Certified Plan Sponsor Professional (CPSP) Practice Exam

Members of a plan committee, when selecting a plan recordkeeper, have which type of liability?

1. Limited liability for financial decisions.

2. Personal liability for committee decisions.

3. No liability if acting under guidance.

4. Collective liability shared with other fiduciaries.

The correct answer is: Personal liability for committee decisions.

When members of a plan committee select a plan recordkeeper, they assume personal liability for the decisions made in the course of their fiduciary duties. This means that if the committee members fail to act prudently or do not meet the necessary standards of care and loyalty required by ERISA (the Employee Retirement Income Security Act), they can be held personally liable for any resulting losses to the plan. Fiduciaries, including committee members, are expected to perform their roles with a high degree of diligence and care, considering all relevant information and acting in the best interest of the plan participants. If they neglect their duties or make decisions that are not in the best interest of the participants, they can be personally accountable, which can lead to legal consequences including financial repercussions. This emphasizes the serious nature of their role and the importance of thorough evaluation and decision-making when selecting service providers like recordkeepers. The context surrounds fiduciary responsibility, where collective liability and acting under guidance relate to broader fiduciary duties but do not reduce the personal liability that committee members face for their specific decisions. Hence, the understanding of personal liability is pivotal for members of plan committees.