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Free CPFA/QPFC Practice Questions

10 free, exam-style CPFA/QPFC (CPFA/QPFC) practice questions with answers and explanations. No signup required. Work through them below, then take the full free CPFA/QPFC practice test to study every exam domain.

Question 1

A plan sponsor appoints an SEC-registered investment advisor (RIA) as a §3(38) investment manager with full discretion over the plan's investment lineup. Six months later, three funds selected by the RIA significantly underperform their benchmarks. Under ERISA, which of the following BEST describes the plan sponsor's fiduciary liability at this point?

  1. The sponsor bears no fiduciary liability because all investment discretion transferred to the §3(38) manager
  2. The sponsor is liable as a co-fiduciary because §3(38) managers always share liability with the plan sponsor
  3. The sponsor retains the duty to prudently select and monitor the §3(38) manager, but is not liable for the manager's individual investment selections
  4. The sponsor is liable for the underperformance because the duty of prudence cannot be delegated under ERISA
Show answer & explanation

Correct answer: C - The sponsor retains the duty to prudently select and monitor the §3(38) manager, but is not liable for the manager's individual investment selections

A §3(38) investment manager takes on full discretionary liability for investment selections, relieving the sponsor of liability for those specific choices. However, the sponsor's fiduciary duty does not disappear - it narrows to the duty to prudently select the manager in the first place and to continue monitoring their performance and conduct. Underperformance alone does not trigger sponsor liability unless the sponsor failed to monitor. Option A overstates the liability transfer; ERISA §405(d)(1) confirms the sponsor retains the monitoring duty. Option B incorrectly characterizes §3(38) as a co-fiduciary arrangement - that is §3(21). Option D is incorrect; discretionary investment management authority can be delegated under ERISA, which is the entire purpose of §3(38).

Question 2

The CFO of a large manufacturing company decides to amend the company's 401(k) plan to eliminate the employer matching contribution, effective next plan year. The CFO consults with ERISA legal counsel and documents the business rationale before making the amendment. Which of the following MOST accurately describes the fiduciary nature of this decision?

  1. It is a fiduciary act subject to ERISA's prudent expert standard because it materially affects participant benefits
  2. It is a settlor function performed in the employer's corporate capacity and is not subject to ERISA's fiduciary duties
  3. It is a fiduciary act because the CFO has discretionary authority over plan administration
  4. It is a fiduciary act only if the plan assets are used to pay the legal fees for the amendment
Show answer & explanation

Correct answer: B - It is a settlor function performed in the employer's corporate capacity and is not subject to ERISA's fiduciary duties

Decisions about plan design - including whether to establish, amend, or terminate a plan, and decisions about the level of employer contributions - are settlor functions. The employer makes these decisions in its capacity as plan sponsor, not as a fiduciary. ERISA fiduciary duties do not apply to settlor functions, even if the decision negatively affects participant benefits. This is a frequently tested distinction: the same person (the CFO) may act as a fiduciary when administering the plan but as a settlor when deciding to change its terms. Option A is wrong because benefit impact does not determine fiduciary status. Option C conflates the CFO's administrative role with this plan-design decision. Option D introduces an irrelevant condition - who pays legal fees does not convert a settlor act into a fiduciary one.

Question 3

A retirement plan committee member who owns 8% of the plan sponsor's stock arranges for the plan to purchase a commercial building from a real estate LLC in which he holds a 15% ownership stake. The building is purchased at a price independently appraised at fair market value. Under ERISA, this transaction is BEST described as:

  1. Permissible, because the purchase price was established by an independent appraisal at fair market value
  2. A prohibited transaction under §406(a), because the LLC is a party in interest as a result of the committee member's ownership
  3. Permissible under the §408(b)(2) service provider exemption, since the LLC is providing a facility to the plan
  4. A prohibited transaction under §406(b) only, because the committee member personally benefits from the transaction
Show answer & explanation

Correct answer: B - A prohibited transaction under §406(a), because the LLC is a party in interest as a result of the committee member's ownership

Under ERISA §3(14), parties in interest include fiduciaries, the plan sponsor, and entities in which a plan fiduciary holds a significant ownership interest. A fiduciary who owns 15% of an entity likely makes that entity a party in interest. The purchase of property from a party in interest is a per se prohibited transaction under ERISA §406(a)(1)(A), regardless of whether fair market value is paid - price adequacy is not a statutory exemption for real estate sales. Option A is the most seductive wrong answer: fair market value matters for other exemptions (like §408(b)(17)) but does not apply to straightforward property sales. Option C is wrong: §408(b)(2) covers reasonable compensation for necessary services, not property purchases. Option D is incomplete - §406(a) (not just §406(b)) is triggered here, making B the more precise and complete answer.

Question 4

A plan administrator discovers that participant 401(k) contributions from the March 15 payroll were not deposited into the trust until March 28 - 13 calendar days later. The DOL's online calculator shows that the total lost earnings owed to the plan is $680. Which of the following correction approaches is MOST appropriate under current DOL guidance?

  1. File a full VFCP application with the regional EBSA office, restore lost earnings, and await a no-action letter
  2. Use the VFCP Self-Correction Component (SCC), restore the $680 in lost earnings, and file a notification with EBSA - no formal application required
  3. Correct under EPCRS Self-Correction Program (SCP) by restoring lost earnings to the plan without any DOL filing
  4. No correction is required because the deposit was made within 15 business days, which is the DOL's safe harbor for large plans
Show answer & explanation

Correct answer: B - Use the VFCP Self-Correction Component (SCC), restore the $680 in lost earnings, and file a notification with EBSA - no formal application required

The DOL significantly updated the VFCP effective March 17, 2025, introducing a Self-Correction Component (SCC) specifically for late deposits of participant contributions (and loan repayments) when total lost earnings are $1,000 or less. When the SCC applies, the plan sponsor corrects the error, calculates and pays lost earnings using the DOL's online VFCP calculator, and files a notice with EBSA - a full application is not required. At $680 in lost earnings, the SCC threshold is met. Option A (full VFCP application) is the pre-2025 approach and is no longer the most appropriate path for small late-deposit errors. Option C is wrong: EPCRS is an IRS program that corrects tax-qualification failures, not ERISA fiduciary violations such as late deposits. Option D is wrong: the 7-business-day safe harbor applies only to plans with fewer than 100 participants, and even then it is a safe harbor for the deposit timeline - it does not excuse a deposit that has already occurred late.

Question 5

Marcus was born on February 10, 1961. He has participated in his employer's 401(k) plan throughout his career and plans to retire at age 73. Under the SECURE 2.0 Act, in which year must Marcus take his first required minimum distribution from the plan?

  1. 2032, the year he turns 71, because RMDs begin two years before the applicable age under SECURE 2.0
  2. 2034, the year he turns 73, with the first RMD due by April 1, 2035
  3. 2033, the year he turns 72, because SECURE 2.0 applies a transitional RMD age of 72 for individuals born in 1961
  4. 2036, the year he turns 75, because SECURE 2.0 raised the RMD age to 75 effective January 1, 2033
Show answer & explanation

Correct answer: B - 2034, the year he turns 73, with the first RMD due by April 1, 2035

SECURE 2.0 raised the required minimum distribution age to 73 for individuals who turn 72 after December 31, 2022. Marcus was born in 1961 and will turn 73 in 2034. His first RMD is due by April 1 of the year following the year he turns 73 - i.e., by April 1, 2035, with the first RMD attributable to the 2034 plan year. Option D is the critical trap: SECURE 2.0 does further raise the RMD age to 75, but only for individuals who turn 73 after December 31, 2032 - meaning those born after 1959. Marcus was born in 1961, so he does not qualify for the age-75 threshold and remains subject to RMD age 73. Option C reflects pre-SECURE 2.0 transition confusion. Option A is fabricated.

Question 6

A plan advisor reviews participation data and finds that 72% of newly eligible employees enroll in the 401(k) plan within 90 days - but enrollment drops to 41% among employees who have been eligible for more than a year without enrolling. The advisor recommends a plan design change to address the low long-term enrollment rate. Which intervention MOST directly targets the behavioral bias responsible for this pattern?

  1. Adding a financial wellness education program that explains the benefits of compound interest
  2. Increasing the employer match rate from 50% of the first 4% to 100% of the first 3%
  3. Implementing a re-enrollment sweep that automatically enrolls all non-participating employees into the plan's QDIA, with an opt-out window
  4. Reducing the plan's investment menu from 28 funds to 10 to decrease choice overload
Show answer & explanation

Correct answer: C - Implementing a re-enrollment sweep that automatically enrolls all non-participating employees into the plan's QDIA, with an opt-out window

The data shows that employees who were initially eligible and didn't enroll tend to stay unenrolled - this is a textbook presentation of status quo bias (inertia). Once people default into inaction, they rarely reverse course through education or incentives alone. A re-enrollment sweep directly counteracts inertia by changing the default: non-participants are now automatically enrolled and must actively opt out to remain unenrolled. This harnesses the same psychological mechanism that makes auto-enrollment effective for new hires. Option A (education) addresses knowledge gaps but does not overcome inertia - research consistently shows that financial education alone has minimal impact on enrollment behavior. Option B (improving the match) is a rational incentive but does not overcome the inertia of already-eligible non-participants who have already 'decided' not to act. Option D (reducing fund choices) addresses choice overload, which affects investment selection behavior, not the enrollment decision itself.

Question 7

A plan committee is comparing two options for the plan's large-cap blend core fund. Option A is a mutual fund with a 0.72% total expense ratio; Option B is a Collective Investment Trust (CIT) managed by the same asset manager using an identical investment strategy, with a 0.31% expense ratio. A committee member argues that the plan should retain the mutual fund because it offers daily NAV pricing, which the CIT does not. Which of the following BEST evaluates this rationale from a fiduciary standpoint?

  1. The committee member's rationale is sound; daily NAV pricing is a material operational advantage that justifies the higher cost
  2. The committee member's rationale is insufficient; the 41-basis-point cost difference requires documented justification that the pricing feature provides equivalent value to participants
  3. The committee member's rationale is irrelevant; CITs and mutual funds are required to offer identical pricing under ERISA
  4. The committee member's rationale is sound only if the plan has more than 100 participants, at which point the mutual fund's liquidity features are operationally necessary
Show answer & explanation

Correct answer: B - The committee member's rationale is insufficient; the 41-basis-point cost difference requires documented justification that the pricing feature provides equivalent value to participants

ERISA's prudent expert standard requires fiduciaries to act with the care that someone familiar with retirement plan management would exercise. When two investment options offer substantially identical strategies and risk profiles, the lower-cost option is the default prudent choice. A 41-basis-point annual difference is material - on a $10 million plan, that is $41,000 per year in additional participant expense. To retain the higher-cost option, the committee must document a specific, plan-relevant rationale for why the additional cost provides equivalent or superior value to participants. Daily NAV pricing is a real operational difference, but for a long-term retirement plan whose participants are not actively trading, it rarely justifies a 41 bps premium. Option A elevates a feature with minimal practical benefit to most 401(k) participants. Option C is false - CITs and mutual funds have different regulatory frameworks and pricing structures. Option D invents a participant-count threshold that does not exist in ERISA.

Question 8

A plan's Investment Policy Statement states: 'Any fund ranked below the 50th percentile versus its Morningstar peer group for three consecutive annual measurement periods will be placed on the watchlist.' At the quarterly committee meeting, the investment advisor presents performance data showing that the plan's intermediate bond fund has ranked in the 62nd percentile for three consecutive years - meaning it is underperforming 62% of its peers. The committee chair argues no action is needed because the fund has positive absolute returns. Which of the following BEST describes the committee's fiduciary obligation?

  1. The committee chair is correct; absolute positive returns demonstrate prudent investment selection regardless of peer ranking
  2. The committee should place the fund on the watchlist per the IPS criteria, regardless of its absolute returns
  3. The committee may use discretion to waive the IPS criteria when absolute performance is positive, since the IPS is a guideline, not a binding rule
  4. The committee should immediately remove the fund from the lineup, because three consecutive years below the 50th percentile mandates termination under ERISA
Show answer & explanation

Correct answer: B - The committee should place the fund on the watchlist per the IPS criteria, regardless of its absolute returns

When a plan committee establishes an Investment Policy Statement, it creates a framework that the committee is obligated to follow. Failing to act when the IPS criteria are clearly triggered is itself a fiduciary breach - it demonstrates that the committee does not take its own stated process seriously. In this case, a fund ranked at the 62nd percentile is underperforming 62% of its peers, which means it has been below the 50th percentile for three consecutive years - exactly the watchlist trigger written into the IPS. The committee must place it on the watchlist. The chairman's 'positive absolute returns' argument is a classic and dangerous distraction: absolute returns are influenced by the entire market environment and tell nothing about whether this specific manager is adding value relative to alternatives. Option A is the most seductive wrong answer for this reason. Option C is wrong and dangerous: treating the IPS as discretionary undermines the entire purpose of having one and invites litigation. Option D overcorrects - the IPS specifies watchlist placement, not immediate termination.

Question 9

A plan sponsor is implementing automatic enrollment for the first time. Because many employees fail to make investment elections, the plan will default contributions into an investment option. The plan administrator wants to ensure the chosen default qualifies for the QDIA safe harbor under DOL Regulation §2550.404c-5. Which of the following investment options would NOT qualify as a permissible QDIA?

  1. A target-date fund with a glide path designed to reach its most conservative allocation at the participant's expected retirement date
  2. A balanced fund holding 60% diversified equities and 40% investment-grade bonds
  3. A stable value fund intended to serve as the permanent default investment for all participants
  4. A managed account service that allocates participant assets based on age, salary, and account balance data
Show answer & explanation

Correct answer: C - A stable value fund intended to serve as the permanent default investment for all participants

The DOL's QDIA regulation permits four types of default investments. A stable value fund (or money market fund) is permissible as a QDIA, but only for the first 120 days of a participant's plan participation - it qualifies as a temporary capital-preservation default while the participant decides where to invest. It does NOT qualify as a permanent QDIA for ongoing default contributions. Using a stable value fund as the permanent default for all participants would not receive the QDIA safe harbor protection beyond the 120-day window, exposing the plan to fiduciary liability for long-term participants defaulted into a capital-preservation vehicle that is likely inappropriate for their retirement horizon. Option A (target-date fund) is the most common QDIA. Option B (balanced fund) is expressly permitted. Option D (managed account) is the third permissible type. The 120-day limitation on stable value is one of the most commonly misapplied rules in plan administration.

Question 10

A company's CFO serves on the retirement plan investment committee. At a quarterly meeting, the committee votes 4-to-1 to retain a proprietary fund offered by the company's banking partner - a relationship that generates significant revenue for the company. The CFO votes against retention, citing performance concerns, and documents her dissenting vote in the meeting minutes. Three years later, the fund is removed following poor performance, and a participant lawsuit alleges the committee breached its duty of loyalty by retaining the fund for non-participant reasons. Which of the following MOST accurately describes the CFO's personal fiduciary exposure?

  1. The CFO has no fiduciary exposure because she voted against the decision and documented her dissent
  2. The CFO has full fiduciary exposure equal to all other committee members because a dissenting vote does not satisfy ERISA's requirements for limiting co-fiduciary liability
  3. The CFO has no fiduciary exposure because the investment committee, not any individual member, bears collective fiduciary liability
  4. The CFO has limited fiduciary exposure because her dissenting vote, while not eliminating liability, demonstrates the prudent expert standard was met on an individual basis
Show answer & explanation

Correct answer: B - The CFO has full fiduciary exposure equal to all other committee members because a dissenting vote does not satisfy ERISA's requirements for limiting co-fiduciary liability

This is one of the most important and misunderstood concepts in ERISA fiduciary law. A dissenting vote alone does not satisfy ERISA's requirements for limiting co-fiduciary liability. Under ERISA §405(a), a fiduciary is liable for another fiduciary's breach if they know of the breach and fail to take 'reasonable remedial steps.' Documenting a dissent in the minutes is a necessary first step, but ERISA requires more: the fiduciary must take affirmative action, which may include escalating the issue to senior leadership, consulting with legal counsel, notifying the DOL, or - in extreme cases - resigning from the committee. Simply voting no and recording it creates a factual record but does not constitute the 'reasonable remedial steps' that ERISA demands. Option A is the most tempting wrong answer and the one that most candidates who have not studied deeply will select. Option C incorrectly treats the committee as an entity that absorbs liability away from individuals - ERISA fiduciary liability is personal, not organizational. Option D creates a non-existent middle ground; ERISA does not scale liability based on an individual vote.

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