The Prudent Man Rule of the Pension Reform Act of 1974

AMBIGUITIES IN THE PRUDENT MAN RULE INCLUDE THE QUESTION ON WHETHER THE PRUDENCE OF THE FIDUCIARY IS TO BE DETERMINED ON THE BASIS OF A PARTICULAR INVESTMENT OR ON THE BASIS OF THE TOTALITY OF HIS INVESTMENTS, THAT IS ON THE BASIS OF HIS PORTFOLIO. THE RECENT SPITZER DECISION FAVORED THE FORMER METHOD, WHICH HAS GIVEN RISE TO CONCERN THAT IT MAY HAVE A MAJOR ADVERSE IMPACT ON THE AVAILABILITY OF INVESTMENT FUNDS FOR VENTURE CAPITAL. A SECOND AMBIGUITY IS THAT WHETHER THE STANDARD TO BE FOLLOWED DIFFERS FOR PROFESSIONAL AND FOR NONPROFESSIONAL FIDUCIARIES. THE PRUDENT MAN RULE IS ALSO EXTENDED TO NONINVESTMENT DUTIES OF THE FIDUCIARY, SUCH AS THE PROBLEM OF DELEGATION OF RESPONSIBILITY TO ANOTHER PERSON, AND THE DEGREE TO WHICH HE WOULD HAVE TO MONITOR THE OTHER PERSON. STATE LAW IN RESPECT TO THESE QUESTIONS HAS BEEN PREEMPTED IN FAVOR OF ONE NATIONAL LAW RATHER THAN SEPARATE STATE LAWS.