Employee Retirement Income Security Act
Employee Retirement Income Security Act | Definition
Employee Retirement Income Security Act of 1974. A Federal law regulating employee benefit plans. ERISA requires that persons engaged in the administration, supervision, and management of pension monies have a fiduciary responsibility to ensure that all investment-related decisions are made: (a) with the care, skill, prudence, and diligence...that a prudent man...familiar with such matters would use...and (b) by diversifying the investments...so as to minimize risk.
This wording mandates two significant changes in traditional investment practice: (a) the age-old "prudent man" rule has been replaced by the notion of a prudent "expert," (b) the notion of a prudent investment has been replaced by the concept of a prudent portfolio.
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