Certified Plan Sponsor Professional (CPSP) Practice Exam

What is a key requirement for plan service providers before providing services to plan fiduciaries?

1. Disclosure of conflicts of interest

2. Providing a comprehensive service agreement

3. Agreement on compensation fees

4. Proof of regulatory compliance

The correct answer is: Disclosure of conflicts of interest

A critical requirement for plan service providers before they can deliver services to plan fiduciaries is the disclosure of conflicts of interest. This expectation arises from the need to ensure transparency and maintain trust in the fiduciary relationship. When service providers disclose any potential conflicts, they allow fiduciaries to make informed decisions regarding whether to engage with a provider whose interests may not fully align with their own. By identifying and managing conflicts of interest upfront, plan fiduciaries can better assess the prudence of entering into a relationship with a service provider, thus fulfilling their fiduciary duties. This practice also aligns with regulatory expectations, such as those outlined in the Employee Retirement Income Security Act (ERISA), which emphasizes the necessity of acting in the best interests of plan participants. The other aspects mentioned, while relevant in the broader context of vendor relationships, do not hold the same regulatory weight concerning the initial engagement. For instance, providing a comprehensive service agreement, agreeing on compensation fees, and proving regulatory compliance are essential components of the relationship, but the disclosure of conflicts of interest is the foundational requirement to ensure fiduciaries can trust the integrity and objectivity of the advice provided.