Opinion ID: 615595
Heading Depth: 4
Heading Rank: 1

Heading: ERISA's Prudent Man Standard of Conduct

Text: ERISA was designed to ensure the continued well-being and security of millions of employees and their dependents through the regulation of employee benefit plans. See 29 U.S.C. § 1001(a). See also Varity Corp. v. Howe, 516 U.S. 489, 496, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996). The statute thus imposes stringent standards of conduct upon fiduciaries who oversee such plans. See 29 U.S.C. § 1001(b). Indeed, we have said that ERISA's fiduciary standards of conduct are `the highest known to the law.' LaScala v. Scrufari, 479 F.3d 213, 219 (2d Cir.2007) (quoting Donovan v. Bierwirth, 680 F.2d 263, 272 n. 8 (2d Cir.), cert. denied, 459 U.S. 1069, 103 S.Ct. 488, 74 L.Ed.2d 631 (1982)). Of particular relevance here is the ERISA fiduciary's duty to act in accordance with the prudent man standard of conductthat is, with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. 29 U.S.C. § 1104(a)(1)(B). Although this standard is rooted in the common law of trusts, ERISA's standard is more exacting. Donovan v. Mazzola, 716 F.2d 1226, 1231 (9th Cir.1983). ERISA allows for the creation of ESOPs, which are designed to invest primarily in qualifying employer securities. 29 U.S.C. § 1107(d)(6)(A). To fulfill this purpose, ESOP fiduciaries are exempt from certain standards of conduct that apply to other kinds of ERISA plans. For example, although fiduciaries of pension benefit plans generally must diversify investments so as to minimize risk, see id. § 1104(a)(1)(C), ESOP fiduciaries need not do so. Specifically, section 404(a)(2) of ERISA provides that the diversification requirement ... and the prudence requirement (only to the extent that it requires diversification) ... is not violated by acquisition or holding of ... qualifying employer securities. Id. § 1104(a)(2). ESOP fiduciaries are also exempted from ERISA's prohibition against dealing with a party in interest. Id. § 1106(b)(1). But they are not otherwise excused from the stringent prudent man standard that governs fiduciary conduct under typical ERISA plans. See, e.g., Quan, 623 F.3d at 878; Moench, 62 F.3d at 569; Fink v. Nat'l Sav. & Trust Co., 772 F.2d 951, 955 (D.C.Cir.1985).