Mixed Deck — All CPC Topics Flashcards

What does COBRA provide to employees?

Answer: Continuation of health insurance

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods. This continuation coverage is available under specific circumstances, such as job loss, reduction in hours, or other qualifying events, ensuring a temporary bridge for health coverage.

What is a fiduciary breach?

Answer: Failing to act in participants' best interests

A fiduciary breach occurs when an individual or entity with fiduciary responsibility fails to uphold their legal and ethical duties to a retirement plan. This typically involves making decisions or taking actions that are not solely in the best interest of the plan participants and beneficiaries. Such a failure can lead to financial harm for participants, non-compliance with regulations, and potential legal consequences for the fiduciary.

A defined benefit plan terminates in a standard termination. Which agency must the plan sponsor notify before distributing plan assets?

Answer: Pension Benefit Guaranty Corporation (PBGC)

In a standard termination, the plan sponsor must file a Notice of Intent to Terminate (NOIT) and then a Standard Termination Notice with the PBGC before distributing assets.

The ACP (Actual Contribution Percentage) test under IRC Section 401(m) applies to which types of contributions made to a 401(k) plan?

Answer: Employer matching contributions and voluntary after-tax employee contributions

The ACP test applies to employer matching contributions and voluntary after-tax employee contributions, which are separate from elective deferrals tested under the ADP test.

A cash balance plan credits participant accounts with a 5% annual pay credit and a 4% annual interest credit. Under IRC Section 411(b)(5), what is the maximum interest crediting rate generally permitted to avoid being treated as backloading?

Answer: A market rate of return on plan assets or a reasonable rate

IRC Section 411(b)(5) requires that the interest crediting rate for cash balance plans not exceed a market rate of return, and provides several safe harbor rates to satisfy this requirement.

Under ERISA's duty of loyalty, a plan fiduciary must act:

Answer: Solely in the interest of plan participants and beneficiaries

ERISA's duty of loyalty requires fiduciaries to act solely in the interest of plan participants and beneficiaries, excluding consideration of employer or other party interests.

Which distribution is eligible for rollover to an IRA or another qualified plan?

Answer: A single eligible rollover distribution that is not an RMD or SEPP

Eligible rollover distributions include most plan distributions except RMDs, hardship distributions, SEPPs, and certain other specified payments.

Under ASPPA's Code of Professional Conduct, what obligation does a CPC have when providing written advice?

Answer: Written advice must be balanced, state material assumptions, and identify significant limitations

ASPPA's Code requires that written professional advice be complete, accurate, and clearly state material assumptions, methods, and significant limitations or uncertainties.

A pension plan's investment committee is evaluating two managers with identical 10-year returns. Manager A has a tracking error of 2% and Manager B has a tracking error of 8%. All else equal, which manager demonstrates more consistent value-add?

Answer: Manager A, because lower tracking error with equal returns implies a higher information ratio

Manager A's lower tracking error with identical returns produces a higher information ratio, indicating more consistent and efficient active management.

What does 'experience gain' mean in the context of actuarial valuations?

Answer: Actual plan experience more favorable than actuarial assumptions

An actuarial experience gain occurs when actual demographic, economic, or investment experience is more favorable than the assumptions used in the prior valuation.

When a defined benefit plan has an AFTAP between 60% and 80%, what restriction applies?

Answer: Only 50% of lump-sum payments otherwise available are permitted

When AFTAP is at least 60% but below 80%, the plan may only pay 50% of the present value of any lump-sum or other prohibited payment otherwise available.

Which federal law extended COBRA continuation coverage from 18 months to up to 36 months for qualified beneficiaries who experience a second qualifying event during the initial 18-month period?

Answer: ERISA Section 602

ERISA Section 602 provides that a second qualifying event (such as death or divorce) during the initial 18-month COBRA period extends coverage up to 36 months from the original qualifying event.

How does the 'net unrealized appreciation' (NUA) strategy benefit a participant receiving employer stock in a lump-sum distribution?

Answer: NUA is taxed at distribution as long-term capital gains; additional appreciation above NUA at sale is also capital gains

At distribution, only the cost basis (not NUA) is taxed as ordinary income; the NUA itself and any subsequent appreciation are taxed at long-term capital gains rates when the stock is sold.

A plan's asset allocation study reveals that increasing the allocation to real estate from 5% to 10% improves the efficient frontier. This conclusion is primarily supported by:

Answer: Its historical low correlation with stocks and bonds

Real estate improves the efficient frontier because its historically low correlation with stocks and bonds reduces portfolio volatility for a given return level.

A CPC is performing a plan audit in preparation for an IRS examination. Which area represents the highest risk for qualified plan disqualification?

Answer: Systematic failure to satisfy IRC Section 410(b) minimum coverage or IRC Section 401(a)(4) nondiscrimination requirements

Sustained failures of minimum coverage or nondiscrimination requirements are among the most serious qualification failures and are primary audit targets because they suggest the plan benefits only highly compensated employees.

Under the DOL's investment advice regulations, a pension consultant providing individualized investment recommendations to a plan must act as a:

Answer: Fiduciary acting in the plan's and participants' best interest

The DOL's rules classify individualized investment recommendations to plans as fiduciary advice, requiring the advisor to act in participants' best interests.

Which of the following best describes the 'at-risk' liability used in defined benefit funding calculations?

Answer: Liability assuming maximum lump-sum elections and early retirement

At-risk liability assumes participants will elect the most expensive optional form of payment and retire at the earliest retirement age if that increases liability.

Under the top-heavy minimum contribution requirement of IRC Section 416, what minimum employer contribution must a top-heavy defined contribution plan make on behalf of each eligible non-key employee?

Answer: 3% of compensation (or the highest key employee rate, if lower)

Top-heavy plans must contribute the lesser of 3% of compensation or the highest contribution rate made for any key employee to each eligible non-key employee.

A plan administrator receives a Qualified Domestic Relations Order (QDRO). What is the plan's obligation upon receipt?

Answer: Segregate the alternate payee's funds and determine whether the order is qualified within 18 months

Upon receiving a QDRO, the plan must promptly notify all parties and determine qualified status within 18 months, segregating funds during that review.

A cash balance plan credits participant accounts with a fixed pay credit and an interest credit. The interest rate risk in a cash balance plan is borne by:

Answer: The plan sponsor, since they must fund the guaranteed interest credit

In a cash balance plan, the employer (plan sponsor) guarantees both pay credits and interest credits, assuming investment and interest rate risk.