- 35 - clearly prudent not to diversify. The loan entrusted 90 percent of the plan's assets, over $2 million, on an unsecured basis to one creditor that operated in a limited geographic area and in a risky business. In our view, the trustee did not minimize the risk of a large loss. We do not agree with petitioner that diversification is not relevant in the instant case. Whether plan assets are sufficiently diversified as a result of an investment is one factor in determining whether the prudent investor rule has been satisfied. The exception for participant-directed investments involves individual account plans, not defined benefit plans, as is involved in the instant case. The participant-directed exception, therefore, is not applicable here. See ERISA sec. 404(c).13 Following the loan, the plan's assets were not diversified. The note was not secured. Consequently, when made, the loan was a risky investment for the plan. On the basis of 13 ERISA sec. 404(c) provides as follows: (c) In the case of a pension plan which provides for individual accounts and permits a participant or beneficiary to exercise control over assets in his account, if a participant or beneficiary exercises control over the assets in his account(as determined under regulations of the Secretary)-- (1) such participant or beneficiary shall not be deemed to be a fiduciary by reason of such exercise, and (2) no person who is otherwise a fiduciary shall be liable under this part for any loss, or by reason of any breach, which results from such participant's or beneficiary's exercise of control.Page: Previous 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Next
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