Certified Plan Sponsor Professional (CPSP) Practice Exam

Is Debbie at risk of violating her fiduciary obligation if she hires a bank with no prior retirement plan experience and high fees at the request of the CEO?

1. Yes

2. No

3. Only if the bank charges additional fees

4. Not if it is documented

The correct answer is: Yes

Debbie is indeed at risk of violating her fiduciary obligation by hiring a bank with no prior retirement plan experience and high fees, even if the request comes from the CEO. A fiduciary has a legal and ethical responsibility to act in the best interest of the plan participants and beneficiaries. This duty includes the obligation to select service providers who are qualified, capable, and charge reasonable fees for their services. Choosing a bank without experience in managing retirement plans raises concerns about the bank's ability to meet the unique needs of the plan effectively. Moreover, high fees can erode the value of the retirement benefits that participants receive, further compromising their financial well-being. Fiduciaries are expected to conduct thorough due diligence before hiring service providers, which involves evaluating their qualifications, experience, and fee structures. Failing to do so, particularly when selecting a provider with high fees and inadequate qualifications, could be seen as a breach of fiduciary duty. It is essential for Debbie to document the decision-making process and ensure that any service provider chosen adheres to the standards of care expected of fiduciaries in order to mitigate risks associated with such decisions.