It is well-established that and ERISA pension plan administrator has a fiduciary duty to invest plan assets prudently. This duty is called, unimaginatively, the “prudent-man rule” – or perhaps the gender-neutral “prudent-person rule.” This rule, which existed long before ERISA was enacted, is enshrined in the text of the statute, which requires fiduciaries to use “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.” 29 U.S.C. § 1104(a)(1)(B).

With the benefit of hindsight, one might think that investing a significant fraction of plan assets in mortgaged-backed securities would be the height of imprudence. But, as the Second Circuit recently confirmed in Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Centers Retirement Plan v. Morgan Stanley Investment Mgt Inc., 712 F.3d 705 (2d Cir. 2013), the use of hindsight is impermissible when considering the prudent person rule.
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