H13-431_V2.0 Exam Questions and Answers

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NEW QUESTION: 1
Urvashi Kulkarni is an investment manager with Amritrust Bank, a mid-size investment bank. Urvashi is managing the pension plan assets of Megalith ICs, a maker of cloned integrated chips for PCs. Megalith is planning a take-over of Microchip Corp., a fast-growing rival which recently patented a technology which promises to change the face of chip cloning business. The pension plan assets of Megalith consist of 17% of Microchip's stock. Megalith's management has decided to buy up to 33% of the stock in a tender offer and transfer the 17% stock holdings of the pension plan to the company investment account. So it instructs Urvashi to sell the Microchip stock to Megalith's general account at the current market price and invest the cash in other stock as she feels appropriate. Urvashi knows that this action and the subsequent takeover of Microchip will substantially elevate Megalith's stock price, creating shareholder value. Urvashi should
A. refuse to follow the directive since she can be held liable under ERISA if she follows directives issued by the plan sponsor.
B. refuse to follow the directive since the action is harmful to the pension plan beneficiaries and Urvashi owes fiduciary loyalty to them, not the plan sponsor.
C. follow the management's directive and sell the stock to the general account.
D. none of these answers.
Answer: B
Explanation:
Explanation/Reference:
Explanation:
Urvashi owes fiduciary loyalty to the plan beneficiaries, not the management of Megalith. She must not sell Microchip's stock prior to the tender offer since in doing so, she will be selling the plan assets at a much lower price than would be available once the tender is floated. While such an action benefits Megalith shareholders, it harms the plan beneficiaries. Urvashi owes absolutely no allegiance to Megalith shareholders. Standard IV (B.1) - Fiduciary Duties - and the Topical Study, "Fiduciary Duties."


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