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The Prudent Man Standard

If you are a fiduciary, you are expected to act like a "prudent man.“    This means fiduciaries are , “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” (ERISA § 404(a)(1)(B), 29 USC § 1104(a)(1)(B)).

I was curious as to where the term prudent man originated.  It can be found in an 1830 Massachusetts court decision Havard v. Amory where the court encourages the trustee "to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested."

If only all plan fiduciaries would discharge their duties with this kind of diligence!   



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