Certified Plan Sponsor Professional (CPSP) Practice Exam

What information must service providers give to fiduciaries before contracting for plan services?

1. A statement regarding the services provided and expected compensation

2. A detailed description of past performance

3. A legal disclaimer about their services

4. An analysis of potential risks

The correct answer is: A statement regarding the services provided and expected compensation

The requirement for service providers to furnish fiduciaries with a statement regarding the services provided and expected compensation is rooted in the fiduciary responsibility framework established by ERISA (Employee Retirement Income Security Act). This obligation ensures that fiduciaries have a clear understanding of the nature and scope of the services they can expect from the service provider, alongside the costs associated with those services. This transparency is vital for fiduciaries when assessing whether the services are necessary and whether the fees involved are reasonable in light of the services rendered. It helps fiduciaries make informed decisions and fulfill their duty to act in the best interests of plan participants and beneficiaries. Providing this information is a critical component of prudent plan management and helps prevent any potential conflicts of interest or hidden fees that could ultimately harm plan participants. While information regarding past performance, legal disclaimers, and analyses of potential risks may be important in evaluations and due diligence processes, they do not fulfill the specific legal requirements set forth to ensure transparency regarding services and compensation upfront. Thus, the correct choice aligns with established regulatory standards aimed at protecting fiduciaries and plan participants.