"Invest in the business you know best," is standard advice for investors, but that maxim is being challenged in a growing number of lawsuits involving employe pension plans.

Employe pension funds traditionally have invested heavily in the stock of the company the employes work for.

That practice can create potential conflicts of interest for pension fund trustees, who are usually the company's officers, according th lawsuits filed against two major Washington firms, Marriott Corp. and Drug Fair Inc.

Neither case has been decided yet, but both raise major questions about pension fund management and investment practices.

Though not at issue in the lawsuits, the legal actions also point out the potential dangers of putting all the employes' eggs in the same basket - the company they work for.

Drug Fair's employe pension fund lost about $1.7 million when the value of the company's stock dropped from a high of $30 a share to $3 3/8 per share between 1970 and 1974. The pension fund eventually made up much of the paper loss when Drug Fair purchased the stock from the pension fund.

The lawsuit suggests the stock might have been sold and the loss minimized if it weren't for conflicts of interest involving the funds' managers.

Riggs National Bank was trustee for the plan and Riggs' Chairman Vincent Burke was and still is a member of Drug Fair's board of directors.

Trustees of the pension plan also include Drug Fair president Milton Elsberg and chairman Myron Gerber. Elsberg and Gerber's father founded the company and their families own about 45 percent of the stock of the company, creating a three-way conflict between the interests of the pension fund trustees, the company's management and the major stockholders.

The lawsuit challenging management of the pension fund was filed in U.S. District Court in Washington by three Drug Fair employes who asked that the case be considered a class action suit on behalf of all 800 employes of the Washington drug covered by the pension fund.

Class action status has not been granted in the case, and the court is now considering a motion of dismiss the case based on massive briefs filed by Drug Fair and Riggs. Bolstered by page after page of legal citations, the defendants contend that all the actions taken by the pension fund's managers were legal under state laws and the federal Employe Retirement Income Security Act (ERISA).

A similar case was filed more than a year ago in federal court in Baltimore against Marriott, contending Marriott's pension fund was too heavily invested in the company's own stock. Investment of pension assets oin the stock of the company is also challenged in lawsuits filed against other major corporations, says James D. Hutchinson, a partern in the Washington law firm of Steptoe & Johnson, writing on pension issues for The National Law Journal.

Investments in the company's own stock have been common pension fund practice for years, and before ERISA rules were changed, many pension funds owned only their own firm's stock. Sears, Roebuck & Co., the best known example, owns more than $1 billion worth of Sears stock.

ERISA rules adopted since 1974 generally prohibit more than 10 percent of a pension fund's assets from being invested in the stock of the parent company, but existing plans are exempt and in certain circumstances the stock can be the only investment.

Diversification of assets is required to protect employes in case the company goes broker, failure of a company whose pension assets are in the company's stock can leave the employes with neither jobs nor pensions.

Drug Fair's pension plan, established in 1958, owned as much as 64,000 shares of the company's stock - about 4 percent of the company's shares, at one time, the local lawsuit says.

Drug Fair revised the plan is March of this year, transferring all its assets to group annuity contracts with Massachusetts Mutual Insurance Co. The plan now gives employes the choice of having the pension money invested in a common stock fund or in a fixed income account that pays 8.8 per cent per year.