We're using cookies, but you can turn them off in your browser settings. Otherwise, you are agreeing to our use of cookies. Learn more in our Privacy Policy

Bridge over ocean
1 January 1977 Financial Analysts Journal Volume 33, Issue 1

Prudence under ERISA: What the Regulators Say

  1. Marilyn V. Brown

In the course of developing the standards by which the Labor Department will exercise the regulatory authority delegated to it under ERISA, the staff of the Office of the Administrator of Pension and Welfare Benefit Programs have made a number of public statements on broad issues of concern to pension investment managers. In their view, ERISA was intended to allow a flexibility in the selection of investments not found in personal trust law. In particular, it was not intended to restrict pension fund investment to a narrow list of the largest corporations; the fund manager should consider each investment in the light of its effect on the overall riskiness of the portfolio. Nor is ERISA’s prudent man rule necessarily a “prudent expert” rule; in the case of plans so small that professional management is neither necessary nor economical, the plan administrator will not be held to professional standards.

On the other hand, staff statements caution against concluding that none of the body of personal trust law is applicable. This body of state common law will undoubtedly form the background for the development of federal common law on ERISA. Moreover, many of the precepts of personal trust law will probably also be applicable to pension law. ERISA does not absolve the fund manager of responsibility for making prudent decisions on each individual holding; portfolio policy must be tailored specifically to meet the plan needs of the particular pension plan and each holding selected with regard to how well, within the context of the role it is to play within the portfolio, it serves those needs.

Read the Complete Article in Financial Analysts Journal Financial Analysts Journal CFA Institute Member Content