Chapter 8: Fiduciary Standards Flashcards
A person who actually exercises control of the plan’s management, but is not authorized to do so, is a fiduciary.
True or False?
True
An employer that sponsors a qualified retirement plan is a fiduciary as a result of its role as settlor of the trust.
True or False?
False. An employer does not become a fiduciary by nature of its role as settlor of the trust since settlor functions are nonfiduciary in nature. However, an employer typically becomes a fiduciary when it takes on the role of plan administrator or other roles under which it has discretion over the management of plan administration and investments.
When plan assets are invested in contracts issued by an insurance company, the insurance company becomes a fiduciary since it manages the assets that provide the benefits under the plan.
True or False?
False. Plan assets are deemed not to include the underlying assets of an insurance company with respect to a contract issued by an insurer to an employee benefit plan.
If a plan does not specify a named fiduciary, it must provide a procedure for identifying a named fiduciary.
True or False?
True
An investment manager includes any person who acts in a fiduciary capacity with respect to plan assets.
True or False?
False. Investment manager is an ERISA term that refers to a fiduciary who has the power to manage, acquire or dispose of any plan assets, and who has acknowledged fiduciary status in writing. ERISA permits only certain types of entities to act as investment managers, and only a named fiduciary may appoint an investment manager.
A person may serve in more than one fiduciary capacity in a plan.
True or False?
True
A plan must identify the persons with authority to amend the plan.
True or False?
False. The plan must provide a procedure for identifying the persons with authority to amend the plan. A reference to “the Company” satisfies the request to identify the persons with authority to amend the plan.
An investment policy statement must be adopted to provide instructions to the fiduciaries regarding the investment of plan assets.
True or False?
False. A plan must provide a procedure for establishing and implementing a funding policy. However, it need not adopt an investment policy statement, although it may be advisable to do so. An investment policy statement provides general instructions or guidelines applicable to investment situations.
If a trustee discovers a breach of fiduciary liability by a co-fiduciary, the best course of action is to resign as trustee.
True or False?
False. Resignation of a trustee may not be sufficient to avoid liability when the trustee has knowledge of a breach. The trustee must take steps to remedy the breach.
A plan, a fiduciary, or an employer may purchase insurance to cover liability or losses by reason of a fiduciary breach.
True or False?
True
Which of the following individuals is not a fiduciary with respect to a plan?
A. An individual who exercises discretionary authority over the plan’s participant loan program.
B. An individual who exercises control over the purchase and sale of plan assets.
C. An individual who provides investment advice for a fee with respect to plan funds.
D. An individual who prepares audited financial statements of the plan assets.
D. The preparation of financial statements by the plan’s auditor is not a fiduciary function.
Which of the following statements regarding fiduciary liability is NOT TRUE?
A. Any agreement containing exculpatory provisions that attempt to relieve a fiduciary from liability is void under ERISA.
B. A fiduciary that approves a limitation of liability clause in a service provider contract is personally liable for any losses that exceed the liability limitations.
C. A plan may purchase a bond that will reimburse the plan for any losses suffered as a result of a fiduciary breach.
D. A fiduciary may purchase liability insurance with his or her own funds.
B. A fiduciary must consider the liability limitation in a service provider contract in the context of all other factors in determining the reasonableness of the agreement and the potential risks to participants. If the liability limitation is reasonable, then the fiduciary is not necessarily liable for losses in excess of the liability limitation.
Which of the following is not a fiduciary function?
A. Determining eligibility for the plan
B. Reviewing claims for plan benefits
C. Paying PBGC premiums
D. Maintaining plan records according to ERISA requirements
C. Paying PBGC premiums is a settlor function, not a fiduciary function.
Which of the following statements regarding consequences of fiduciary breaches is NOT TRUE?
A. Fiduciaries must restore losses incurred by the plan due to a failure to diversify investments.
B. A fiduciary will not be held liable for a breach made by the investment manager.
C. A fiduciary’s account balance in the plan may be used to offset damages to the plan if necessary.
D. A fiduciary may be required to pay any profits earned in a breach to the plan.
B. A fiduciary may be subject to co-fiduciary liability with respect to an investment manager’s breach of fiduciary duties if the fiduciary hired said investment manager and did not monitor the investment manager’s activities.
Which of the following factors need not be considered when choosing a service provider?
A. Fees charged for services to be performed
B. Qualifications of the service provider
C. Quality of the services to be performed
D. Design of the service provider’s office
D. The design of the service provider’s office is not a factor to consider in choosing a service provider.
