Certified Plan Sponsor Professional (CPSP) Practice Exam

What does personal liability for losses entail for fiduciaries?

1. Responsibility only for underperforming investments.

2. Accountability for any losses the plan incurs due to misconduct.

3. Exemption from penalties if working with advisors.

4. Liability limited to advisory fees only.

The correct answer is: Accountability for any losses the plan incurs due to misconduct.

Personal liability for losses entails that fiduciaries are accountable for any losses the plan incurs due to misconduct. This means that if a fiduciary fails to act in the best interest of the participants and beneficiaries, or if they do not meet the standards set forth in the Employee Retirement Income Security Act (ERISA), they can be held personally liable for any financial impact resulting from their actions or inactions. Fiduciaries are expected to operate with a high standard of care, prudence, and loyalty, and failure to uphold these responsibilities can lead to significant legal and financial consequences. The concept of personal liability is central to the fiduciary role, as it emphasizes the importance of making decisions that are prudent and in alignment with the plan's best interests. This includes not only avoiding poor investment choices but also ensuring that all actions taken are compliant with legal and ethical standards. If misconduct is identified that leads to losses, fiduciaries can be challenged legally, and they may need to cover these losses from their own resources. This accountability underlines the serious nature of fiduciary responsibilities, as fiduciaries cannot simply attribute poor performance to market conditions or other external factors if misconduct is involved. They must always be prepared to justify their decisions and demonstrate that they acted in good faith and