Certified Plan Sponsor Professional (CPSP) Practice Exam

If a plan fiduciary hires an outside vendor for administration, does this relieve them of fiduciary duties to monitor that vendor's performance?

1. True

2. False

3. Only partially

4. Depends on the vendor agreement

The correct answer is: False

Fiduciaries have a fundamental obligation to manage the plan's resources prudently and in the best interest of the participants and beneficiaries. When a plan fiduciary hires an outside vendor for administration, it does not absolve them of their fiduciary responsibilities. Instead, the fiduciary still retains the responsibility to monitor and evaluate the performance of that vendor to ensure they are meeting the agreed-upon terms and providing services that benefit the plan participants. This ongoing duty includes regularly assessing the vendor’s effectiveness, ensuring compliance with the plan's requirements, and making necessary adjustments if the vendor's performance is lacking. Failing to monitor the vendor properly can result in breaches of fiduciary duty, as the fiduciary is responsible for overseeing all aspects of the plan, including the performance of third-party service providers. Therefore, the statement that hiring a vendor relieves the fiduciary of monitoring duties is incorrect.