NAPA CPFA CERTIFICATION EXAM ACTUAL EXAM 2026 | CERTIFIED PLAN FIDUCIARY
ACTUAL EXAM ALL QUESTIONS AND CORRECT ANSWERS | BRAND NEW VERSION!
Question 1
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?
E) Does the current budget allow for a non-elective contribution regardless of employee
participation?
Correct Answer: B) Can participants convert their existing contribution accounts to Roth
accounts?
Rationale: When discussing "contribution design," the focus is on the formulas and
incentives used to get money into the plan (matching, non-elective, etc.). In-plan Roth
conversions (rollovers) are a feature of distribution and tax planning within the plan, but
they do not influence the design of how employer or employee contributions are initially
structured or incentivized.
Question 2
Jake is a sole proprietor and has just established a software development company. He has
recently hired two employees. Currently, the company does not have a good cash flow, but if
Jake can hire more software engineers, growth and profits should increase. Based on this
information, all of the following are questions that an advisor should ask when establishing a
plan for Jake's company, EXCEPT:
A) Can the company's current cash flow support employer contributions?
B) Does the company have an established line of credit?
C) What are Jake's objectives for attracting future employees?
D) Is Jake willing to make a fixed contribution if it enables him to save more?
E) What is the projected timeline for the company to reach consistent profitability?
Correct Answer: B) Does the company have an established line of credit?
Rationale: While a line of credit is part of general business finance, it is not a primary
factor in selecting or establishing a retirement plan design. An advisor must focus on the
company’s ability to fund the plan (cash flow), the owner's personal savings goals (fixed
contributions/Safe Harbor), and the recruitment needs (attracting employees) to determine
the best fit under ERISA and tax codes.
Question 3
A partnership is a business that:
A) Cannot have a limited liability structure.
B) Has at least two partners.
, 2
C) Is typically run by a board of directors.
D) Reports income on Form 1120.
E) Is owned by a single individual who reports income on Schedule C.
Correct Answer: B) Has at least two partners.
Rationale: By definition, a partnership is an association of two or more persons to carry on
as co-owners of a business for profit. Unlike corporations (which use a board of directors
and Form 1120), partnerships are "pass-through" entities where the partners are taxed
individually on their share of the profits.
Question 4
All of the following describe the impact of a business's cash flow and budget when establishing a
plan, EXCEPT:
A) A plan advisor should inform the employer that required contributions will be waived for any
year that the company does not make a profit.
B) A plan advisor should explain a plan's contribution commitment to the employer.
C) Employers should have a stable cash flow if they are considering adopting a Defined
Benefit/Defined Contribution combination plan.
D) A plan advisor may work with the service provider to show estimates of what employer
contributions would be under different contribution formulas.
E) Cash flow volatility may lead an advisor to suggest a discretionary profit-sharing component
rather than a fixed match.
Correct Answer: A) A plan advisor should inform the employer that required contributions
will be waived for any year that the company does not make a profit.
Rationale: This is incorrect because certain plan designs (such as Safe Harbor 401(k)s or
Defined Benefit plans) have specific funding requirements that are not simply waived
because a company fails to turn a profit. While some contributions like profit-sharing are
discretionary, advisors must warn sponsors that other commitments are binding regardless
of the P&L statement for that year.
Question 5
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.
E) The plan’s fidelity bond coverage limit.
Correct Answer: B) Average deferral rate of participants in the plan.
Rationale: Plan effectiveness is measured by how well the plan is preparing participants for
retirement. The average deferral rate (the percentage of salary employees contribute) is a
, 3
key metric for "retirement readiness." The other options, like audits or Summary Annual
Reports, are compliance and disclosure requirements but do not measure the actual success
of participant outcomes.
Question 6
Under ERISA, a person is considered a fiduciary to a plan to the extent they exercise any
discretionary authority or control over:
A) The hiring of office janitorial staff.
B) The plan's management or administration.
C) The marketing materials of the plan sponsor.
D) The company's payroll software selection.
E) The company's healthcare plan open enrollment dates.
Correct Answer: B) The plan's management or administration.
Rationale: ERISA Section 3(21)(A) defines a fiduciary as anyone who exercises
discretionary authority or control over plan management or the administration of the plan,
or anyone who provides investment advice for a fee. General business operations
(janitorial, payroll) are not fiduciary acts.
Question 7
The "Prudent Expert" standard under ERISA requires a fiduciary to act with the care, skill,
prudence, and diligence that a ___________ would use.
A) Reasonable person in an unrelated field.
B) Prudent person familiar with such matters.
C) Plan participant with no financial training.
D) Plan sponsor's lead accountant.
E) Standard retail investor.
Correct Answer: B) Prudent person familiar with such matters.
Rationale: ERISA does not use a "simple" person standard but rather a "prudent expert"
standard. It requires fiduciaries to act as someone who is knowledgeable in the specific field
of retirement plan management would act under similar circumstances.
Question 8
Which of the following is a primary duty of an ERISA fiduciary?
A) Maximizing the profits of the plan sponsor.
B) Acting solely in the interest of the plan participants and beneficiaries.
C) Ensuring the plan advisor receives the highest possible commission.
D) Selecting the investment with the lowest possible cost, regardless of performance.
E) Limiting participation to only the highly compensated employees.
Correct Answer: B) Acting solely in the interest of the plan participants and beneficiaries.
Rationale: This is known as the "Duty of Loyalty" or the "Exclusive Purpose Rule."
, 4
Fiduciaries must prioritize the interests of the people for whom the plan was created (the
participants) over the interests of the employer or the service providers.
Question 9
What is the primary difference between a 3(21) investment fiduciary and a 3(38) investment
fiduciary?
A) A 3(21) fiduciary takes over all plan administration, while a 3(38) only advises.
B) A 3(21) provides recommendations but the sponsor retains decision-making power; a 3(38)
has the discretion to make investment changes.
C) A 3(38) is only used for Defined Benefit plans.
D) A 3(21) fiduciary is not required to be a registered investment advisor.
E) There is no difference; the terms are interchangeable.
Correct Answer: B) A 3(21) provides recommendations but the sponsor retains decision-
making power; a 3(38) has the discretion to make investment changes.
Rationale: A 3(21) advisor is a "co-fiduciary" who gives advice but leaves the final "yes/no"
to the sponsor. A 3(38) is an "Investment Manager" who is given full discretionary
authority to hire/fire funds, which provides the sponsor with more significant litigation
protection.
Question 10
Plan sponsors must provide a Summary Plan Description (SPD) to participants within ________
days of them becoming covered by the plan.
A) 30
B) 60
C) 90
D) 120
E) 180
Correct Answer: C) 90
Rationale: ERISA regulations require that new participants receive an SPD (which outlines
the plan's rules and benefits) within 90 days of becoming a participant. For a brand-new
plan, the deadline is 120 days after the plan becomes subject to ERISA.
Question 11
A "Party in Interest" under ERISA would include all of the following, EXCEPT:
A) The plan’s recordkeeper.
B) An employee of the plan sponsor.
C) The plan’s legal counsel.
D) A 1% shareholder of the plan sponsor.
E) The spouse of the plan sponsor's CEO.
Correct Answer: D) A 1% shareholder of the plan sponsor.
Rationale: Under ERISA, a "Party in Interest" includes fiduciaries, service providers, and
ACTUAL EXAM ALL QUESTIONS AND CORRECT ANSWERS | BRAND NEW VERSION!
Question 1
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?
E) Does the current budget allow for a non-elective contribution regardless of employee
participation?
Correct Answer: B) Can participants convert their existing contribution accounts to Roth
accounts?
Rationale: When discussing "contribution design," the focus is on the formulas and
incentives used to get money into the plan (matching, non-elective, etc.). In-plan Roth
conversions (rollovers) are a feature of distribution and tax planning within the plan, but
they do not influence the design of how employer or employee contributions are initially
structured or incentivized.
Question 2
Jake is a sole proprietor and has just established a software development company. He has
recently hired two employees. Currently, the company does not have a good cash flow, but if
Jake can hire more software engineers, growth and profits should increase. Based on this
information, all of the following are questions that an advisor should ask when establishing a
plan for Jake's company, EXCEPT:
A) Can the company's current cash flow support employer contributions?
B) Does the company have an established line of credit?
C) What are Jake's objectives for attracting future employees?
D) Is Jake willing to make a fixed contribution if it enables him to save more?
E) What is the projected timeline for the company to reach consistent profitability?
Correct Answer: B) Does the company have an established line of credit?
Rationale: While a line of credit is part of general business finance, it is not a primary
factor in selecting or establishing a retirement plan design. An advisor must focus on the
company’s ability to fund the plan (cash flow), the owner's personal savings goals (fixed
contributions/Safe Harbor), and the recruitment needs (attracting employees) to determine
the best fit under ERISA and tax codes.
Question 3
A partnership is a business that:
A) Cannot have a limited liability structure.
B) Has at least two partners.
, 2
C) Is typically run by a board of directors.
D) Reports income on Form 1120.
E) Is owned by a single individual who reports income on Schedule C.
Correct Answer: B) Has at least two partners.
Rationale: By definition, a partnership is an association of two or more persons to carry on
as co-owners of a business for profit. Unlike corporations (which use a board of directors
and Form 1120), partnerships are "pass-through" entities where the partners are taxed
individually on their share of the profits.
Question 4
All of the following describe the impact of a business's cash flow and budget when establishing a
plan, EXCEPT:
A) A plan advisor should inform the employer that required contributions will be waived for any
year that the company does not make a profit.
B) A plan advisor should explain a plan's contribution commitment to the employer.
C) Employers should have a stable cash flow if they are considering adopting a Defined
Benefit/Defined Contribution combination plan.
D) A plan advisor may work with the service provider to show estimates of what employer
contributions would be under different contribution formulas.
E) Cash flow volatility may lead an advisor to suggest a discretionary profit-sharing component
rather than a fixed match.
Correct Answer: A) A plan advisor should inform the employer that required contributions
will be waived for any year that the company does not make a profit.
Rationale: This is incorrect because certain plan designs (such as Safe Harbor 401(k)s or
Defined Benefit plans) have specific funding requirements that are not simply waived
because a company fails to turn a profit. While some contributions like profit-sharing are
discretionary, advisors must warn sponsors that other commitments are binding regardless
of the P&L statement for that year.
Question 5
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.
E) The plan’s fidelity bond coverage limit.
Correct Answer: B) Average deferral rate of participants in the plan.
Rationale: Plan effectiveness is measured by how well the plan is preparing participants for
retirement. The average deferral rate (the percentage of salary employees contribute) is a
, 3
key metric for "retirement readiness." The other options, like audits or Summary Annual
Reports, are compliance and disclosure requirements but do not measure the actual success
of participant outcomes.
Question 6
Under ERISA, a person is considered a fiduciary to a plan to the extent they exercise any
discretionary authority or control over:
A) The hiring of office janitorial staff.
B) The plan's management or administration.
C) The marketing materials of the plan sponsor.
D) The company's payroll software selection.
E) The company's healthcare plan open enrollment dates.
Correct Answer: B) The plan's management or administration.
Rationale: ERISA Section 3(21)(A) defines a fiduciary as anyone who exercises
discretionary authority or control over plan management or the administration of the plan,
or anyone who provides investment advice for a fee. General business operations
(janitorial, payroll) are not fiduciary acts.
Question 7
The "Prudent Expert" standard under ERISA requires a fiduciary to act with the care, skill,
prudence, and diligence that a ___________ would use.
A) Reasonable person in an unrelated field.
B) Prudent person familiar with such matters.
C) Plan participant with no financial training.
D) Plan sponsor's lead accountant.
E) Standard retail investor.
Correct Answer: B) Prudent person familiar with such matters.
Rationale: ERISA does not use a "simple" person standard but rather a "prudent expert"
standard. It requires fiduciaries to act as someone who is knowledgeable in the specific field
of retirement plan management would act under similar circumstances.
Question 8
Which of the following is a primary duty of an ERISA fiduciary?
A) Maximizing the profits of the plan sponsor.
B) Acting solely in the interest of the plan participants and beneficiaries.
C) Ensuring the plan advisor receives the highest possible commission.
D) Selecting the investment with the lowest possible cost, regardless of performance.
E) Limiting participation to only the highly compensated employees.
Correct Answer: B) Acting solely in the interest of the plan participants and beneficiaries.
Rationale: This is known as the "Duty of Loyalty" or the "Exclusive Purpose Rule."
, 4
Fiduciaries must prioritize the interests of the people for whom the plan was created (the
participants) over the interests of the employer or the service providers.
Question 9
What is the primary difference between a 3(21) investment fiduciary and a 3(38) investment
fiduciary?
A) A 3(21) fiduciary takes over all plan administration, while a 3(38) only advises.
B) A 3(21) provides recommendations but the sponsor retains decision-making power; a 3(38)
has the discretion to make investment changes.
C) A 3(38) is only used for Defined Benefit plans.
D) A 3(21) fiduciary is not required to be a registered investment advisor.
E) There is no difference; the terms are interchangeable.
Correct Answer: B) A 3(21) provides recommendations but the sponsor retains decision-
making power; a 3(38) has the discretion to make investment changes.
Rationale: A 3(21) advisor is a "co-fiduciary" who gives advice but leaves the final "yes/no"
to the sponsor. A 3(38) is an "Investment Manager" who is given full discretionary
authority to hire/fire funds, which provides the sponsor with more significant litigation
protection.
Question 10
Plan sponsors must provide a Summary Plan Description (SPD) to participants within ________
days of them becoming covered by the plan.
A) 30
B) 60
C) 90
D) 120
E) 180
Correct Answer: C) 90
Rationale: ERISA regulations require that new participants receive an SPD (which outlines
the plan's rules and benefits) within 90 days of becoming a participant. For a brand-new
plan, the deadline is 120 days after the plan becomes subject to ERISA.
Question 11
A "Party in Interest" under ERISA would include all of the following, EXCEPT:
A) The plan’s recordkeeper.
B) An employee of the plan sponsor.
C) The plan’s legal counsel.
D) A 1% shareholder of the plan sponsor.
E) The spouse of the plan sponsor's CEO.
Correct Answer: D) A 1% shareholder of the plan sponsor.
Rationale: Under ERISA, a "Party in Interest" includes fiduciaries, service providers, and
