquisition of employer securities by a plan, if the plan is a defined
contribution plan.
Correct Answer: A. The sale of property between a plan and a party-in-interest.
Rationale: ERISA Section 406 explicitly prohibits certain transactions between a
plan and a party-in-interest, including the sale, exchange, or leasing of property.
Options B and C describe permissible activities; Option D is permitted under
specific conditions (e.g., an eligible individual account plan), but the general
principle is that the transaction itself is prohibited.
4. A plan fiduciary is reviewing the investment policy statement (IPS). Which of
the following is the PRIMARY purpose of an IPS?
A. To establish a legally binding contract between the plan sponsor and
investment managers.
B. To document the plan's investment objectives, risk tolerance, and guidelines for
selecting and monitoring investments.
C. To guarantee a specific rate of return for the plan's participants.
D. To comply with the Department of Labor's (DOL) requirement for a written
investment policy.
Correct Answer: B. To document the plan's investment objectives, risk
tolerance, and guidelines for selecting and monitoring investments.
Rationale: The IPS is a roadmap for the investment process, defining goals and
constraints. While the DOL suggests an IPS is a best practice, it is not legally
, required, making Option D incorrect. It is a management tool, not a contract
(Option A), and it does not guarantee returns (Option C).
5. A fiduciary is considering adding a private equity fund to a defined benefit
plan's investment menu. What is the MOST important consideration regarding
this decision?
A. The potential for higher returns compared to public equity markets.
B. The fund's historical performance relative to its benchmark.
C. The fund's liquidity profile and its alignment with the plan's benefit payment
obligations.
D. The reputation of the private equity fund's general partner.
Correct Answer: C. The fund's liquidity profile and its alignment with the plan's
benefit payment obligations.
Rationale: Defined benefit plans must be able to pay benefits as they come due.
Private equity is illiquid, and investing a significant portion of the plan in such
assets could create a mismatch with liabilities. Liquidity is the paramount concern
in this scenario. Options A, B, and D are important factors but are secondary to
the fundamental need for liquidity to meet the plan's obligations.
6. In the context of plan governance, which action best demonstrates that a
fiduciary committee is meeting its obligations effectively?
A. The committee meets annually to approve the investment menu for the
upcoming year.
B. The committee meets quarterly, reviews investment performance, documents
