Will the Department of Labor Find the Missing Fiduciary Link? Part 2

Abstract

The DOL has a unique opportunity to advance the view that the sole interest rule is unsound, particularly in the investment advisory context, and this Article proposes how it should be modernized. This article analyzes a subcomponent of the “Prudent Person Rule” under ERISA Sec. 404(a)(1) (B), which is that of the duty to monitor, in this case, the investment advisor by the trustee. This Article proposes that the present Prudent Person Rule should be updated since the exclusive-benefit rule wrongfully precludes employers from also being considered beneficiaries by the Courts under ERISA. As a result of this preclusion, courts have been forced to indulge in pretense, such as the notion that benefits to employers are merely “incidental,” in order to reconcile ERISA with the economic realities of determining who should be a beneficiary and to what extent. Recognition of these requested changes will not automatically transform ERISA fiduciary law from a difficult task to an elementary one. Often, the issues will remain complex, but by using a more correct legal/financial prism by which to perceive reality, the answers may very well become strikingly more self-evident.