(4) This standard is more stringent than the previously used
prudent person rule, which required a trustee to invest funds as a person of prudence, with discretion, care, and intelligence.
Specifically, ERISA requires a plan's fiduciary to "act with the care, prudence, skill and diligence that a prudent person acting in like capacity under similar circumstances would act" -- also known as the "
prudent person rule."
Under the Uniform Prudent Investor Act of 1994, the prudent investor rule replaced the
prudent person rule (the
prudent person rule is also known as the prudent man rule).
However, other strategies such as appropriately applying the
prudent person rule could still be used, though taxpayers should note the increasing difficulty of challenging the proposed regulations when they are finalized.
Investment duties of trustees were defined by the
Prudent Person Rule.[3] Under the
Prudent Person Rule the trustee had a duty "to make such investments and only such investments as a prudent man would make of his own property having in view the preservation of the estate and the amount and regularity of the income to be derived."[4] (Emphasis added)
The duty of care is often referred to as the
prudent person rule because directors and officers are expected to act with the care of a reasonably prudent person in a similar position under like circumstances.
