MPF exam MPF Trustees question: processing error by an approved trustee causes

MPF examMPF Trustees

A processing error by an approved trustee causes a $2 million loss to a constituent fund. Under the restoration principle, the loss must be made good:

A by the trustee at its own cost, not out of scheme assets
B out of the scheme's assets, spread across members' accounts
C by the compensation fund first, before the trustee is asked to pay
D by the participating employers, who chose the trustee for their employees

Show the answer and explanation

Answer: A. by the trustee at its own cost, not out of scheme assets

Answer: by the trustee at its own cost, not out of scheme assets. A defaulting trustee that causes loss to trust property must restore it at its own cost, or pay sufficient compensation if it cannot be restored; it must not use the scheme's assets to cover its mistake.Why not the others:• out of the scheme's assets, spread across members' accounts: a trustee must not apply scheme assets to meet liabilities from its own mistake.• by the compensation fund first, before the trustee is asked to pay: the compensation fund is a last resort, used only after other recourse such as PII is exhausted.• by the participating employers, who chose the trustee for their employees: the defaulting trustee bears the loss, not the employers.Watch out: Candidates reach for the compensation fund first.Rule: Restoration: the trustee pays, at its own cost.Source: MPF Study Notes, Tenth Edition (June 2026), 4.1.3(a)