The Prudent Investment Fiduciary Rules

Thesis
The Employee Benefit Security Administration’s (EBSA) recent shift to interpreting ERISA in terms of procedural prudence to the exclusion of substantive trust law is inconsistent with the stated purpopse and goals  of ERISA, as revealed in the Act’s legislative history, and raises concerns about potential conflicts of interest within the EBSA, given the fact that the EBSA has recently adopted a procedural approach in enforcing ERISA. A procedural approach is clearly more friendly to the interests of the insurance indusry at the expense of plan participants, as it promotes a simplistic check-in-the-box approach rather than a substantive analysis based on trust law, an analysis that focuses on actual protection of the rights and protections guaranteed under ERISA. The EBSA’s position falsely suggests that fiduciary prudence is an either-or proposition, while fiduciary prudence under ERISA actually requires consideration of both procedural and substantive prudence.

The Employee Retirement Income Security Act of 1974 (ERISA) was designed as a remedial statute to protect therights and interests of participants in employee benefit plans and their beneficiaries. Central to this protection is the “prudent man” standard of care, which the Supreme Court has repeatedly noted is rooted in the common law of trusts.¹ However, recent shifts in the Department of Labor’s Employee Benefits Security Administration (EBSA) toward a procedural interpretation of fiduciary duty—whereby the legal prudence of a fiduciary’s actions are judged almost exclusively by the process followed rather than the substantive outcome—threaten to undermine the Act’s core purpose and goals

The EBSA’s position falsely suggests that fiduciary prudence is an either-or proposition, while fiduciary prudence under ERISA actually requires consideration of both procedural and substantive prudence.This analysis argues that an exclusive focus on proceduralism is inconsistent with ERISA’s legislative history, ignores the dual nature of fiduciary prudence, and creates a regulatory environment that favors the insurance industry over plan participants and at the expense of both plan participants and their beneficiaries.

The Legislative Intent and the Common Law of Trusts
When Congress drafted ERISA, it did not create fiduciary standards in a vacuum. As noted in Boggs v. Boggs^[2], the statutory language was intended to “codify the common law of trusts” to define the scope of fiduciary liability.^[3] The legislative history of ERISA, specifically the Senate Committee reports, emphasizes that the Act’s fiduciary rules were meant to provide “the same degree of protection to each participant” regardless of the type of plan.

In the common law of trusts, a trustee is held to a standard of “substantive reasonableness.”^[4] It is not enough for a trustee to simply document a meeting; the resulting investment or benefit determination must be one that a “prudent man acting in a like capacity” would make.^[5]By shifting toward a “check-the-box” procedural approach, the EBSA risks decoupling the fiduciary duty from its historical foundation in trust law, where the “sole interest” rule (the duty of loyalty) and the “prudent man” rule (the duty of care) function as substantive safeguards against mismanagement.^[6]

II. ERISA’s Legislative Purpose Rejects Pure Proceduralism
ERISA was enacted to address “the inadequacy of current safeguards” protecting employee benefit plan participants and beneficiaries and to establish “standards of conduct, responsibility, and obligation for fiduciaries.”^[7] ERISA § 2(b). Congress’s concern was not merely that fiduciaries follow formal decision-making steps, but that plan participants’ benefits be substantively protected from imprudent, disloyal, or unreasonable fiduciary conduct.

A purely procedural conception of prudence is inconsistent with this purpose for three reasons:

1. 1. ERISA was designed as a remedial statute, to be construed broadly in favor of protecting plan participants.
2. 2. Congress deliberately borrowed from the common law of trusts, which has never treated prudence as satisfied by process alone.
3. 3. The statute imposes outcome-oriented duties, such as acting “solely in the interest” of participants and for the “exclusive purpose” of providing benefits, which cannot be meaningfully assessed without substantive evaluation.

If fiduciary compliance could be established solely by documenting a decision-making process, regardless of the reasonableness of the resulting decision, ERISA’s protective objectives would be substantially undermined.

III. ERISA § 404 Incorporates Substantive Trust Law, Not Procedural Safe Harbors
ERISA § 404(a)(1)(B) requires fiduciaries to act:

“with 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…”

This language is drawn directly from trust law and reflects a unitary prudence standard that encompasses both process and substance.

Under traditional trust principles:

(1) A prudent process is necessary but not sufficient.

(2) Courts evaluate whether a fiduciary’s decision was reasonable in light of the information available, the purposes of the trust, and the interests of beneficiaries.

(2) Even a procedurally careful decision may be imprudent if it produces substantively unreasonable results.

Trust law has never recognized a regime in which fiduciaries may escape liability simply by following formal procedures while making decisions no prudent fiduciary would make.

The False Dichotomy: Procedural vs. Substantive Prudence
The EBSA’s recent interpretive trends suggest a false dichotomy: that a fiduciary must be either procedurally prudent or substantively prudent. In reality, ERISA jurisprudence has historically required both. As George Gleason Bogert explains in his seminal treatise on trusts, “the duty of investigation (procedure) is a prerequisite to, but not a substitute for, the duty of sound judgment (substance).^[8]

If a fiduciary follows a rigorous process but ultimately selects an insurance product or other investment with exorbitant fees or poor stability that no reasonable expert would choose, the “procedural” defense should fail. The “prudent man” standard under ERISA 29 U.S.C. § 1104(a)(1)(B) requires the fiduciary to act with the “care, skill, prudence, and diligence” that a “prudent man acting in a like capacity” would use.^[9] This is an objective standard. A purely procedural approach allows fiduciaries to hide behind “consultant reports” and “committee minutes” while ignoring the substantive reality that the plan’s assets are being eroded by conflicted insurance and other investment products.^[10]

EBSA’s newly announced procedural framing rests on a false dichotomy: that fiduciary prudence must be assessed as either procedural or substantive. Trust law—and ERISA by design—rejects this framing.

A sound fiduciary analysis asks:

1. Did the fiduciary engage in a reasoned and informed decision-making process?
2. Did that process lead to decisions a prudent fiduciary could reasonably make under the circumstances?

These inquiries are complementary, not mutually exclusive. Process informs substance; substance tests the adequacy of process. Eliminating substantive review collapses fiduciary prudence into a compliance exercise rather than a protective standard.

Proceduralism as a Shield for the Insurance Industry
The shift toward a procedural approach is particularly advantageous for the insurance and financial services industries. Insurance companies often act as service providers or de facto fiduciaries to ERISA plans. A proceduralist regulatory environment allows these entities to standardize “compliance packages” that emphasize the appearance of diligence.^[11]

When the EBSA prioritizes the “process” of selecting an annuity or another investment tier, it shifts the burden of proof. Instead of the insurer having to prove the substantive fairness of a transaction, the participant must prove a “procedural defect.” This creates a “safe harbor” for the insurance industry, where, as long as the paperwork is in order, the substantive merits of the deal—such as the hidden “spread” in insurance contracts or the lack of transparency in “bundled” services—remain unexamine^.] This “check-the-box” methodology directly contradicts the “highest duty known to the law” that ERISA fiduciaries are supposed to uphold.

Conflicts of Interest and Regulatory Capture
The EBSA’s move toward proceduralism raises significant concerns regarding regulatory capture. “Regulatory capture” refers to a scenario where a special interest is prioritized over the general interests of the public, leading to a net loss for society.The insurance industry maintains a powerful lobby that advocates for “certainty” and “clear guidelines”—euphemisms for rules that limit liability to easily satisfied procedural hurdles. By adopting a procedural interpretation that excludes substantive trust law, the EBSA effectively reduces the risk for insurers while increasing the risk for plan participants.

This shift ignores the “exclusive purpose” rule of ERISA^[12[, which mandates that fiduciaries act solely for the benefit of participants. If the EBSA’s interpretive framework makes it easier for fiduciaries to favor insurance-linked products that provide rebates or “financial incentives” to the plan sponsor, provided a “process” was followed, the agency is failing its statutory mandate. The legislative history of ERISA explicitly warns against “self-dealing” and “conflicts of interest,” yet a procedural approach to ERISA provides a veil for these very issues.^[13]

The Battle of the Best Interests
Whose best interests – the insurance industry’s or the plan participant’s – are better served by the EBSA’s recent adoption of a procedural approach in interpreting ERISA to the exclusion of substantive trust law? 

The recent shift by the Employee Benefits Security Administration (EBSA) and the Department of Labor (DOL) toward a procedural interpretation of the Employee Retirement Income Security Act (ERISA) is widely viewed by legal scholars and trust law experts as primarily serving the interests of the insurance industry and financial service providers, typically at the expense of plan participants.

By prioritizing “procedural prudence”—the adherence to a set of bureaucratic steps—over “substantive trust law”—the objective quality of the investment outcome—the regulatory framework provides a “safe harbor” for industry practices that may be fundamentally detrimental to the retirement security of plan participants and their beneficiaries..

The Shield of Proceduralism for the Insurance Industry
A procedural approach allows insurance companies and plan fiduciaries to insulate themselves from liability by demonstrating that they followed a “reasoned process,” regardless of whether that process led to a poor result for the participant.^[1] [2]

The “Herd Mentality” Defense: Under a proceduralist framework, if an insurance company provides a product that is “consistent with industry standards,” it is often deemed prudent. This benefits the insurance industry because it allows for the proliferation of high-fee products, such as certain annuities or retail-class mutual funds, as long as the fiduciary can show they “benchmarked” these products against other similarly high-priced industry offerings.

Safe Harbors and Annuity Selection: Recent EBSA interpretations and legislative shifts (such as the SECURE Act) have created safe harbors for the selection of annuity providers. These safe harbors focus on the fiduciary’s review of the insurer’s financial representations rather than a substantive guarantee of the product’s value. This benefits insurers by reducing their exposure to litigation when products fail to perform, as the “process” of selection becomes the legal finish line.

Reduced Judicial Scrutiny: Proceduralism encourages the use of the “arbitrary and capricious” standard of review. This standard is highly deferential to plan administrators (often insurance companies in the context of disability or life insurance claims). As long as the administrator can point to a procedural trail, courts are frequently barred from questioning the substantive fairness of a claim denial.^[2] [8]

The Erosion of Participant Protections
For plan participants, the exclusion of substantive trust law principles represents a significant loss of protection. Traditional trust law is generally considered “paternalistic”in the best sense—it is designed to protect the beneficiary from both the incompetence and the self-interest of the trusteeand other investment fiduciaries.

Loss of the “Sole Interest” Rule: Substantive trust law requires that a fiduciary act for the exclusive purpose of providing benefits.^[14] A procedural approach weakens this by allowing “dual-purpose” actions—where a choice benefits both the participant and the service provider—as long as the process was “prudent.” This often leads to the inclusion of proprietary insurance products in 401(k) lineups that may not be the best available in the market.

The “Process over Outcome” Fallacy: Under a substantive framework, a fiduciary is judged by the objective reasonableness of an investment. If a participant loses a significant portion of their savings to hidden fees, a substantive approach would find the fiduciary liable for failing to secure the best available rate. Under EBSA’s proceduralist leanings, if the fiduciary can show they held three meetings and looked at a spreadsheet before choosing the high-fee option, the participant often has no legal recourse.

Information Asymmetry: The insurance industry possesses vast information advantages over the average plan participant. Substantive trust law accounts for this by placing the burden on the expert (the fiduciary) to ensure a “correct” outcome. Proceduralism, however, assumes that if the “rules of the game” were followed, the outcome is valid, leaving the participant to bear the economic consequences of “procedurally correct” but substantively poor decisions.

The Mathematical Necessity of Substantive Review
From an economic and actuarial perspective, the “proceduralism” shift is devastating to long-term retirement security. Consider the impact of fees on a retirement balance over 30 years. If a proceduralist approach allows a fee f1 that is 100 basis points higher than a substantive market rate f2, the loss to the participant is:Loss=P(1+r−f2)ⁿ−P(1+r−f1)ⁿ , where P is the principal, r is the rate of return, and n is the number of years. Over 30 years, a 1% difference in fees can reduce a final account balance by nearly 25%.^[1] 

A proceduralist approach treats this 25% loss as “legal” as long as the process was followed. A substantive trust law approach views this as a failure of the fiduciary’s duty to protect the plan’s assets.^[15]

Supreme Court Precedent Confirms Prudence Is Not a Procedural-Only Inquiry
Supreme Court ERISA jurisprudence consistently treats fiduciary prudence as a mixed inquiry, rejecting the notion that process alone resolves the analysis.

These cases confirm that ERISA fiduciary prudence is not satisfied by procedural box-checking divorced from substantive evaluation.

Donovan v. Bierwirth^[15] established that fiduciaries must act with “an eye single to the interests of participants,” a standard that necessarily involves substantive judgment.

Fifth Third Bancorp v. Dudenhoeffer^[16] emphasized that fiduciary conduct must be evaluated under “the circumstances then prevailing,” not reduced to categorical procedural compliance.

Tibble v. Edison International^[17] reaffirmed the continuing duty to monitor investments, which necessarily requires substantive reassessment of whether existing options remain prudent.

Hughes v. Northwestern University^[18] rejected arguments that the mere existence of some prudent options or a nominally sound process suffices to defeat a claim, underscoring that courts must consider the overall reas

A substantive trust law approach is the only framework that remains true to ERISA’s “sole interest” and “prudent man” mandates. It ensures that the law protects the results of retirement planning—the actual benefits—rather than just the records of the plan administrators. By rejecting a purely proceduralist interpretation, the EBSA would realign itself with the congressional intent to provide the “highest duty known to the law” to the American worker.^[1]

Going Forward: An Inequitable Shift in the Balance of Power and Yet Another Betrayal of American Workers
The EBSA’s movement toward proceduralism effectively transforms ERISA from a “shield” for the participant into a “sword” for the insurance industry. By focusing on the way a decision is made rather than the wisdom of the decision itself, the regulatory environment favors the institutionalinequity and stability of insurance companies and financial intermediaries. While the insurance industry gains “certainty” and “litigation protection,” the plan participant loses the substantive guarantees that their retirement assets are being managed with the highest degree of care and the best possible objective outcomes.

ERISA does not permit fiduciary prudence to be reduced to procedural compliance. Congress adopted the common law of trusts to ensure that fiduciary duties under ERISA would include substantive reasonableness and meaningful remedial protections, including trust-law rules governing causation and burden allocation.The EBSA’s procedural interpretation conflicts with those principles, displaces incorporated trust-law doctrines, and narrows fiduciary accountability in a manner inconsistent with the statute. For these reasons, the EBSA’s procedural interpretation is not entitled to judicial deference and should be rejected in favor of a continuing combination of procedural law and substantive trust law consistent with ERISA.

A subtantive trust law approach to fiduciary prudence under ERISA is more consistent with the stated purposes and goals of ERISA, and better protects the best interests of plan particiapnts and their beneficiaries compared to a proceduralistic approach. A substantive trust law approach to the Employee Retirement Income Security Act (ERISA) argues that the “prudence” of a fiduciary action is measured not merely by the steps taken to reach a decision, but by the objective reasonableness of the decision itself. This perspective aligns with the historical foundations of trust law and the explicit remedial goals of Congress when it enacted ERISA in 1974.

The EBSA’s recent interpretive shift represents a departure from the “remedial purposes” of ERISA. By elevating proceduralism to the exclusion of substantive trust law, the agency is ignoring the legislative history that sought to protect participants from the “sophisticated” maneuvers of the financial industry.^114] Fiduciary prudence is not an “either-or” proposition; it is a holistic requirement that demands both a sound process and a substantively prudent result. To protect the retirement security of millions of Americans, the EBSA must return to a standard that integrates the rigorous substantive protections of traditional trust law.

A substantive approach is more consistent with ERISA’s stated purposes and goals because:

(1) Objective Outcomes Matter: In traditional trust law, a trustee who follows a “perfect” process but invests in a patently speculative or overpriced asset is still liable for a breach of the duty of care.^[4]

(2) The “Sole Interest” Rule: ERISA requires fiduciaries to act for the “exclusive purpose” of providing benefits.^[7] A proceduralist approach allows fiduciaries to justify decisions that benefit third parties (like insurance companies) as long as they can document a “reason” for doing so. A substantive approach asks: “Does this transaction actually benefit the participant?”^[1]

By rejecting a purely proceduralist interpretation, the EBSA would realign itself with the congressional intent to provide the “highest duty known to the law” to the American worker.^[11]The legislative history of ERISA reveals that Congress intended to create a “uniform standard of duty” that was even more stringent than the common law in certain respects.[ A mentioned earlier herein, the Senate Report accompanying the Act emphasized that the legislation was necessary because existing “procedural” safeguards were insufficient to prevent the “mismanagement and waste” of plan assets.^[3]

By adopting a substantive trust law approach, the law fulfills its “remedial” purpose. As the Supreme Court noted in Tibble v. Edison International[x], a fiduciary has a “continuing duty to monitor” investments and remove imprudent ones.^[15] This duty is substantive; it is not enough to have a process for monitoring if that process fails to result in the removal of an objectively inferior investment. A procedural approach, by contrast, creates a “safe harbor” for mediocrity, where fiduciaries are protected as long as they have a paper trail, regardless of whether the plan participants are losing money to excessive fees or poor performance.^[1]

A substantive approach protects participants against industry conflicts by:

(1) Eliminating “Check-the-Box” Fiduciary Duty: It prevents insurance companies from selling “fiduciary toolkits” that provide the appearance of diligence while masking high-cost products.^[8]

(2) Focusing on Cost-Benefit Reality: Under a substantive trust law analysis, if a fiduciary selects an annuity with a 4% internal fee when an identical product exists for 1%, the fiduciary is liable regardless of how many meetings they held to discuss it.^[15]

(3) Aligning Incentives: When fiduciaries know they will be judged on the substance of their decisions, they are less likely to accept “bundled” services from insurers that include hidden revenue-sharing agreements.^[16]

Bottom Line – A substantive trust law approach is the only framework that remains true to ERISA’s “sole interest” and “prudent man” mandates. It ensures that the law protects the results of retirement planning—the actual benefits—rather than just the records and proceedings of the plan administrators and investment committee.

Notes
1. Tibble. Edison Int’l,575 U.S. 523 (2015) (Tibble); Donovan v. Bierwirth, 680 F.2d 263 (2d. Cir 1982); 573 U.S. 409 (2014)
2. Boggs v. Boggs, 520 U.S. 833 (1007).
3. Senate Reports 93-127 (1973); Senate Report 93-383 (1973); Senate Report 93-1090 (1974)
4. George Gleason Bogert, The Law of Trusts and Trustees.
5. 29 U.S.C. Section 1104(a)(1)(B.) (ERISA)
6. ERISA and Restatement (Third) Trusts, Section 78. (duty of loyalty)
7. ERISA Section 2.
8. George Gleason Bogert, The Law of Trusts and Trustees. (Bogert)
9. 29 U.S.C. Section 1104 (a)(1)(B).
10. ERISA and Restatement (Third) Trusts, Section 78. (duty of loyalty).
11. Restatement (Third) Trusts, Section 78. (loyal)
12. ERISA.
13. Bogert.
14. Tibble.
15. Donovan v. Bierwirth, 680 F.2d 263 (2d. Cir 1982).573 U.S. 409 (2014). (Bierwirth)
16.Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014).
17. Tibble v. Edison Int’l,575 U.S. 523 (2015). (Tibble)
18.Hughes v. Northwestern University, 595 U.S. 170 (2022) (Hughes)
19. Hughes.

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