[Code of Federal Regulations]

[Title 29, Volume 9]

[Revised as of July 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 29CFR2509.94-1]



[Page 360]

 

                             TITLE 29--LABOR

 

 CHAPTER XXV--EMPLOYEE BENEFITS SECURITY ADMINISTRATION, DEPARTMENT OF 

                                  LABOR

 

PART 2509_INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE RETIREMENT 

INCOME SECURITY ACT OF 1974--Table of Contents

 

Sec.  2509.94-1  Interpretive bulletin relating to the fiduciary standard 

under ERISA in considering economically targeted investments.



    This Interpretive Bulletin sets forth the Department of Labor's 

interpretation of sections 403 and 404 of the Employee Retirement Income 

Security Act of 1974 (ERISA), as applied to employee benefit plan 

investments in ``economically targeted investments'' (ETIs), that is, 

investments selected for the economic benefits they create apart from 

their investment return to the employee benefit plan. Sections 403 and 

404, in part, require that a fiduciary of a plan act prudently, and to 

diversify plan investments so as to minimize the risk of large losses, 

unless under the circumstances it is clearly prudent not to do so. In 

addition, these sections require that a fiduciary act solely in the 

interest of the plan's participants and beneficiaries and for the 

exclusive purpose of providing benefits to their participants and 

beneficiaries. The Department has construed the requirements that a 

fiduciary act solely in the interest of, and for the exclusive purpose 

of providing benefits to, participants and beneficiaries as prohibiting 

a fiduciary from subordinating the interests of participants and 

beneficiaries in their retirement income to unrelated objectives.

    With regard to investing plan assets, the Department has issued a 

regulation, at 29 CFR 2550.404a-1, interpreting the prudence 

requirements of ERISA as they apply to the investment duties of 

fiduciaries of employee benefit plans. The regulation provides that the 

prudence requirements of section 404(a)(1)(B) are satisfied if (1) the 

fiduciary making an investment or engaging in an investment course of 

action has given appropriate consideration to those facts and 

circumstances that, given the scope of the fiduciary's investment 

duties, the fiduciary knows or should know are relevant, and (2) the 

fiduciary acts accordingly. This includes giving appropriate 

consideration to the role that the investment or investment course of 

action plays (in terms of such factors as diversification, liquidity and 

risk/return characteristics) with respect to that portion of the plan's 

investment portfolio within the scope of the fiduciary's responsibility.

    Other facts and circumstances relevant to an investment or 

investment course of action would, in the view of the Department, 

include consideration of the expected return on alternative investments 

with similar risks available to the plan. It follows that, because every 

investment necessarily causes a plan to forgo other investment 

opportunities, an investment will not be prudent if it would be expected 

to provide a plan with a lower rate of return than available alternative 

investments with commensurate degrees of risk or is riskier than 

alternative available investments with commensurate rates of return.

    The fiduciary standards applicable to ETIs are no different than the 

standards applicable to plan investments generally. Therefore, if the 

above requirements are met, the selection of an ETI, or the engaging in 

an investment course of action intended to result in the selection of 

ETIs, will not violate section 404(a)(1)(A) and (B) and the exclusive 

purpose requirements of section 403.



[59 FR 32607, June 23, 1994]