The legislative history of ERISA explains that the law governing qualified retirement plans is tied closely to trust investment law.
In its unanimous opinion in Tibble v. Edison International in 2015, the U.S. Supreme Court reminded all of the fundamental, underlying foundation from which the Employee Retirement Income Security Act of 1974, as amended (ERISA) originates: the common law of trusts. The court observed: "We have often noted that an ERISA fiduciary’s duty is 'derived from the common law of trusts…' In determining the contours of an ERISA fiduciary’s duty, courts often must look to the law of trusts."
The Prefatory Note to the 1994 Uniform Prudent Investor Act (UPIA) states, in part: "[ERISA], the federal regulatory scheme for pension trusts enacted in 1974, absorbs trust-investment law through the prudence standard of ERISA 404(a)(1)(B), 29 U.S.C. 1104(a). The Supreme Court has said: ‘ERISA’s legislative history confirms that [ERISA’s] fiduciary responsibility provisions 'codif[y] and mak[e] applicable to [ERISA] fiduciaries certain principles developed in the evolution of the law of trusts.' Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110-11 (1989) [footnote omitted]."
In effect, ERISA "federalized" the common law of trusts. The legislative history of ERISA explains that the law governing qualified retirement plans is tied closely to trust investment law. (See the preamble to ERISA regulations section 2550.404a-1 and the accompanying discussion.)
The standard of trust investment law has been described this way: "By declaring that all retirement … assets are held in trust … [participants and their beneficiaries] are guaranteed the highest standard of conduct in the management and investment of assets for retirement that the law can establish. A trustee … carries the greatest burdens of care, loyalty and utmost good faith for the beneficiaries to whom he or she is responsible." The trust law standard is "the highest known to law." [Donovan v. Bierwirth, 680 F.2d 263, 272 (2d Cir. 1982).]
ERISA section 404(a)(1)(A), which sets forth the fiduciary duty of loyalty, provides that a "fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan."
The duty of loyalty with its ancient lineage is the most elemental because it underlies all other fiduciary duties, requiring plan fiduciaries to give undivided loyalty to plan participants by complying with the "sole interest" and "exclusive purpose" rules.
These rules, derived from trust law, require that fiduciaries of ERISA-governed retirement plans such as 401(k) plans, for example, provide participants (and their beneficiaries) with retirement benefits generated by investment options that are selected, monitored and replaced in the sole interest of participants for that exclusive purpose, and which incur only reasonable costs.
Section 5 of the UPIA defines the duty of loyalty in this way: "A trustee shall invest and manage the trust assets solely in the interest of the beneficiaries."