Corporate Pension Plans: Manager's Duties, Prudent Man Rule, and Investment Restrictions

Corporate Pension Plans

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Question

Which of the following is/are true about corporate pension plans?

I. The plan manager owes a fiduciary duty to the plan sponsor.

II. The plan manager is held to the "Prudent Man Rule."

III. The plan manager is restricted by a legal list of statutes which limit investments to a specified set of securities.

Answers

Explanations

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A. B. C. D.

Explanation

Corporate pension plan managers are governed by ERISA (Employee Retirement Security Act, 1974). Under this, fiduciaries are held to the "Prudent Expert Rule" and are expected to conduct investments using appropriate analysis and expertise. They owe fiduciary loyalty solely to the plan beneficiaries and not to the plan sponsor or any other party whom may be involved. ERISA allows the plan manager to consider investments in a portfolio context rather than on an individual basis. Thus, it provides far more latitude and is much more sensible than the old rules that relied on legal lists of securities for investments. Standard IV (B.1) -

Fiduciary Duties - and the Topical Study "Fiduciary Duty."