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]
