NAPA CERTIFIED PLAN FIDUCIARY ADVISOR
(CPFA®) PRACTICE EXAM | 100 CERTIFICATION-
LEVEL MULTIPLE-CHOICE QUESTIONS WITH
DETAILED RATIONALES LATEST UPDATE
1. Under ERISA, who is considered a fiduciary to a retirement plan?
A. Every employee of the sponsoring company
B. Anyone who exercises discretionary authority or control over plan management
or assets
C. Every participant in the retirement plan
D. Every payroll administrator
Answer: B
Rationale: ERISA defines a fiduciary based on the functions performed. Anyone
exercising discretionary authority over plan management, administration, or
assets is a fiduciary.
2. The primary purpose of ERISA is to:
A. Regulate state pension systems
B. Protect participants and beneficiaries in private-sector employee benefit plans
C. Eliminate employer-sponsored retirement plans
D. Replace the Internal Revenue Code
Answer: B
Rationale: ERISA establishes standards intended to protect employees
participating in private-sector retirement and welfare benefit plans.
, 3. Which fiduciary duty requires acting solely in the interest of plan
participants and beneficiaries?
A. Duty to diversify
B. Duty of loyalty
C. Duty to disclose taxes
D. Duty to maximize employer profits
Answer: B
Rationale: The duty of loyalty requires fiduciaries to act exclusively for the benefit
of plan participants and beneficiaries.
4. A plan fiduciary must carry out duties with the:
A. Lowest administrative cost available
B. Care, skill, prudence, and diligence of a prudent expert
C. Approval of every participant
D. Direction of the IRS
Answer: B
Rationale: ERISA's prudent expert standard requires fiduciaries to exercise
appropriate care, skill, prudence, and diligence.
5. Which investment principle generally reduces overall portfolio risk?
A. Market timing
B. Diversification
C. Concentrating assets in one stock
D. Frequent trading
, Answer: B
Rationale: Diversification helps reduce unsystematic investment risk.
6. Which document establishes the legal operation of a qualified retirement
plan?
A. Annual Report
B. Investment Policy Statement
C. Plan Document
D. Payroll Register
Answer: C
Rationale: The plan document governs the administration and operation of the
retirement plan.
7. The Investment Policy Statement primarily serves to:
A. Guarantee investment returns
B. Establish guidelines for selecting and monitoring investments
C. Replace ERISA regulations
D. Determine participant salaries
Answer: B
Rationale: An IPS provides a framework for investment selection, monitoring, and
fiduciary oversight.
8. A fiduciary should monitor investment options:
A. Only when participants complain
(CPFA®) PRACTICE EXAM | 100 CERTIFICATION-
LEVEL MULTIPLE-CHOICE QUESTIONS WITH
DETAILED RATIONALES LATEST UPDATE
1. Under ERISA, who is considered a fiduciary to a retirement plan?
A. Every employee of the sponsoring company
B. Anyone who exercises discretionary authority or control over plan management
or assets
C. Every participant in the retirement plan
D. Every payroll administrator
Answer: B
Rationale: ERISA defines a fiduciary based on the functions performed. Anyone
exercising discretionary authority over plan management, administration, or
assets is a fiduciary.
2. The primary purpose of ERISA is to:
A. Regulate state pension systems
B. Protect participants and beneficiaries in private-sector employee benefit plans
C. Eliminate employer-sponsored retirement plans
D. Replace the Internal Revenue Code
Answer: B
Rationale: ERISA establishes standards intended to protect employees
participating in private-sector retirement and welfare benefit plans.
, 3. Which fiduciary duty requires acting solely in the interest of plan
participants and beneficiaries?
A. Duty to diversify
B. Duty of loyalty
C. Duty to disclose taxes
D. Duty to maximize employer profits
Answer: B
Rationale: The duty of loyalty requires fiduciaries to act exclusively for the benefit
of plan participants and beneficiaries.
4. A plan fiduciary must carry out duties with the:
A. Lowest administrative cost available
B. Care, skill, prudence, and diligence of a prudent expert
C. Approval of every participant
D. Direction of the IRS
Answer: B
Rationale: ERISA's prudent expert standard requires fiduciaries to exercise
appropriate care, skill, prudence, and diligence.
5. Which investment principle generally reduces overall portfolio risk?
A. Market timing
B. Diversification
C. Concentrating assets in one stock
D. Frequent trading
, Answer: B
Rationale: Diversification helps reduce unsystematic investment risk.
6. Which document establishes the legal operation of a qualified retirement
plan?
A. Annual Report
B. Investment Policy Statement
C. Plan Document
D. Payroll Register
Answer: C
Rationale: The plan document governs the administration and operation of the
retirement plan.
7. The Investment Policy Statement primarily serves to:
A. Guarantee investment returns
B. Establish guidelines for selecting and monitoring investments
C. Replace ERISA regulations
D. Determine participant salaries
Answer: B
Rationale: An IPS provides a framework for investment selection, monitoring, and
fiduciary oversight.
8. A fiduciary should monitor investment options:
A. Only when participants complain
