CPFA EXAM 2 VERSIONS WITH VERIFIED QUESTIONS AND
ANSWERS RATED A+
Which of the following reports can be used in measuring plan effectiveness and participant
outcomes?
A) Number of terminated participants who elected to roll their accounts into IRAs.
B) Average deferral rate of participants in the plan.
C) Independent accountant's required annual audit of the plan.
D) Summary Annual Report. - B) Average deferral rate of participants in the plan.
All of the following are benefits of participant retirement readiness, EXCEPT:
A) Employers can better manage their workforce needs.
B) Participants receive a guarantee of lifetime income payments.
C) Employees may be more satisfied with their jobs when working for an employer that
actively promotes retirement readiness programs.
D) Employers can work with service providers who have tools to assist participants in
increasing retirement savings. - B) Participants receive a guarantee of lifetime income
payments.
All of following are items to consider when developing a strategy to promote successful
participant outcomes, EXCEPT:
A) What is the average life expectancy for the participants' beneficiaries?
B) Should investment advice be offered?
C) Is senior level management interested in promoting "retirement readiness"?
D) What type of participant education should be provided? - A) What is the average life
expectancy for the participants' beneficiaries?

All of the following statements describe the re-enrollment process of reinvesting participant
accounts in the plan's asset allocation funds, EXCEPT:
A) The re-enrollment of participant accounts is considered a behavioral finance method.
B) Participants are given the opportunity to "opt-out" of the re-enrollment of their account
balances.
C) The goal of the re-enrollment process is to improve participant outcomes by
automatically investing their account balances in asset allocation funds appropriate for their
age.
D) Participant notices are not required. - D) Participant notices are not required.
Which statement regarding service providers is TRUE?
A) A TPA performs annual compliance testing.
B) A recordkeeper has the legal obligation to provide an interpretation of a plan provision.
C) An accountant processes the "money out" for a participant account.
D) A plan advisor is responsible for drafting annual safe harbor notices. - A) A TPA performs
annual compliance testing.
Which statement regarding bundled service arrangements is TRUE?
A) Provides efficient contribution and distribution processes.
B) Requires less fiduciary oversight than an unbundled service arrangement.
C) Permits for specific single provider within the arrangement to be easily removed and
replaced with another provider.
D) Typical arrangement involves a TPA and an insurance company. - A) Provides efficient
contribution and distribution processes.
Based on behavioral finance research, which of the following is a best practice for
producing successful participant outcomes?
A) Combining auto-enrollment with targeted education.
B) Adding a self-directed brokerage option.
C) Re-enrolling all participants into equity investments.

D) Offering group meetings that focus on participants' rational decision making. - A)
Combining auto-enrollment with targeted education.
Company ABC and Company DEF are determined to be part of a related group of companies.
All the following are TRUE except:
A) The employees of both ABC and DEF may end up participating in one plan.
B) ABC may be required to make contributions for its employees into DEF's plan.
C) DEF has the right to "opt out" and be excluded from the related group.
D) If DEF adopts a plan, ABC employees may be eligible for the plan. - C) DEF has the right to
"opt out" and be excluded from the related group.
Which of the following plan designs may result in better participant deferral behavior?
A) Adding an employer matching contribution equal to 25% up to 12% of compensation
deferred.
B) Adding a 3% nonelective safe harbor contribution.
C) Adding a 1,000 hours of service requirement to receive the employer matching
contribution.
D) Adding a profit-sharing contribution. - A) Adding an employer matching contribution equal
to 25% up to 12% of compensation deferred.
An advisor is meeting with a Plan Sponsor to discuss contribution design in her plan. All of
the following questions will help with this conversation, EXCEPT:
A) Is there a goal that employees should be required to contribute to receive an employer
contribution?
B) Can participants convert their existing contribution accounts to Roth accounts?
C) Is there a group of employees who are unlikely to participate in the plan?
D) How important is it that employees are on track for adequate retirement income? - B)
Can participants convert their existing contribution accounts to Roth accounts?
Jake is a sole proprietor and has just established a software development company. He has
recently hired two employees. Currently, the company does not have a good cash flow, but if

Jake can hire more software engineers, growth and profits should increase. Based on that
information, all of the following are questions that an advisor should ask when establishing a
plan for Jake's company, EXCEPT:
A) Can the company's current cash flow support employer contributions?
B) Does the company have an established line of credit?
C) What are Jake's objectives for attracting future employees?
D) Is Jake willing to make a fixed contribution if it enables him to save more? - B) Does the
company have an established line of credit?
A partnership is a business that:
A) Cannot have a limited liability structure.
B) Has at least two partners.
C) Is typically run by a board of directors.
D) Reports income on form 1120. - B) Has at least two partners.
All of the following describe the impact of a business's cash flow and budget when
establishing a plan, EXCEPT:
A) A plan advisor should inform the employer that required contributions will be waived for
any year that the company does not make a profit.
B) A plan advisor should explain a plan's contribution commitment to the employer.
C) Employers should have a stable cash flow if they are considering adopting a Defined
Benefit/Defined Contribution combination plan.
D) A plan advisor may work with the service provider to show estimates of what employer
contributions would be under different contribution formulas. - A) A plan advisor should
inform the employer that required contributions will be waived for any year that the
company does not make a profit.
Which statement regarding IRA plans and 401k plans is TRUE?
A) SIMPLE IRA plans are used to maximize plan benefits to owners.
B) SIMPLE IRAs and 401ks have the same plan document requirements.

C) Participant loans are allowed from a SIMPLE 401k plan but not a SIMPLE IRA.
D) An employer may sponsor a SIMPLE IRA and a 401k plan in the same calendar year. - C)
Participant loans are allowed from a SIMPLE 401k plan but not a SIMPLE IRA.
A traditional 401k plan maybe an appropriate choice for all of the following employers,
EXCEPT:
A) An employer who feels strongly that his or her employees should take an active role in
saving for retirement.
B) An employer whose first priority is to maximize his or her retirement savings.
C) An employer who is paternalistic and wants to help employees save by enacting automatic
enrollment provisions.
D) An employer who wants to encourage employee participation with matching contributions.
- B) An employer whose first priority is to maximize his or her retirement savings.
An owner-driven plan sponsor wants to retire in five to ten years. His company has a stable
cash flow and ten employees. All of the following plan designs are compatible with the
owner's goals, EXCEPT:
A) 401 (k) cross-tested safe harbor plan
B) Defined benefit/defined contribution combination plan
C) 401(k) safe harbor plan
D) SIMPLE IRA - D) SIMPLE IRA
An owner-driven plan sponsor wants to know the advantages of a safe harbor 401(k) plan. All
of the following are advantages EXCEPT:
A) Safe harbor contributions can exempt the plan from the ADP test.
B) Safe harbor contributions may be taken as a hardship withdrawal.
C) Safe harbor contributions are discretionary.
D) Safe harbor contributions can satisfy top-heavy minimum contribution requirements. - C)
Safe harbor contributions are discretionary.

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All of the following plan features are typically located in the plan's adoption agreement,
EXCEPT:
A) Availability of participant loans
B) Availability of in-service withdrawals
C) Matching contribution formula
D) Definition of ERISA fiduciary roles and responsibilities - D) Definition of ERISA fiduciary
roles and responsibilities
All of the following are advantages of the request for proposal (RFP) process in a
participant-driven plan, EXCEPT:
A) The RFP allows the fiduciaries to delegate the selection of finalists to the plan advisor and
the TPA.
B) Plan advisor can assist the fiduciaries in compiling a list of potential service providers.
C) Fiduciaries can make an "apples to apples" comparison of fees and services.
D) The RFP and the responses can be part of the documentation that a prudent process was
followed. - A) The RFP allows the fiduciaries to delegate the selection of finalists to the plan
advisor and the TPA.
All of the following service providers may assist with plan document maintenance, EXCEPT:
A) ERISA attorney
B) Recordkeeper
C) TPA firm
D) Plan auditor - D) Plan auditor
All of the following describe the required participant disclosure process, EXCEPT:
A) The Plan Administrator or Plan Sponsor can hire a 3(16) fiduciary to distribute required
participant notices.
B) The party that distributes required notices to participants is considered a fiduciary.
C) Generally, a TPA may prepare the safe harbor 401(k) notice.

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