FC2 Syllabus


FC2 Syllabusdf2d4c59ccf47b6bc124-2951e9520e07371e6076e0c8af900fc2.r54.cf5.rackcdn.com/...

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PFC-2: Plan Financial Consulting - 2 2015 Syllabus Course Overview The QPFC curriculum has been specifically developed for retirement plan professionals who want to specialize as financial consultants. To earn the credential, the candidate must successfully complete the PFC-1 and PFC-2 examinations. The PFC-1 examination provides the framework for a candidate to achieve core competency as a retirement plans professional. It focuses on plan design, controlled group rules and other consulting issues including the effect of mergers and acquisitions on a company’s retirement plan. The PFC-2 examination is devoted to topics that are of critical importance to financial consultants. These topics include fiduciary issues, prohibited transactions, investment types and plan fees. ERISA defines who is a plan fiduciary, how fiduciaries must perform their duties, and how individuals might be personally liable to the plan should they breach their fiduciary duties. It is imperative that financial consultants possess a strong understanding of ERISA and its requirements for plan fiduciaries. The PFC-2 examination covers a wide range of fiduciary issues relevant to the retirement planning profession as required by pension law, Department of Labor (DOL) and Internal Revenue Service (IRS) guidance and court rulings. Additionally, this course explores plan investment topics including asset classes and investment vehicles that are appropriate for different types of retirement plans. Investment risk analysis is also discussed as well as participant attitudes toward investing. The timely topic of plan and investment level fees including their discovery, analysis, and disclosure to plan participants and plan fiduciaries is covered. This is an extremely important issue as a primary duty of plan fiduciaries is to ensure reasonableness of plan fees and to provide appropriate disclosure to participants. Finally, financial consultants are bound by certain duties in all aspects of professional activity. ASPPA members are required to comply with ASPPA’s Code of Professional Conduct. And, Elegant Ethical Solutions presents a blueprint of how to deal with ethical dilemmas. It is presumed that a candidate sitting for the PFC-2 examination will have the knowledge of material covered in the PFC-1 examination.

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Required Reading Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015. Bloom, Lauren. Elegant Ethical Solutions. Elegant Solutions Consulting: Goodlettsville, TN.

Recommended Reading Swisher, Pete. 401(k) Fiduciary Governance: An Advisor’s Guide, 3rd Edition. Arlington, VA: ASPPA, 2012.

Supplementary Study Materials Practice Examinations Available for purchase at www.asppa-net.org/practice-exams.

Time Period Covered by This Material For the 2015 program year, this course and corresponding examination will cover legislative and regulatory changes as amended through August 1, 2014.

Educational Material Copyright It is important to note that all ASPPA and NAPA examination and educational materials are copyrighted. No examination or educational materials can be copied, reproduced or shared in any form by any means without written permission from ASPPA. In an effort to provide educational opportunities, ASPPA does offer specific distributable products (see details under Multi-User Distributable Educational Materials).

Multi-User Distributable Educational Materials Please note that only products noted as distributable can be distributed. Purchasers of these products are allowed to distribute to direct employees of their Company. In addition, authorized Universities offering ASPPA education are eligible to distribute the purchased materials to their students. Purchasers of this product are prohibited from distribution of these materials to any other parties unless agreed upon by ASPPA in writing. Materials may be e-mailed directly to the above-mentioned parties or published on a non-public portion of the Purchaser’s website for access/distribution. Materials may not be placed on a site that has general public access. All other use or distribution of these materials is explicitly prohibited unless otherwise approved in writing by ASPPA.

Exam The corresponding exam will include 75 multiple choice questions for which a candidate will have 3 hours to complete. Candidates will receive a grade immediately upon completing the exam. Exams are given in a proctored setting at Prometric Testing Centers during two examination windows. Please refer to the Education calendar at www.asppa-net.org/education-calendar for specific exam windows and registration and postponement deadlines.

Additional Information All candidates are encouraged to visit Candidate Corner (www.asppa-net.org/candidatecorner) for additional information. It is the candidate’s responsibility to check the website for the most current information on examinations and publications. The Candidate PFC-2: Plan Financial Consulting – 2 Syllabus: Page 2

Corner includes instructions for locating Prometric test centers to schedule examinations, exam windows and dates, study tips, current information on regulatory limits and other helpful information. You may also contact ASPPA with questions at [email protected].

Exam & Publication Errata and References As needed, errata to required reading material and/or practice examinations will be posted on the ASPPA website at www.asppa-net.org/errata. It is the candidate’s responsibility to check this page regularly for any updates prior to taking an examination.

Topic 1: Part A – Fiduciary Definition Overview Many individuals and entities are involved with the creation, operation and maintenance of qualified plans. Some are considered fiduciaries under ERISA and some are not. Fiduciaries are held to the highest standards to act in the best interests of the participants and the plan. This topic analyzes when an individual is considered a fiduciary. Learning Objectives The successful candidate will be able to: 1.01 1.02

Determine when an individual is considered a fiduciary or a co-fiduciary. Describe the fiduciary standards under ERISA §§3(38), 3(16), 3(21) and for Named Fiduciaries.

Exam Weighting This topic will comprise approximately 3 to 5 percent of the exam questions. Required Reading Chapter 1 Part A: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

Topic 1: Part B – Fiduciary Duties and Responsibilities Overview Financial consultants that work with qualified plans encounter a unique set of challenges. They have several parties that they typically work with; the plan sponsor, plan administrator, investment committee, participants, TPA and product vendor-- just to name a few. They may be hired by the plan sponsor but if they serve in a fiduciary capacity, they are legally bound by ERISA to serve the best interests of the plan and its participants. This topic covers the roles and duties of the financial consultant, plan sponsor, plan trustee and plan administrator. Also, the basics of a prudent fiduciary governance process are covered. PFC-2: Plan Financial Consulting – 2 Syllabus: Page 3

Learning Objectives The successful candidate will be able to: 1.03 1.04

1.05 1.06 1.07 1.08 1.09 1.10 1.11

Describe the role of financial consultants when working with qualified plans. Discuss how a financial consultant assesses a client’s goals and objectives before recommending a plan design or other material change to the plan. Describe the prudent fiduciary governance process for a qualified plan. Identify the different pension laws relevant to retirement plan governance. List the proxy voting guidelines outlined by the DOL. Describe the fiduciary duties of the plan administrator, plan sponsor and plan trustee. Discuss the fiduciary considerations behind the selection of plan investment options and plan default options. Explain the duty of prudence under court law for a fiduciary that is investing plan assets. State the provisions of the foreign language rule.

Exam Weighting This topic will comprise approximately 7 to 11 percent of the exam questions. Required Reading Chapter 1 Part B: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

Topic 2 – Prohibited Transaction Rules Overview There are certain transactions that a plan is prohibited from engaging in with anyone who has any connection with the plan, including the financial consultant. However, there are various exemptions at different levels that are granted by the DOL that provide relief from the prohibited transactions (PTs). These exemptions are crucial because PTs result in a breach of duty by the plan fiduciaries. This topic analyzes some of the major types of PTs and applicable exemptions. Learning Objectives The successful candidate will be able to: 2.01 2.02 2.03 2.04 2.05 2.06

Define a party-in-interest. Differentiate between statutory, class and individual prohibited transaction exceptions (PTEs). Determine whether a PT has occurred. List fiduciary issues when a financial consultant recommends IRA rollovers to plan participants. Explain when elective deferrals, loan repayments and employer matching contributions must be deposited into a qualified plan. Discuss how a PT may be corrected including the use of the DOL PFC-2: Plan Financial Consulting – 2 Syllabus: Page 4

2.07 2.08 2.09 2.10 2.11

correction program. Describe the requirements that must be met for a fiduciary to be paid by a plan for services provided. Discuss the importance and the duty of providing the client with full disclosure of the financial consultant’s fees and compensation. Summarize the requirements for fiduciary relief for the provision of investment advice to participants. Define the requirements for an eligible investment advice arrangement. List the PTs and exemptions that are relevant to a financial consultant.

Exam Weighting This topic will comprise approximately 8 to 12 percent of the exam questions. Required Reading Chapter 2: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

Topic 3 – Fiduciary Breaches, Liability and Enforcement Overview Individuals considered plan fiduciaries are held to elevated standards when controlling plan assets. Fiduciaries who fail in their duties and/or commit breaches, can be personally liable to restore the plan to the financial position it would have been in had the fiduciary not breached his or her duties. This topic explores the types of breaches that fiduciaries commit, the types of liability to which they are subject and the insurance available to help them protect against liability. This topic also reviews enforcement of fiduciary breaches by government entities and the courts. Learning Objectives The successful candidate will be able to: 3.01 3.02 3.03 3.04 3.05 3.06

Describe potential breaches of the fiduciary duties. Explain the consequences of a breach of fiduciary duty. List liability provisions under ERISA §409 once a breach of fiduciary duty has been committed. Determine when a co-fiduciary may be personally liable for another fiduciary's breach. State the statute of limitations under ERISA for fiduciary breaches. Differentiate between fiduciary insurance and a fidelity bond.

Exam Weighting This topic will comprise approximately 5 to 9 percent of the exam questions. Required Reading Chapter 3: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

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Topic 4 – Participant Directed Investments Overview Retirement plan professionals, specifically those working with 401(k) plans have become very familiar with the DOL §404(c) regulations and its requirements. But, with the introduction of the participant fee disclosure regulations (under ERISA §404(a)), the paradigm for 404(c) compliance has changed significantly. This topic covers the two regulations and their impact on each other. This topic also addresses the important distinction between a financial consultant providing participants with general investment education versus personalized investment advice. Learning Objectives The successful candidate will be able to: 4.01 4.02 4.03 4.04 4.05 4.06 4.07

Explain the rules that plan sponsors must follow if they want the protection offered under ERISA §404(c). Explain the impact of a plan offering self-directed brokerage accounts under ERISA §404(c). Discuss which plans are subject to the participant fee disclosure regulations under ERISA §404(a). Discuss how new participant fee disclosures may affect ERISA §404(c) requirements. Discuss the disclosures that must be made under the new participant fee disclosure regulations. Discuss acceptable delivery methods for making the required participant fee disclosures and the time frame for making the disclosures. Differentiate providing investment education from providing individual investment advice in a 401(k) plan.

Exam Weighting This topic will comprise approximately 5 to 9 percent of the exam questions. Required Reading Chapter 4: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

Topic 5 – Selection and Oversight of Service Providers Overview With trillions of dollars in qualified plans, the number of products and providers servicing the industry is extensive. The financial consultant needs to understand what factors should be considered when recommending one provider over another and what due diligence is necessary for monitoring current providers. This topic also reviews the advantages and disadvantages of using mutual funds, variable annuity products and other investment vehicles in retirement plans.

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Learning Objectives The successful candidate will be able to: 5.01 5.02 5.03 5.04 5.05 5.06

Explain the role of the third party administrator and how it differs from the plan administrator. Describe what due diligence is necessary and what factors should be considered when selecting a retirement plan provider. Compare the advantages and disadvantages of bundled versus unbundled providers. Define the open architecture approach as it relates to investment management. Discuss relevant factors that should be considered when choosing a financial consulting firm. Discuss relevant factors to consider when monitoring a retirement plan provider

Exam Weighting This topic will comprise approximately 7 to 11 percent of the exam questions. Required Reading Chapter 5: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

Topic 6 – Oversight of Plan Expenses Overview A primary fiduciary function is to ensure the reasonableness of plan fees for participants. A fiduciary must be diligent in determining the fees that are charged to the plan and participants. This topic examines and provides guidance on the types of fees that may be charged, and also addresses “revenue sharing,” an approach to paying fees that most qualified plans experience in one form or another. Learning Objectives The successful candidate will be able to: 6.01 6.02 6.03 6.04

6.05 6.06 6.07 6.08

Describe the structure and impact of the various mutual fund fee types. Describe the components of a group annuity contract. Compare the different fees within mutual funds, group annuities and collective investment funds. List the different types of plan expenses that a plan sponsor and participant may be expected to pay in the normal operation of a retirement plan. Describe the process of plan cost discovery and analysis. Summarize the fiduciary requirements to determine the reasonableness of plan fees. Describe soft dollar arrangements, bank float and transaction related expenses and explain their impact on retirement plans. Discuss the various methods of revenue sharing and their impact on plan PFC-2: Plan Financial Consulting – 2 Syllabus: Page 7

6.09

costs and participant account balances. Determine which expenses can be paid from plan assets.

Exam Weighting This topic will comprise approximately 7 to 11 percent of the exam questions. Required Reading Chapter 6: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

Topic 7 – Plan Investment Management Overview Unless a plan qualifies for fiduciary relief under ERISA §404(c), plan fiduciaries are responsible for participant decisions in participant directed plans. Understanding participant behaviors when investing is crucial for the proper selection of investment choices inside a plan. The benefits of diversification and rebalancing participant accounts and the concepts behind market timing are reviewed. Factors to consider in choosing investments for trustee directed plans are also explored. And, the different methods used to evaluate investment risk, e.g., the Sharpe ratio are explained. This topic also explains why it may be important for a plan to adopt an investment policy statement (IPS) and what items it may include. Finally, any financial professional working with retirement plans should understand the roles of the recordkeeper, trading partner and transfer agent. After all, it is these parties-- and their technologies that have made it possible to have daily valuation plans, which have revolutionized the retirement plan marketplace. Learning Objectives The successful candidate will be able to: 7.01 7.02 7.03 7.04 7.05 7.06 7.07 7.08 7.09 7.10 7.11

Describe factors that should be considered when choosing investments for defined benefit plans. Compare the advantages and disadvantages of utilizing mutual funds, collective investment funds and separate accounts. Describe the principles of Post Modern Portfolio Theory. Describe the different measures of risk used to evaluate investments. Compare the advantages and disadvantages of diversification. Discuss the use of behavioral finance with respect to participant-directed retirement plans. Illustrate the impact of market timing on participant accounts. Describe the various methods that plan sponsors and vendors may use to reduce market timing by participants. Discuss the benefits of rebalancing participant accounts. List the purposes and critical components of a plan’s IPS. List the roles of the recordkeeper, trading partner and transfer agent in daily valuation trade processing. PFC-2: Plan Financial Consulting – 2 Syllabus: Page 8

Exam Weighting This topic will comprise approximately 11 to 15 percent of the exam questions. Required Reading Chapter 7: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

Topic 8 – Qualified Default Investment Alternatives (QDIAs) Overview After decades of declining to do so, the DOL (in the 2006 Pension Protection Act) had provided guidance on prudent investments that are considered appropriate in the absence of participant election. This topic explores which investments qualify for QDIA status and what fiduciary steps must be taken to earn and maintain the QDIA status. When properly executed, the use of QDIAs can afford a similar level of protection that ERISA §404(c) offers. Learning Objectives The successful candidate will be able to: 8.01 8.02 8.03

Describe the fiduciary relief provisions when using a QDIA. Identify the conditions that must be met to qualify a default investment option as a QDIA. Identify the types of investments that satisfy the QDIA requirements.

Exam Weighting This topic will comprise approximately 3 to 5 percent of the exam questions. Required Reading Chapter 8: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

Topic 9 – Plan Asset Types Overview Investment products in qualified plans, especially in participant-directed 401(k) plans, need to be appropriate for plan participants and comply with DOL regulations. The role of the financial consultant is crucial in helping plan administrators and participants understand the various investment products used in qualified plans. The financial consultant should also understand the circumstances when it may be beneficial for life insurance to be purchased through a qualified plan, and what the statutory limits are. Finally, qualifying plan assets and their role in regards to the small plan audit exception are defined.

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Learning Objectives The successful candidate will be able to: 9.01 9.02

9.03 9.04

9.05 9.06 9.07 9.08 9.09 9.10 9.11 9.12 9.13 9.14

Compare lifecycle (age based) and lifestyle (risk based) funds. Describe the suitability of investment options for different plan types (defined contribution, 401(k), profit sharing, defined benefit, SEP-IRA, 403(b), IRAs and others). Identify the major types of traditional asset classes and explain their functions as investment choices in retirement plans. Identify the major types of non-traditional asset classes or alternative investments and explain their functions as well as limitations as investment choices in retirement plans. Analyze the advantages and disadvantages of using exchange traded funds in qualified plans. Compare the advantages and disadvantages of unitizing securities for use in a retirement plan. List fiduciary and administrative issues with frozen investment options inside a qualified plan. Identify the issues of utilizing hard to value assets in a plan. Discuss both fiduciary and investment issues involved with the use of employer stock in a qualified plan. Differentiate between the type and amount of employer securities that can be part of a 401(k) plan and other qualified plans. Compare the advantages and disadvantages of life insurance in a retirement plan. Discuss when it is appropriate for plan assets to be invested in life insurance. Calculate the limitations on the amount of life insurance coverage permitted in qualified plans. Define the rules of what constitutes a qualifying plan asset.

Exam Weighting This topic will comprise approximately 11 to 15 percent of the exam questions. Required Reading Chapter 9: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

Topic 10 – Analysis of Plan Fixed Accounts and Cash Instruments Overview Fixed accounts and cash instruments are different and often more complex than other traditional 401(k) investments. The vendor options are different, the underlying investments are different, and the factors that must be considered for due diligence purposes are different. These differences are profound enough that procedural prudence requires fiduciaries to develop an entirely different toolset to analyze them. This topic explores the nature of these investments and also describes their associated fees and expenses. PFC-2: Plan Financial Consulting – 2 Syllabus: Page 10

Learning Objectives The successful candidate will be able to: 10.01 Compare the advantages and disadvantages of the different cash equivalents including money market funds, stable value funds, fixed accounts and GICs. 10.02 Describe the purpose, impact, and structure of wrap fees, surrender fees and market value adjustments.

Exam Weighting This topic will comprise approximately 3 to 5 percent of the exam questions. Required Reading Chapter 10: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

Topic 11 – Plan Conversions Overview Decisions to select one investment vehicle over another or the decision to choose a new vendor may have substantial consequences on the administration of participant accounts in defined contribution plans. Blackout periods, fund mappings and cash conversions are part of the process of change. It is expected that the plan’s financial consultant will understand the steps that occur as a result of plan design, vendor and investment vehicle changes, and advise plan administrators and participants appropriately. Learning Objectives The successful candidate will be able to: 11.01 Discuss the impact of blackout periods on plan operations during plan conversions. 11.02 Summarize the factors to consider in plan transfers and conversions. 11.03 Differentiate fund mapping from cash conversions. 11.04 Discuss the objectives behind fund mapping. 11.05 Discuss the financial consultant's responsibilities with respect to the plan before and after the conversion of the plan. Exam Weighting This topic will comprise approximately 4 to 8 percent of the exam questions. Required Reading Chapter 11: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015.

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Topic 12 – ASPPA Code of Professional Conduct and Dealing with Ethical Dilemmas Overview Ethics represents the most important attribute that all fiduciaries must possess in the proper running of qualified plans. Without ethics, there is no trust--without trust, participants lose faith in the retirement planning system. This topic outlines the retirement plan professional’s duties with regard to ASPPA’s Code of Professional Conduct. The ASPPA Code of Professional Conduct along with pension law, codes, and rulings serve as the guides for all professionals working in the retirement planning field. Elegant Ethical Solutions brings clarity to dealing with difficult ethical issues that may be encountered during interactions with co-workers and clients—and even our personal lives. This text explores the difficult decisions that often must be made along with the diplomatic ways to deal with the feedback and consequences. Learning Objectives The successful candidate will be able to: 12.01 Describe the professional conduct requirements of a financial consultant that is an active member of ASPPA. 12.02 Describe the circumstances that may result in an ethical dilemma and the steps that should be taken when confronted with an ethical dilemma. Exam Weighting This topic will comprise approximately 4 to 8 percent of the exam questions. Required Reading Chapter 12: Plan Financial Consulting Part 2 Study Guide, 2nd Edition. Arlington, VA: ASPPA, 2015. Bloom, Lauren. Elegant Ethical Solutions. Elegant Solutions Consulting: Goodlettsville, TN.

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