Prudence serves as the keystone for the ERISA standard of fiduciary conduct. The rule requires a fiduciary 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 in the conduct of an enterprise of a like character and with like aims . . . ." The language is drawn in part from the common law of trusts, which judges prudence exclusively in terms of the twin objectives of preserving the estate and attaining adequate return.

Under the Department of Labor regulations, a fiduciary may satisfy the ERISA prudence requirements by giving "appropriate consideration" to the facts and circumstances that, given the scope of the fiduciary's investment duties, the fiduciary knows or should know are relevant to the particular investment or investment course of action involved, including the role it plays in the plan's investment portfolio, and acting accordingly.

"Appropriate consideration" includes determination by the fiduciary that the particular investment is reasonably designed, as part of the portfolio, to further the purposes of the plan, taking into consideration the risk of loss and the opportunity for gain and such factors as: (a) the composition of the portfolio with regard to diversification; (b) the liquidity of the portfolio; and (c) the projected return of the portfolio. Prudence is measured, therefore, in terms of the anticipated total performance of the portfolio, and not in terms of the actual performance of any particular investment. The ultimate outcome of an investment is not proof of imprudence. The fiduciary duty of care requires prudence, not prescience. The risk level of an investment does not alone make the investment either per se prudent or per se imprudent.