United States Court of Appeals 

For the First Circuit 

No. 17-1711 

JOHN BROTHERSTON, individually and as representative of a class 

of similarly situated persons, and on behalf of the Putnam 

Retirement Plan; JOAN GLANCY, individually and as representative 

of a class of similarly situated persons, and on behalf of the 

Putnam Retirement Plan, 

Plaintiffs, Appellants, 

v. 

PUTNAM INVESTMENTS, LLC; PUTNAM BENEFITS OVERSIGHT COMMITTEE; 

PUTNAM BENEFITS INVESTMENT COMMITTEE; ROBERT REYNOLDS; PUTNAM 

INVESTMENT MANAGEMENT LLC; PUTNAM INVESTOR SERVICES, INC., 

Defendants, Appellees. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF MASSACHUSETTS 

[Hon. William G. Young, U.S. District Judge] 

Before 

Torruella, Thompson, and Kayatta, 

Circuit Judges. 

James H. Kaster, with whom Nichols Kaster, PLLP, Paul J. 

Lukas, Kai H. Richter, Carl F. Engstrom, Jacob T. Schutz, and 

Eleanor E. Frisch were on brief, for appellants. 

Mary Ellen Signorille, William Alvarado Rivera, and Matt 

Koski, on brief for amici curiae AARP, AARP Foundation, and 

National Employment Lawyers Association. 

James R. Carroll, with whom Eben P. Colby, Michael S. Hines, 

Sarah L. Rosenbluth, and Skadden, Arps, Slate, Meagher & Flom LLP 

were on brief, for appellees. 
William M. Jay, Jaime A. Santos, James O. Fleckner, Alison V. 

Douglass, Goodwin Procter LLP, Steven P. Lehotsky, Janet Galeria, 

Kevin Carroll, and Janet M. Jacobson, on brief for amici curiae 

Chamber of Commerce of the United States of America, American 

Benefits Council, and Securities Industry and Financial Markets 

Association. 

Sarah M. Adams, Jon W. Breyfogle, Michael J. Prame, Groom Law 

Group, Chartered, Paul S. Stevens, Susan M. Olson, David M. Abbey, 

on brief for amicus curiae Investment Company Institute. 

October 15, 2018 
- 3 - 

KAYATTA, Circuit Judge. Plaintiffs John Brotherston and 

Joan Glancy are two former employees of Putnam Investments, LLC 

who participated in Putnam's defined-contribution 401(k) 

retirement plan (the "Plan"). They brought this lawsuit on behalf 

of a now-certified class of other participants in the Plan, and on 

behalf of the Plan itself pursuant to the civil enforcement 

provision of the Employee Retirement Income Security Act 

("ERISA"). See 29 U.S.C. § 1132(a)(2). They claim that Putnam 

(as well as other Plan fiduciaries) breached fiduciary duties owed 

to Plan participants by offering participants a range of mutual 

fund investments that included all of (and, for most of the class 

period, only) Putnam's own mutual funds without regard to whether 

such funds were prudent investment options. They also claim that 

Putnam structured fees and rebates in a manner that was both 

unreasonable and treated Plan participants worse than other 

investors in those Putnam mutual funds. In a series of rulings 

before and after plaintiffs presented their evidence at trial, the 

district court found that plaintiffs failed to prove that any lack 

of care in selecting the Plan's investment options resulted in a 

loss to the Plan, and that the manner in which Putnam transacted 

with the Plan was neither unreasonable nor less advantageous than 

the manner in which Putnam dealt with other investors in its mutual 

funds. Finding several errors of law in the district court's 
- 4 - 

rulings, we vacate the district court's judgment in part and remand 

for further proceedings. 

I.

We begin with a basic outline of the undisputed facts 

and the procedural history of this case, reserving further details 

for our analysis.1 Putnam is an asset management company that 

creates, manages, and sells mutual funds. Under the Plan, eligible 

employees of Putnam and its subsidiaries make contributions to 

individual 401(k) accounts and personally direct those 

contributions among a menu of investment options. Putnam itself 

also contributes to the employees' Plan accounts. Pursuant to the 

Plan's governing documents, Putnam Benefits Investment Committee 

("PBIC") is one of the Plan's named fiduciaries and is responsible 

for selecting, monitoring, and removing investments from the 

Plan's offerings. 

The investment options offered under the Plan include 

many of Putnam's proprietary mutual funds. Between 2009 and 2015, 

over 85% of the Plan's assets were invested in these funds. Putnam 

offers two classes of shares in these funds: Y shares and R6 

shares.2 Most of Putnam's mutual funds offered under the Plan are 

 1 We rely on facts to which the parties have stipulated and 

the district court's factual findings from the two orders now on 

appeal. 

2 One of the claims advanced below but abandoned on appeal 

involved Putnam's conversion of Y shares for certain Putnam funds 

to R6 shares. For our purposes, the distinction between these two 
- 5 - 

"actively managed"; that is, they are operated by an investment 

advisor seeking to beat the market. From the beginning of the 

class period in November 2009 through January 31, 2016, the PBIC 

selected no mutual funds other than the propriety Putnam funds for 

inclusion in the portfolio of investment vehicles offered to Plan 

participants. During this period, Plan participants were given 

the option to invest in non-affiliated funds only through a selfdirected brokerage account. 

The Plan itself did instruct the PBIC to include as 

investment options "any publicly offered, open-end mutual fund 

(other than tax-exempt funds) that are generally made available to 

employer-sponsored retirement plans and underwritten or managed by 

Putnam Investments or one of its affiliates," as well as several 

other Putnam funds and a collective investment trust administered 

by Putnam's affiliate, PanAgora Asset Management, Inc. But the 

parties presume, at least for purposes of this case, that this 

instruction does not immunize defendants from potential liability 

based on the duty of prudence in selecting investment offerings 

under the Plan. See Fifth Third Bancorp v. Dudenhoeffer, 134 S. 

Ct. 2459, 2468 (2014) ("[T]he duty of prudence trumps the 

instructions of a plan document . . . ."). 

 

share classes is relevant only to our discussion of revenue sharing 

in Part II.B., infra. 
- 6 - 

The district court found that the PBIC did not 

independently investigate Putnam funds before including them as 

investment options under the Plan, did not independently monitor 

them once in the Plan,3 and did not remove a single fund from the 

Plan lineup for underperformance, even when certain Putnam funds 

received a "fail" rating from Advised Asset Group, a Putnam 

affiliate.4

In November 2015, Brotherston and Glancy filed this 

lawsuit against Putnam, the PBIC, and various other Putnam 

individuals and entities (collectively, "defendants"). On behalf 

of themselves, two certified subclasses of other Plan 

participants, and the Plan itself pursuant to 29 U.S.C. 

§ 1132(a)(2) (collectively, "plaintiffs"), they press two types of 

claims under ERISA. First, they claim that the fees charged by 

Putnam subsidiaries to the mutual funds offered in the Plan 

constituted prohibited transactions under ERISA. Second, they 

claim that Putnam, through its committees operating the Plan, 

breached its fiduciary duties by blindly stocking the Plan with 

Putnam-affiliated investment options merely because they were 

 3 As defendants emphasized before the district court, members 

of Putnam's investment division, some of whom served on the PBIC, 

did engage in regular monitoring of the Putnam funds. But the 

PBIC itself did not independently monitor the investments, instead 

relying on the expertise and analysis of the investment division.

4 The Putnam Voyager Fund was removed from the Plan lineup 

but only after the fund was closed. 
- 7 - 

proprietary.5 Three months after this lawsuit commenced, the PBIC 

added six BNY Mellon collective investment trusts to the Plan's 

investment options. It is undisputed that the process for choosing 

the BNY Mellon funds was prudent. 

By agreement of the parties, the district court decided 

plaintiffs' prohibited transactions claims on a case-stated basis 

at summary judgment. After seven days of a bench trial, during 

which plaintiffs but not defendants presented their case, the 

district court entered judgment on partial findings under Federal 

Rule of Civil Procedure 52(c). On all counts, the court found 

against plaintiffs, who now appeal. 

II.

We begin our analysis with the order that dismissed 

plaintiffs' prohibited transactions claims. The case-stated 

procedure allows a court in a nonjury case to "engage in a certain 

amount of factfinding, including the drawing of inferences," where 

"the basic dispute between the parties concerns only the factual 

inferences that one might draw from the more basic facts to which 

the parties have agreed." Pac. Indem. Co. v. Deming, 828 F.3d 19, 

 5 Plaintiffs also asserted a claim against Putnam, its CEO, 

and the Putnam Benefits Oversight Committee for failing to monitor 

the performance of the PBIC. We, like the district court, treat 

this claim as subsumed within plaintiffs' fiduciary duty claims, 

as other courts have done. See Tracey v. Mass. Inst. of Tech., 

No. 16-cv-11620-NMG, 2017 WL 4478239, at *4 (D. Mass. Oct. 4, 

2017); In re Nokia ERISA Litigation, No. 10-cv-03306-GBD, 2012 WL 

4056076, at *3 (S.D.N.Y. Sept. 13, 2012). 
- 8 - 

22 (1st Cir. 2016) (quoting United Paperworkers Int'l Union Local 

14 v. Int'l Paper Co., 64 F.3d 28, 31–32 (1st Cir. 1995)). In 

reviewing the entry of summary judgment on a case-stated record, 

we review legal questions de novo and factual determinations for 

clear error. See United Paperworkers Int'l, 64 F.3d at 31–32. 

A brief sketch of the statutory background frames our 

analysis. ERISA "supplements the fiduciary's general duty of 

loyalty to the plan's beneficiaries by categorically barring 

certain transactions deemed 'likely to injure the pension plan.'" 

Harris Tr. and Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 

238, 241–42 (2000) (citation omitted) (quoting Comm'r v. Keystone 

Consol. Indus., Inc., 508 U.S. 152, 160 (1993)). Two particular 

prohibitions, and their related exemptions, are at issue here.6 

The first prohibition appears in section 1106(a)(1), which states: 

Except as provided in section 1108 of this 

title: 

(1) A fiduciary with respect to a plan shall 

not cause the plan to engage in a transaction, 

if he knows or should know that such 

transaction constitutes a direct or indirect-- 

. . . 

(C) furnishing of goods, services, or 

facilities between the plan and a party in 

interest . . . . 

 6 In addition to the two prohibited transactions claims we 

discuss, plaintiffs also asserted below claims under 29 U.S.C. 

§§ 1106(a)(1)(D) and 1106(b)(1). Plaintiffs concede that they do 

not challenge the dismissal of those claims by the district court. 
- 9 - 

29 U.S.C. § 1106(a)(1)(C). The second prohibition appears in 

section 1106(b), which provides: 

A fiduciary with respect to a plan shall not-- 

. . . 

(3) receive any consideration for his own 

personal account from any party dealing with 

such plan in connection with a transaction 

involving the assets of the plan. 

29 U.S.C. § 1106(b). 

The design and operation of the Plan implicates both of 

these prohibitions. The Plan contracts with parties-in-interest 

(Putnam subsidiaries) for services, thereby implicating 

section 1106(a)(1).7 And Putnam, through the service fees it 

charges the Putnam funds in which the Plan invests, receives a 

benefit "in connection with a transaction involving the assets of 

the [P]lan" (that transaction being the Plan's purchase of shares 

in the Putnam funds), thereby implicating section 1106(b). Putnam 

therefore runs afoul of each prohibition unless it qualifies for 

an applicable exemption. Defendants argue that several such 

exemptions apply. We address each in turn, beginning with those 

potentially applicable to the otherwise broad reach of the 

prohibition imposed by section 1106(a)(1) for causing a plan to 

purchase services from a party-in-interest. 

 7 The term "party in interest" includes, among other things, 

any fiduciary of the employee benefit plan, and "an employer 

organization any of whose members are covered by such plan." 29 

U.S.C. § 1002(14). Putman subsidiaries are parties-in-interest in 

both these capacities. 
- 10 - 

A.

By its very terms, the prohibition of section 1106(a)(1) 

on transactions with parties-in-interest applies "[e]xcept as 

provided in section 1108." Section 1108 in turn provides two 

exemptions upon which defendants rely. The first exemption allows 

for: 

Contracting or making reasonable arrangements 

with a party in interest for office space, or 

legal, accounting, or other services necessary 

for the establishment or operation of the 

plan, if no more than reasonable compensation 

is paid therefor. 

29 U.S.C. § 1108(b)(2) (emphasis added). The second exemption 

provides that a fiduciary shall not be barred from: 

receiving any reasonable compensation for 

services rendered, or for the reimbursement of 

expenses properly and actually incurred, in 

the performance of his duties with the plan; 

except that no person so serving who already 

receives full time pay from an employer or an 

association of employers, whose employees are 

participants in the plan, or from an employee 

organization whose members are participants in 

such plan shall receive compensation from such 

plan, except for reimbursement of expenses 

properly and actually incurred. 

Id. § 1108(c)(2) (emphasis added). 

Relevant here, Putnam mutual funds pay a monthly 

management fee to Putnam Investment Management, LLC ("Putnam 

Management") for investment management services and a monthly 

investor servicing fee to Putnam Investor Services, Inc. ("Putnam 

Services") for transfer agent services. Both Putnam Management 
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and Putnam Services operate as part of Putnam and their profits 

flow directly to the parent company. So in the context of this 

case, the applicability of the two exemptions set forth in 

sections 1108(b)(2) and 1108(c)(2) hinges in the first instance on 

the answer to a common question: Were the payments received by 

these Putnam subsidiaries for their services to Putnam mutual funds 

reasonable?

The district court made several findings on this 

question based on the case-stated record. First, it found that 

the net expense ratios for the funds in which the Plan invested 

ranged from 0% to 1.65% as of December 2011, and that there was no 

evidence that the range was materially different for the relevant 

class period. Brotherston v. Putnam Invs., LLC, 15-cv-13825-WGY, 

2017 WL 1196648, at *6 (D. Mass. Mar. 30, 2017) Relatedly, the 

district court noted that other courts have upheld similar ranges. 

Id. Second, the court observed that, "[i]mportantly, all of the 

Putnam mutual funds the Plan invested in were also offered to 

investors in the general public, therefore, their expense ratios 

were 'set against the backdrop of market competition.'" Id. 

(quoting Hecker v. Deere & Co., 556 F.3d 575, 586 (7th Cir. 2009)). 

Finally, the court rejected the analysis of plaintiffs' expert, 

Dr. Steve Pomerantz, who purported to show that Putnam's fees were 

materially higher on average than the fees paid by other funds, on 

the grounds that his comparators were flawed. Id. at *7. 
- 12 - 

In context, we read the district court's second finding 

as saying that the Putnam funds were both offered to and acquired 

by at least some other individuals and entities who had the freedom 

to invest in other funds in the marketplace. Such was precisely 

what defendants' expert, Dr. Erik Sirri, said in one of his 

reports.8 Sirri's supplemental report stated that, in contrast to 

the conclusion drawn by plaintiffs' expert, the data "do not 

indicate that Putnam's funds have generally been rejected by 

impartial, unaffiliated fiduciaries of non-Putnam retirement 

plans." Rather, the report noted, "all but nine of the funds were 

offered by at least one other plan and several funds were offered 

by over one hundred different plans. Two-thirds of the funds were 

offered by at least nine other plans, and half were offered by at 

least 23 other plans."9 In addition, Sirri concluded in his 

original report that the Plan paid about $500,000 less in expenses 

from 2009 to 2014 than it would have paid had it invested at the 

 8 Although plaintiffs contended below that Sirri's full 

reports were not properly before the district court, they 

acknowledge Sirri's analysis in their Reply on appeal without 

making any suggestion that it would be improper for us to rely 

upon it.

9 While these numbers might strike one as very small given 

the large number of ERISA plans in the United States, plaintiffs 

make no argument on appeal to this effect. Nor do they argue that 

we should train our focus on, or draw any particular inferences 

from, the nine funds that were not offered by any other plan. 
- 13 - 

average expense ratio for peer group funds identified by 

independent analyst Lipper, Inc.

Plaintiffs' position, supported by Pomerantz's report, 

was that very few plans as large as the Plan invested in any of 

the Putnam funds. And, as we noted, Pomerantz put forward an 

analysis to the effect that Putnam charged more for its funds than 

did other funds the expert deemed comparable. Based on this 

testimony, perhaps the district court could have found the fees 

unreasonable even though other investors paid them. But our review 

of the district court's finding to the contrary is for clear error. 

See United Paperworkers Int'l, 64 F.3d at 31–32; see also Chao v. 

Hotel Oasis, Inc., 493 F.3d 26, 35 (1st Cir. 2007) (noting in 

another context that we review "factual findings related to good 

faith and reasonableness for clear error"). And on this record we 

see no clear error in that finding. Moreover, the fact that the 

district court did not explicitly frame its conclusion that Putnam 

charges reasonable management fees as what it plainly was -- a 

finding of fact -- does not preclude us from treating it as such. 

Plaintiffs also complain that Putnam did not offer the 

Plan the same revenue sharing rebates it offered other plans. And 

they contend that Sirri's analysis failed to account for this fact. 

But plaintiffs do not develop this argument in connection with 

their section 1106(a)(1) claim, the exemption that calls for an 

analysis of precisely why a fee is not "reasonable." So, we will 
- 14 - 

review the revenue sharing rebates only as part of the inquiry 

into "other dealings" relevant to the exemption from the 

prohibition of section 1106(b). 

We therefore affirm the district court's determination 

that defendants are not liable under the prohibited transaction 

provision of section 1106(a)(1)(C). 

B.

Next, we ask whether defendants are liable under 

section 1106(b) because Putnam received fees from the funds in 

which the Plan invested. To avoid liability under that provision, 

defendants seek to rely on a prohibited transaction exemption 

adopted by the Department of Labor. Known as PTE 77-3, the 

exemption renders the prohibition of section 1106 inapplicable to 

employee benefit plans that invest in in-house mutual funds, 

provided that four conditions are met. See 42 F.R. 18734; see 

also Krueger v. Ameriprise Fin., Inc., No. 11-cv-02781-SRN/JSM, 

2012 WL 5873825, at *14 (D. Minn. Nov. 20, 2012). Plaintiffs 

challenge only the satisfaction of one of these conditions. We 

therefore limit our analysis to that condition, which reads as 

follows: 

[a]ll other dealings between the plan and the 

investment company, the investment adviser or 

principal underwriter for the investment 

company, or any affiliated person of such 

investment adviser or principal underwriter, 

are on a basis no less favorable to the plan 
- 15 - 

than such dealings are with other shareholders 

of the investment company. 

42 F.R. 18734, 18735. So the question for the district court was: 

Are "[a]ll other dealings" between the Plan and Putnam any less 

favorable to the Plan than dealings between Putnam and other 

shareholders investing in the same Putnam funds? 

The dealings upon which the parties focus are payments 

of service fees and revenue sharing that Putnam provides for the 

benefit of plans that invest in its funds. When a third-party 

plan (i.e., a plan other than the Putnam Plan) invests in Y shares 

of a typical Putnam mutual fund, the third-party plan pays fees to 

a company that provides certain services to the plan, such as 

recordkeeping. In many instances, the manager of the Putnam mutual 

fund in which the plan invests pays the recordkeeper a share of 

the fund's revenue to reimburse the recordkeeper for services the 

manager would otherwise have to provide or pay for. The 

recordkeeper in turn may credit this payment to the plan. And 

sometimes the investment manager provides the revenue sharing 

directly to the plan. 

With the Putnam Plan, the arrangement differs. Putnam 

itself directly pays the recordkeeper for the Plan, the 

recordkeeper does not charge any fees to the Plan, and Putnam's 

investment managers pay no revenue sharing to or for the benefit 

of the Plan, even in relation to Y shares of Putnam mutual funds. 
- 16 - 

Plaintiffs claim that this alternative arrangement 

operated to the Plan's disadvantage because it resulted in Plan 

participants paying higher expenses compared to third-party plan 

participants who benefitted from revenue-sharing rebates. This 

theory only works if the value of the revenue sharing that thirdparty plans receive exceeds the value of the service fees borne by 

those plans. Otherwise, third-party plans are simply being 

compensated for costs that the Plan never bears in the first place, 

which puts the Plan no worse off on net. 

The district court did not find whether or to what extent 

the revenue sharing paid to or for the benefit of some third-party 

plans would have exceeded the fees borne by third-party plans but 

not by the Plan. Instead, at defendants' behest, the district 

court pointed to the fact that Putnam paid into the Plan (for the 

benefit of most participants) discretionary 401(k) employer 

contributions that totaled much more than the rebates would have. 

Pointing to the fact that PTE 77-3 calls for an assessment of 

"[a]ll other dealings between the plan and the investment company," 

the district court reasoned that, on a net basis, Putnam treated 

its Plan even more favorably than it treated those that received 

the benefit of revenue-sharing payments.

We do not agree with this analysis because we do not 

regard Putnam's payment of discretionary contributions to be a 

relevant "dealing" between Putnam and the Plan. As noted, PTE 77-
- 17 - 

3, which directs our focus to "all other dealings," is an exemption 

to section 1106(b), which otherwise prohibits "[a] fiduciary" from 

receiving payment or other consideration in connection with its 

own plan. As the Supreme Court has recognized, "the trustee under 

ERISA may wear many different hats." Pegram v. Herdrich, 530 U.S. 

211, 225 (2000). Putnam wore at least two hats: that of an 

employer dealing with its employees and that of a fiduciary dealing 

with the Plan. In making discretionary contributions, it acted as 

employer providing compensation to its employees, not as 

fiduciary. See ERISA Practice & Litigation § 3:32 ("In the single 

employer plan context, decisions relating to the timing and amount 

of contributions are generally not thought of as being fiduciary 

in nature."); cf. Akers v. Palmer, 71 F.3d 226, 230 (6th Cir. 1995) 

(noting that "courts have no authority to decide which benefits 

employers must confer upon their employees" (quoting Moore v. 

Reynolds Metals Co. Ret. Prog., 740 F.2d 454, 456 (6th Cir. 1984)). 

Putnam's own documents confirm that it understood this 

to be the law. Putnam's Fiduciary Planning Guide explains the 

basic contours of fiduciary responsibility. Under a heading 

labeled "A Fiduciary -- But Only for 'Fiduciary Functions,'" Putnam 

explains that various decisions, including determining "the level 

of benefits" for a retirement plan, are made in a party's "capacity 

as employer" and "are not subject to, and cannot be challenged, 

under ERISA's fiduciary rules." 
- 18 - 

In other words, the term "employer contribution" 

commonly used to describe the discretionary payments at issue here 

is no misnomer. Because Putnam's discretionary contributions were 

made in Putnam's capacity as employer for the benefit of its 

employees qua employees, they are irrelevant to the analysis under 

PTE 77-3, which, as we have noted, provides an exception to a 

prohibition on actions by fiduciaries. Putnam cannot point to 

those contributions to offset funds Putnam charges (or withholds 

from) the Plan in its capacity as a plan fiduciary. To hold 

otherwise would be to allow employers to claw back with their 

fiduciary hands compensation granted with their employer hands. 

Taking an alternative tack, defendants contend that 

revenue sharing payments are not relevant to PTE 77-3(d) because 

they are paid to third-party service providers, rather than to the 

plans that own shares in the funds (the "shareholders" under 

PTE 77-3). The record supports defendants' assertion that revenue 

sharing payments are often paid directly to third-party service 

providers. However, defendants do not contest that these payments 

may well benefit the associated plans by offsetting payments the 

plans would otherwise make to those providers. Given this 

beneficial link, these payments fall within PTE 77-3's instruction 

to consider dealings between the "investment company" (Putnam) and 

"other shareholders" (third-party plans). Cf. NLRB v. Cabot Carbon 
- 19 - 

Co., 360 U.S. 203, 211 (1959) (construing "dealing with" as a 

"broad term"). 

Defendants' final rejoinder is that, for the Plan alone, 

Putnam pays recordkeeping fees upfront, rather than passing those 

costs along to the Plan. But, as we have already noted, this 

assertion does not definitively answer whether the Plan is treated 

less favorably than other shareholders. It is undisputed that the 

Plan's recordkeeping expenses that Putnam pays upfront are 3 basis 

points (0.03% of plan assets). It is also undisputed that Putnam 

pays revenue sharing of up to 25 basis points (0.25% of fund 

assets) in connection with Y shares of Putnam mutual funds held by 

other plans. Given the gap between these two figures, the Plan 

may in fact be missing out on net revenue sharing benefits being 

recouped by other plans. Pomerantz asserted in his report that 

this is precisely what has happened. According to his 

calculations, which he adjusted to present value, the Plan lost 

out on over $5 million from 2010 to 2016 as a result of the Plan's 

inability to capture revenue sharing payments. This analysis took 

into account the fact that Putnam paid recordkeeping fees and socalled "trustee fees." 

Defendants assert that in addition to paying "[a]ll 

recordkeeping expenses," Putnam also pays "the cost of a service 

that provides individualized investment advice to participants," 

as well as the annual fee associated with the brokerage window 
- 20 - 

that allows Plan participants to access non-Putnam investments. 

But defendants do not quantify this payment in their briefing. 

Nor do they address whether the figures for "total administrative 

fees" to which they stipulated below include the additional cost 

of the window or the fees identified in other documents in the 

record.

Without guidance from the parties on how to analyze these 

various documents and without the benefit of the district court's 

assessment on the matter, we think it best not to sift through the 

record to reach our own unaided conclusions. We therefore vacate 

the judgment against plaintiffs on their claim under 

section 1106(b) and remand for the district court to reconsider 

whether the requirement of PTE 77-3(d) is satisfied in light of 

revenue sharing payments Putnam makes to some other plans.10 In 

considering whether, by not receiving the benefit of such payments, 

the Plan was treated any less favorably on net than other 

comparably situated plans, the district court should consider, 

among other things, the administrative fees paid by Putnam, as 

well as any fees paid by the Plan itself. The district court 

 10 We need not address the district court's ruling that ERISA's 

statute of limitations barred an "aspect of" plaintiffs' claim 

under section 1106(b) -- related to Putnam's conversion of Y shares 

to R6 shares, see supra n.2 -- because that ruling was limited to 

issues not before us on appeal.
- 21 - 

should not consider the discretionary contributions made by Putnam 

to Plan participants.

III.

We turn now to the district court's ruling mid-trial 

dismissing plaintiffs' claims that Putnam acted imprudently in 

selecting the Plan's investment options and that it breached the 

duty of loyalty by engaging in self-dealing. "If a party has been 

fully heard on an issue during a nonjury trial and the court finds 

against the party on that issue," Rule 52(c) allows the court to 

"enter judgment against the party on a claim or defense that, under 

the controlling law, can be maintained or defeated only with a 

favorable finding on that issue." Fed. R. Civ. P. 52(c); see also 

Morales Feliciano v. Rullán, 378 F.3d 42, 59 (1st Cir. 2004). In 

resolving a Rule 52(c) motion, "the court's task is to weigh the 

evidence, resolve any conflicts in it, and decide for itself in 

which party's favor the preponderance of the evidence lies." 

9C Charles Alan Wright & Arthur R. Miller, Federal Practice & 

Procedure § 2573.1 (3d ed.) (footnotes omitted). As with a casestated summary judgment ruling, we review Rule 52(c) judgments 

under a mixed standard of review, "evaluat[ing] the district 

court's conclusions of law de novo and typically examin[ing] the 

district court's underlying findings of fact for clear error." 

Mullin v. Town of Fairhaven, 284 F.3d 31, 36–37 (1st Cir. 2002) 

(internal quotation marks and citations omitted). 
- 22 - 

A.

We begin with the duty of prudence. Pursuant to ERISA, 

a fiduciary must 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." 29 

U.S.C. § 1104(a)(1)(B). A fiduciary who breaches that duty must 

"make good" to the plan "any losses to the plan resulting from 

such breach." Id. § 1109(a). Although the parties in this case 

dispute the precise requirements for making out a duty of prudence 

claim, both sides agree that the claim has three elements: breach, 

loss, and causation. We address each in turn. 

1.

The district court fairly summarized the plaintiffs' 

theory of breach: "[T]he Defendants violated their fiduciary duty 

of prudence by failing to implement or follow a prudent objective 

process for investigating and monitoring the individual merits of 

each of the Plan's investments in terms of costs, redundancy, or 

performance." Brotherston v. Putnam Invs., LLC, No. 15-cv-13825-

WGY, 2017 WL 2634361, at *8 (D. Mass. June 19, 2017). Because the 

district court terminated the trial before Putnam could present 

its defense, the district court did not make a definitive ruling 

on whether such a violation occurred. Rather, it concluded that 

the evidence presented would be sufficient to support a finding 

that the PBIC "failed to monitor the Plan investments 
- 23 - 

independently" and that it therefore failed to discharge its 

fiduciary duty. Id. at *9. Presumably because of the tentative 

nature of the district court's conclusion, Putnam lodges no crossappeal from that determination, so we accept it at face value and 

move on to the question of loss. 

2.

The question of loss in this case might at first blush 

seem quite simple. If one invests $1,000 in shares of a mutual 

fund, and two years later the shares are worth $1,000, many people 

would say that there has been no loss. Certainly the IRS agrees. 

And if the investment increases in absolute dollar value, rather 

than remaining constant, many would similarly claim no loss. 

Any reasonably sophisticated investor, though, would 

think about loss -- and gain -- very differently. To the extent 

that the investor had a choice of investments, the decision to 

pick one investment over another might result in a measurable loss 

of opportunity. It follows that a trustee who decides to stuff 

cash in a mattress cannot assure that there is no loss merely by 

holding onto the mattress. This more sophisticated view of loss 

aligns with most people's expectations regarding their financial 

fiduciaries who have broad investment discretion. It also aligns 

with what has become known as the "total return" measure of loss 

and damages for breach of trust. See Restatement (Third) of 

Trusts, § 100 cmt. a(3); see also id. § 100 cmt. b(1). 
- 24 - 

The Restatement calls "for determining whether and in 

what amount the breach has caused a 'loss[]' . . . by reference to 

what the results 'would have been if the portion of the trust 

affected by the breach had been properly administered.'" Id. 

ch. 19, intro. note (emphasis in original) (quoting Id. § 100). 

The Restatement expands on this principle as follows: The recovery 

from a trustee for imprudent or otherwise improper investments is 

ordinarily "the difference between (1) the value of those 

investments and their income and other product at the time of 

surcharge and (2) the amount of funds expended in making the 

improper investments, increased (or decreased) by a projected 

amount of total return (or negative total return) that would have 

accrued to the trust and its beneficiaries if the funds had been 

properly invested." Id. § 100 cmt. b(1). Finally, the Restatement 

specifically identifies as an appropriate comparator for loss 

calculation purposes "return rates of one or more . . . suitable 

index mutual funds or market indexes (with such adjustments as may 

be appropriate)." Id. 

ERISA itself is not so specific. Rather, it states that 

a breaching fiduciary shall be liable to the plan for "any losses 

to the plan resulting from each such breach." 29 U.S.C. § 1109(a). 

Certainly this text is broad enough to accommodate the total return 

principle recognized in the Restatement. Behind the text, too, 

stands Congress's clear intent "to provide the courts with broad 
- 25 - 

remedies for redressing the interests of participants and 

beneficiaries when they have been adversely affected by breaches 

of fiduciary duty." Eaves v. Penn, 587 F.2d 453, 462 (10th Cir. 

1978) (relying on S. Rep. No. 93-127). And as the Supreme Court 

has instructed, when we confront a lack of explicit direction in 

the text of ERISA, we often find answers in the common law of 

trusts. See Varity Corp. v. Howe, 516 U.S. 489, 496-97 (1996); 

see also id. at 502, 506-07 (relying on "ordinary trust law 

principles" to fill gaps created by ERISA's lack of definition 

regarding the scope of fiduciary conduct and duties). 

In this instance, the trust law that we have described 

provides an answer that both requires no stretch of ERISA's text 

and accords with common sense. Otherwise, hoarding plan assets in 

cash would become a fail-safe option for ERISA fiduciaries. We 

therefore hold that an ERISA trustee that imprudently performs its 

discretionary investment decisions, including the design of a 

portfolio of funds to offer as investment options in a definedcontribution plan, "is chargeable with . . . the amount required 

to restore the values of the trust estate and trust distributions 

to what they would have been if the portion of the trust affected 

by the breach had been properly administered." Restatement (Third) 

of Trusts, § 100. 

Applying this definition of chargeable loss to the case 

at hand, we begin with the district court's tentative finding that 
- 26 - 

PBIC breached its fiduciary duty in automatically including Putnam 

funds as investment options for the Plan and then failing to 

independently monitor the performance of those funds. The district 

court correctly observed that such a breach does not mean that the 

Plan necessarily suffered any loss. So the question was, did any 

loss occur? 

Plaintiffs attempted to answer this question with the 

testimony of their expert, Pomerantz. As we have noted, most of 

the Putnam funds were actively managed and therefore carried higher 

fees than passively-managed funds. For each Putnam fund held by 

the Plan, Pomerantz asked whether the Plan got something for those 

higher fees. Pomerantz began by comparing one at a time the total 

return for each Putnam fund to the total return for two passive 

comparators, a Vanguard index fund that belonged to the same 

Morningstar category11 as the Putnam fund and a BNY Mellon 

collective investment trust, for every quarter from the beginning 

of the class period through mid-2016, and then adding together 

each quarterly differential. Pomerantz also did a second analysis 

with the same comparators, focusing on the fees charged by the 

Putnam fund compared to the comparator fund, to be able to pinpoint 

what portion of the difference in total returns stemmed from the 

 11 Morningstar is "an independent provider of investment news 

and research." SEC v. Bauer, 723 F.3d 758, 774 (7th Cir. 2013); 

see also United States v. Stinson, 734 F.3d 180, 182 (3d Cir. 

2013); Krull v. SEC, 248 F.3d 907, 909 n.2 (9th Cir. 2001). 
- 27 - 

fee differential. Where an automatically-included Putnam fund 

generated returns equal to or greater than its benchmark, Pomerantz 

calculated no loss for that fund, and credited any differential 

gain to Putnam. But where an automatically-included Putnam fund 

generated lower returns than its benchmark, he deemed the 

differential to be a loss. Pomerantz testified that overall, the 

portfolio of actively managed Putnam funds, when compared to a 

portfolio of passively managed Vanguard funds, suffered total 

damages (converted to present value) of about $45.6 million. Most 

of this figure, about $31.7 million, was attributable to the 

difference in fees between the two sets of funds. When compared 

to a portfolio of BNY Mellon funds, the Putnam portfolio suffered 

total damages of about $44.3 million, of which about $35.1 was fee 

damage. In short, according to Pomerantz's testimony, the Plan 

and its beneficiaries paid a premium of $30 to $35 million to 

obtain overall net returns that fell below the returns generated 

by the passive investment options that the PBIC could have offered. 

The district court ruled, as a matter of law, this 

evidence was insufficient to make out a prima facie case of loss. 

It is not clear why the district court so concluded. The court 

stated at one point that proof that Putnam lacked a prudent process 

to monitor Plan investment vehicles did not make "the entire Plan 

lineup imprudent." Brotherston, 2017 WL 2634361, at *12. It 

further stated that "a person could lack an independent process to 
- 28 - 

monitor his investment and still end up with prudent investments, 

even if it was the result of sheer luck." Id. In so stating, the 

district court appeared concerned that approving what it 

characterized as the "broad sweep of the Plaintiffs' 'procedural 

breach' theory," id. at *10, would implicitly decide, without proof 

on the matter, that every fund in the Plan's portfolio was "per se 

imprudent," id. at *12, in the sense of being substantively an 

unwise investment. But nothing in Pomerantz's methodology so 

presumed. Rather, he simply calculated which funds generated a 

loss relative to a benchmark. 

Of course, the court's concern regarding holding 

defendants liable for losses stemming from funds that may in fact 

be good investment options even if selected without due care is 

legitimate; ERISA defendants are not liable for damages that the 

Plan would have suffered even with a prudent fiduciary at the helm. 

See Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 919 (8th Cir. 

1994) ("Even if a trustee failed to conduct an investigation before 

making a decision, he is insulated from liability if a hypothetical 

prudent fiduciary would have made the same decision anyway."). 

But this is an issue of causation (and possibly damage 

calculation), not loss. See id. (framing the question of whether 

a fiduciary's decision was objectively reasonable as part of 

ERISA's causation requirement). And for the reasons we explain in 

the following section, the burden of showing that a loss would 
- 29 - 

have occurred even had the fiduciary acted prudently falls on the 

imprudent fiduciary. By allowing its analysis on loss to be driven 

by its concern regarding the objective prudence of the Putnam 

funds, the district court in essence required plaintiffs to show 

causation as part of its case on loss -- even as it correctly 

sought to reserve that requirement to defendants.12 Brotherston, 

2017 WL 2634361, at *9 n.15. 

The district court's concern may also have been 

implicitly informed by a point it summarized in its statement of 

facts but did not revisit in its analysis: that Putnam included 

in the Plan's investment lineup so-called qualified default 

investment alternatives ("QDIAs"), also known as Putnam's 

Retirement Ready funds. As the district court pointed out, 

plaintiffs' "fiduciary process expert" at trial, Dr. Martin 

Schmidt, testified that the process for reviewing and monitoring 

these funds was prudent, although plaintiffs dispute on appeal the 

precise meaning of Schmidt's testimony. The presence of prudently 

managed Putnam funds in the Plan's investment menu suggests that 

a portion of Pomerantz's estimate of total portfolio-wide loss may 

 12 Defendants assert that the district court's requirement of 

a "causal link" is "not the same as requiring Plaintiffs to 

definitively prove loss causation" but offer no explanation for 

what this means. 
- 30 - 

be subject to challenge for that reason, among others.13 It does 

not, however, establish that Pomerantz's approach was across-theboard inadequate as a matter of law. 

The point remains: With the exception of the QDIAs, the 

entire portfolio of investment options (through January 31, 2016) 

was selected by the use of imprudent means, or so the district 

court itself conditionally found. So to determine whether there 

was a loss, it is reasonable to compare the actual returns on that 

portfolio to the returns that would have been generated by a 

portfolio of benchmark funds or indexes comparable but for the 

fact that they do not claim to be able to pick winners and losers, 

or charge for doing so. Restatement (Third) of Trusts, § 100 

cmt. b(1) (loss determinations can be based on returns of suitable 

index mutual funds or market indexes); cf. Evans v. Akers, 534 

F.3d 65, 74 (1st Cir. 2008) ("Losses to a plan from breaches of 

the duty of prudence may be ascertained, with the help of expert 

analysis, by comparing the performance of the imprudent 

investments with the performance of a prudently invested 

portfolio."). This is what Pomerantz purported to do.

This is not to say that Pomerantz necessarily picked 

suitable benchmarks, or calculated the returns correctly, or 

focused on the correct time period. Putnam raises some of these 

 13 Pomerantz's reports provided to defendants break out the 

loss or gain for each fund in the portfolio. 
- 31 - 

issues on appeal, arguing that Pomerantz's comparators were not 

plausible and that he improperly focused on damages at a particular 

point in time. But these are questions of fact.14 And the district 

court never reached these questions precisely because it concluded 

that Pomerantz's approach to establishing that the investment 

funds selected by Putnam incurred losses was insufficient as a 

matter of law. Correctly recognizing that its resolution of that 

issue was not clear cut, the district court explicitly invited de 

novo review on the question of legal sufficiency, which we have 

now provided by determining that plaintiffs' evidence was 

sufficient to support a finding of loss.

3. 

We now turn to the question of causation. Assuming the 

Plan suffered a loss, the district court was certainly correct 

that the lack of prudence in the procedures used to select 

investments may not have caused the loss. See Plasterers' Local 

Union No. 96 Pension Plan, 663 F.3d at 218 (4th Cir. 2011) ("[T]he 

mere fact that the [fiduciaries] failed to investigate alternative 

investment options does not mean that their actual investments 

were necessarily imprudent ones."). A prudent investor may have 

 14 To the extent defendants' argument on appeal that "[t]here 

is simply no evidence in the record" to support Pomerantz's 

selection of comparators is meant to challenge his comparators as 

a matter of law, that argument fails. As explained in this 

section, there is legal support for the use of index funds and 

other benchmarks as comparators for loss calculation purposes. 
- 32 - 

selected fee-burdened funds, perhaps even Putnam's specific funds, 

that over the relevant years performed worse than market index 

funds for reasons that would have been reasonably unforeseeable to 

or discounted by the prudent investor. Since ERISA only allows 

for the recovery of loss "resulting from" the fiduciary's breach, 

a beneficiary is not eligible to recover damages in that situation. 

29 U.S.C. § 1109(a). All of this means that a court need find 

causation before awarding damages. See Roth, 16 F.3d at 919; see 

also Brock v. Robbins, 830 F.2d 640, 647 (7th Cir. 1987) (rejecting 

the idea that, in enacting ERISA, Congress intended to deter 

"imprudent but harmless conduct"). 

So far, so good, in that all parties agree that causation 

must be found to sustain a recovery for plaintiffs. What the 

parties dispute is who bears the burden of proving (or disproving) 

causation. To answer this question, we begin with the extant 

precedent, followed by our own analysis. 

Our sister courts are split on who bears the burden of 

proving or disproving causation once a plaintiff has proven a loss 

in the wake of an imprudent investment decision. Compare Tatum v. 

RJR Pension Inv. Comm., 761 F.3d 346, 363 (4th Cir. 2014) (adopting 

in the ERISA context the "long recognized trust law principle . . . 

that once a fiduciary is shown to have breached his fiduciary duty 

and a loss is established, he bears the burden of proof on loss 

causation"); McDonald v. Provident Indem. Life Ins. Co., 60 F.3d 
- 33 - 

234, 237 (5th Cir. 1995) (holding that once an ERISA plaintiff 

proves "a breach of a fiduciary duty and a prima facie case of 

loss to the plan[,] . . . the burden of persuasion shifts to the 

fiduciary" to disprove causation (internal quotation marks 

omitted)); Martin v. Feilen, 965 F.2d 660, 671 (8th Cir. 1992) 

("[O]nce the ERISA plaintiff has proved a breach of fiduciary duty 

and a prima facie case of loss to the plan or ill-gotten profit to 

the fiduciary, the burden of persuasion shifts to the fiduciary to 

prove that the loss was not caused by, or his profit was not 

attributable to, the breach of duty.") with Pioneer Centres Holding 

Co. Emp. Stock Ownership Plan & Tr. v. Alerus Fin., N.A., 858 F.3d 

1324, 1337 (10th Cir. 2017), cert. dismissed per stipulation, No. 

17-667, 2018 WL 4496523 (U.S. Sept. 20, 2018) (adopting the 

ordinary default rule to hold that "the burden falls squarely on 

the plaintiff asserting a breach of fiduciary duty claim under 

§ 1109(a) of ERISA to prove losses to the plan 'resulting from' 

the alleged breach of fiduciary duty"); Saumer v. Cliffs Natural 

Resources Inc., 853 F.3d 855, 863 (6th Cir. 2017) ("[A] plaintiff 

must show a causal link between the failure to investigate and the 

harm suffered by the plan." (internal quotation marks omitted)); 

Wright v. Oregon Metallurgical Corp., 360 F.3d 1090, 1099 (9th 

Cir. 2004) (same); Willett v. Blue Cross & Blue Shield of Ala., 

953 F.2d 1335, 1343 (11th Cir. 1992) (instructing that "[o]n 
- 34 - 

remand, the burden of proof on the issue of causation will rest on 

the beneficiaries").15

We join those circuits that approve a burden-shifting 

approach. Our reasoning begins with the language of the statute. 

As we have already noted, that language -- establishing that a 

breaching fiduciary shall be liable for any losses to the plan 

"resulting from" its breach, 29 U.S.C. § 1109(a) -- clearly 

requires a causal connection between a breach and a loss in order 

to justify compensation for the loss. Like many statutes that 

provide a cause of action, section 1109(a) does not explicitly 

state whether the plaintiff bears the burden of proving that causal 

link or whether the defendant must prove the absence of causation. 

Two interpretative approaches offer potential for resolving that 

question in the face of the text's silence. 

First, there is what the Supreme Court has called the 

"ordinary default rule." Schaffer ex rel. Schaffer v. Weast, 546 

U.S. 49, 56 (2005). Under this rule, courts ordinarily presume 

that the burden rests on plaintiffs "regarding the essential 

aspects of their claims." Id. at 57. That normal rule, however, 

"admits of exceptions." Id. For example, "[t]he ordinary rule, 

 15 We take no position on whether the Second Circuit has 

adopted the burden-shifting approach because it has no impact on 

our analysis. Compare New York State Teamsters Council Health and 

Hosp. Fund v. Estate of DePerno, 18 F.3d 179, 180 (2d Cir. 1994) 

with Silverman v. Mutual Ben. Life Ins. Co., 138 F.3d 98, 104 (2d 

Cir. 1998). 
- 35 - 

based on considerations of fairness, does not place the burden 

upon a litigant of establishing facts peculiarly within the 

knowledge of his adversary," id. at 60 (alteration in original) 

(quoting United States v. New York, N.H. & H.R. Co., 355 U.S. 253, 

256 n.5 (1957)), although there exist qualifications on the 

application of this exception. Id. 

Second, ERISA brings to bear its own interpretative 

guidance. As we have already pointed out, supra, and will explain 

in greater detail, when the Supreme Court confronts a lack of 

explicit direction in the text of ERISA, it regularly seeks an 

answer in the common law of trusts. See generally Varity Corp., 

516 U.S. at 496–97; see also id. at 502, 506–07. The common law 

of trusts -- like ERISA -- classifies causation as an element of 

a claim for breach of fiduciary duty. See Restatement (Third) of 

Trusts, § 100 cmt. e. It also places the burden of disproving 

causation on the fiduciary once the beneficiary has established 

that there is a loss associated with the fiduciary's breach. Id. 

cmt. f. This burden allocation has long been the rule in trust 

law. See Tatum, 761 F.3d at 363 (describing it as a "longrecognized trust law principle"). 

So how much weight should we place on ERISA's borrowing 

of trust law in the face of Schaffer's default rule? In answering 

this question, we are guided by three observations: that ERISA's 

borrowing of trust law principles is robust; that trust law's 
- 36 - 

burden allocation best fits the balance ERISA seeks to achieve 

between the interests of fiduciaries and beneficiaries; and that 

in this case, borrowing trust law's burden allocation actually 

poses no conflict with Schaffer's approach to burden allocation. 

We explain. 

The Supreme Court has time and again adopted ordinary 

trust law principles to construe ERISA in the absence of explicit 

textual direction. In LaRue v. DeWolff, Boberg & Associates, Inc., 

the Court confronted a demand to recover lost profits under one of 

ERISA's civil enforcement provisions, which makes no mention of 

lost profits. 552 U.S. 248 (2008). It reasoned: "Under the 

common law of trusts, which informs our interpretation of ERISA's 

fiduciary duties, trustees are 'chargeable with . . . any profit 

which would have accrued to the trust estate if there had been no 

breach of trust . . . .'" Id. at 253 n.4 (first alteration in 

original) (internal citation omitted) (quoting Restatement 

(Second) of Trusts, § 205 (1957)). Confronting silence in the 

text on whether certain nonfiduciary parties in interest may be 

held accountable on a claim for equitable relief under ERISA 

§ 502(a)(3), the Court in Harris Trust looked in part to the common 

law of trusts, which it found "plainly countenances the sort of 

relief sought." 530 U.S. at 250. And the Court relied on the 

experience of the common law to reject an argument that untoward 

effects might flow from allowing claims against nonfiduciaries. 
- 37 - 

Id. at 251. Most notably, in Firestone Tire & Rubber Co. v. Bruch, 

the Court mirrored ordinary trust law principles in construing the 

rules under ERISA that control the standard of review to be 

employed in reviewing denials of ERISA benefits. 489 U.S. 101, 

111 (1989) ("In determining the appropriate standard of 

review . . . , we are guided by principles of trust law."). As 

the Court noted, "ERISA abounds with the language and terminology 

of trust law." Id. at 110. 

This is not to say that we automatically adopt ordinary 

trust law principles to fill in gaps in ERISA. Trust law provides 

no assistance when "it is inconsistent with the language of the 

statute, its structure, or its purposes." Hughes Aircraft Co. v. 

Jacobson, 525 U.S. 432, 447 (1999) (internal quotation marks 

omitted). Here, though, the statutory language is silent, and 

Putnam points to nothing in ERISA's structure that conflicts with 

the allocation of burdens under ordinary trust law. 

This brings us to our next consideration: the purposes 

Congress clearly sought to achieve with ERISA. In that vein, one 

of Putnam's amici argues that placing on the fiduciary the burden 

of disproving causation would be inconsistent with Congress's 

purpose of reducing the cost of litigation so as not to dissuade 

employers from establishing plans. There is no serious claim, 

though, that ordinary trust law does not incorporate a similar 

aim. More importantly, the Supreme Court has made clear that 
- 38 - 

whatever the overall balance the common law might have struck 

between the protection of beneficiaries and the protection of 

fiduciaries, ERISA's adoption reflected "Congress'[s] desire to 

offer employees enhanced protection for their benefits." Varity 

Corp., 516 U.S. at 497 (emphasis added); see also Mass. Mut. Life 

Ins. Co. v. Russell, 473 U.S. 134, 156 n.17 (1985) (Brennan, J., 

concurring) ("[I]n enacting ERISA, Congress made more exacting the 

requirements of the common law of trusts relating to employee 

benefit trust funds." (emphasis in original) (internal quotation 

marks omitted)); cf. Firestone, 489 U.S. at 114 (rejecting an 

alternative standard of review on the grounds that it would "afford 

less protection to employees and their beneficiaries than they 

enjoyed before ERISA was enacted"). In other words, Congress 

sought to offer beneficiaries, not fiduciaries, more protection 

than they had at common law, albeit while still paying heed to the 

counterproductive effects of complexity and litigation risk. See 

Varity Corp., 516 U.S. at 497 (noting the "competing congressional 

purposes" of protecting employees without "unduly discourag[ing] 

employers from offering welfare benefit plans in the first place"). 

And it still provided substantial cost and risk reduction to 

employers by establishing a uniform, federally preemptive regime 

with the prospect of uniform federal guidance and regulation by 

the Department of Labor. 
- 39 - 

ERISA's enhancement of the protections for beneficiaries 

that existed at common law is reflected by the Supreme Court's 

decisions in Central States, Southeast & Southwest Areas Pension 

Fund v. Central Transport, Inc., 472 U.S. 559 (1985) and Fifth 

Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014). Those are 

the clearest examples of the Court opting not to follow an 

applicable common law rule in applying ERISA. In both instances, 

the Court rejected the ordinary trust law rules in a manner that 

enhanced rather than reduced the protection of beneficiary 

interests to the arguable detriment of employers. Central States, 

472 U.S. at 572 (holding ERISA fiduciaries to the "more specific 

trustee duties itemized in the Act"); Fifth Third Bancorp, 134 S. 

Ct. at 2469 (relying on Central States's "holding that, by contrast 

to the rule at common law, trust documents cannot excuse trustees 

from their duties under ERISA" (internal quotation marks 

omitted)). In short, when interpreting the application of ERISA 

in the absence of statutory guidance, the Supreme Court has usually 

opted for the common law approach except when rejection was 

necessary to provide enhanced beneficiary protections. But cf. 

Conkright v. Frommert, 559 U.S. 506, 516 (2010) (adopting Varity's 

guidance that "trust law does not tell the entire story" and 

extending the deference given to plan administrators' 

interpretation of plans on the grounds that it protects the 

interests of employers, in line with Congressional intent); 
- 40 - 

Mertens v. Hewitt Associates, 508 U.S. 248, 253–54 (1993) 

(suggesting in dicta that the common law trust rule allowing 

"knowing participation" liability to be imposed on both cofiduciaries and third parties does not apply in the ERISA context). 

On such a record, it would be strange to reject trust law's rules 

on burden allocation in favor of an attempt to reduce employer 

costs, especially where the benefit of such a reduction would flow 

exclusively to employers whose breaches were followed by losses to 

the plan. 

Finally, we work our way back to Schaffer. We began by 

presenting the two interpretative paths embodied in Schaffer and 

Varity. We could read these cases as establishing alternative 

rules of construction, one generally applicable and the other more 

specifically applicable to ERISA. Under such a reading, we would 

opt for Varity's specific over Schaffer's general. Or we might 

read Varity's guidance as simply one of the exceptions to 

Schaffer's ordinary, but not universally-applicable, default rule. 

Under both readings, we end up in the same place: applying trust 

law principles. We nevertheless prefer the latter approach in 

this case because one important reason behind the ordinary trust 

rule for allocating the burden of proof aligns so well with the 

exception to Schaffer's default rule recognized in Schaffer 

itself. That exception recognizes that the burden may be allocated 

to the defendant when he possesses more knowledge relevant to the 
- 41 - 

element at issue. Schaffer, 546 U.S. at 60. Trust law has long 

embodied similar logic. See Restatement (Third) of Trusts, § 100 

cmt. f (noting that the general rule placing on the plaintiff the 

burden of proving his claim "is moderated in order to take account 

of . . . the trustee's superior (often, unique) access to 

information about the trust and its activities"); cf. 1 Joseph 

Story, Commentaries on Equity Jurisprudence: As Administrator in 

England and America, § 322 (1836) (noting that the trust 

beneficiary may "not have it in his power distinctly and clearly 

to show" that the trustee made a bargain advantageous to himself). 

In short, even if there were no freestanding expectation that the 

interpretation of ERISA would be informed by trust law generally, 

on the specific matter of allocating the burden of proving 

causation the ordinary trust law rule could stand on its own feet 

as an exception to the default rule that Schaffer itself 

recognizes. 

Common sense strongly supports this conclusion in the 

modern economy within which ERISA was enacted. An ERISA fiduciary 

often -- as in this case -- has available many options from which 

to build a portfolio of investments available to beneficiaries. 

In such circumstances, it makes little sense to have the plaintiff 

hazard a guess as to what the fiduciary would have done had it not 

breached its duty in selecting investment vehicles, only to be 

told "guess again." It makes much more sense for the fiduciary to 
- 42 - 

say what it claims it would have done and for the plaintiff to 

then respond to that. 

It is also true that this common sense concern could be 

addressed by a mere shift in the burden of production rather than 

the burden of persuasion, and Schaffer applies only to the latter. 

546 U.S. at 56. And because ERISA cases rarely involve jury 

instructions, it is likely that very few cases will actually leave 

the question of causation "in evidentiary equipoise." Id. at 58.16 

So it would not be farfetched to chart a third route by defaulting 

to Schaffer's ordinary rule on the burden of proof while 

nevertheless requiring the fiduciary to first put forward its view 

of what likely would have happened but for the alleged fiduciary 

breach. Neither party, though, has briefed such a middle ground. 

More importantly, we have many decades of experience with the 

allocation of the burden of proof called for routinely by trust 

law, with no evidence of any particular difficulties, unfairness, 

or costs in applying that rule in the few cases in which it actually 

makes a difference. Cf. Metropolitan Life Ins. Co. v. Glenn, 554 

U.S. 105, 113 (2008) ("[W]e note that trust law functions well 

with a similar standard."). We therefore opt for a well-trodden 

path rather than risk introducing unforeseeable complexities with 

a more novel approach. 

 16 Because the district court resolved this case mid-trial, 

the burden of persuasion makes all the difference here. 
- 43 - 

For the foregoing reasons, we align ourselves with the 

Fourth, Fifth, and Eighth Circuits and hold that once an ERISA 

plaintiff has shown a breach of fiduciary duty and loss to the 

plan, the burden shifts to the fiduciary to prove that such loss 

was not caused by its breach, that is, to prove that the resulting 

investment decision was objectively prudent. See Tatum, 761 F.3d 

at 363; McDonald, 60 F.3d at 237; Martin, 965 F.2d at 671.17 In 

so ruling, we stress that nothing in our opinion places on ERISA 

fiduciaries any burdens or risks not faced routinely by financial 

fiduciaries. While Putnam warns of putative ERISA plans foregone 

for fear of litigation risk, it points to no evidence that 

employers in, for example, the Fourth, Fifth, and Eighth Circuits, 

are less likely to adopt ERISA plans. Moreover, any fiduciary of 

a plan such as the Plan in this case can easily insulate itself by 

selecting well-established, low-fee and diversified market index 

funds. And any fiduciary that decides it can find funds that beat 

the market will be immune to liability unless a district court 

finds it imprudent in its method of selecting such funds, and finds 

 17 Tatum, McDonald, and Martin use the term "prima facie case 

of loss," apparently requiring an even lesser showing by the 

plaintiff. However, in describing the "long-recognized trust law 

principle" of burden-shifting, the court in Tatum referred simply 

to "loss," without the qualifier. 761 F.3d at 363. We 

intentionally use the term "loss," rather than "prima facie loss," 

because when a factfinder concludes that a plan suffered no actual 

loss, the issue of causation need not be decided, even if there 

was prima facie evidence of loss. 
- 44 - 

that a loss occurred as a result. In short, these are not matters 

concerning which ERISA fiduciaries need cry "wolf." 

This holding, together with our conclusion that the 

district court erred in finding that plaintiffs failed as a matter 

of law to make even a prima facie showing of loss, requires vacatur 

of the district court's entry of judgment against plaintiffs on 

their prudence claim. We remand for the district court to complete 

the bench trial in order to definitively decide whether Putnam 

breached the duty of prudence and, if so, to decide whether 

plaintiffs have shown a loss to the Plan and, if so, to decide 

whether Putnam can meet its burden of showing that the loss most 

likely would have occurred even if Putnam had been prudent in its 

selection and monitoring procedures. 

B. 

Plaintiffs also argue that the district court erred in 

dismissing their claim for breach of the duty of loyalty. Under 

ERISA, fiduciaries "shall discharge their duties with respect to 

a plan 'solely in the interest of the participants and 

beneficiaries,' that is, 'for the exclusive purpose of 

(i) providing benefits to participants and their beneficiaries; 

and (ii) defraying reasonable expenses of administering the 

plan.'" Pegram v. Herdrich, 530 U.S. 211, 223–24 (2000) (citations 

omitted) (quoting 29 U.S.C. § 1104(a)(1)). 
- 45 - 

Plaintiffs' position is that Putnam failed to act in the 

best interests of Plan participants because it included Putnam 

funds by fiat, retained those funds even though they were 

underperforming, buried evidence that many of the funds were 

receiving failing grades, and failed to consider any alternative 

investment options from other companies. The district court 

reasoned that merely "identifying a potential conflict of interest 

alone is not sufficient to establish a breach of the duty of 

loyalty." Brotherston, 2017 WL 2634361, at *3; see also id. at *8. 

Even pointing to self-dealing is not enough, reasoned the court, 

at least where the self-dealing (selecting proprietary funds for 

plan investments) is a common industry practice within the scope 

of an express exception. Id. at *3, *8. Rather, the district 

court found, to establish a claim for breach of the duty of loyalty 

plaintiffs were required to prove that defendant's motivation in 

taking these actions was to put its own interests ahead of those 

of Plan participants. Id. "Evaluating the totality of the 

circumstances," the district court also found that plaintiffs had 

failed to establish improper motivation. Id. at *8. It therefore 

dismissed plaintiffs' breach of loyalty claim. Id. 

We review the district court's weighing of the evidence 

for clear error. See Mullin, 284 F.3d at 36–37. Plaintiffs in 

turn offer four reasons for finding such error. 
- 46 - 

First, they argue that the district court incorrectly 

employed a balancing test to dismiss their loyalty claim by 

crediting Putnam for contributions it made as settlor. This 

argument misreads the district court's order, which plainly hinged 

its loyalty analysis on plaintiffs' failure to point to specific 

instances of disloyalty, rather than on Putnam's contributions as 

employer. 

Second, plaintiffs argue that the district court erred 

in holding that a duty of loyalty claim requires a showing of 

improper motivation. Plaintiffs contend that "purported good 

intentions do not excuse disloyal actions." But to be loyal is to 

possess a certain state of mind, one "unswerving in allegiance." 

Merriam–Webster's Collegiate Dictionary 738 (11th ed. 2012) 

(definition of loyal); see also id. ("faithful in 

allegiance . . ."). This is why, in reviewing ERISA duty of 

loyalty claims, we have asked whether the fiduciary's "operative 

motive was to further its own interests." Ellis v. Fid. Mgmt. Tr. 

Co., 883 F.3d 1, 6 (1st Cir. 2018). 

Third, plaintiffs claim that the district court treated 

the exceptions for prohibited transactions as "a safe harbor from 

breach of fiduciary duty claims." The district court did no such 

thing. Rather, the district court simply stated that plaintiffs 

did not carry their burden of persuasion merely by pointing to 

transactions that were expressly exempt from the prohibitions of 
- 47 - 

sections 1106(a) and (b), particularly where such exempt 

transactions were common in the industry. And to the extent that 

Putnam engaged in a non-exempt prohibited transaction, it would be 

liable under section 1106 itself, which "supplements" the general 

duty of loyalty. Harris Trust, 530 U.S. at 241. 

Finally, plaintiffs argue that, even if a breach of the 

duty of loyalty does require improper motivation, there is 

sufficient evidence that Putman's decisions were motivated by an 

intent to benefit itself. Even assuming that to be so, the 

sufficiency of the evidence to prove plaintiffs' claim is not at 

issue on this appeal. Rather, the question before us is whether 

the evidence is so one-sided that we must deem the district court's 

fact finding as clear error. And since plaintiffs point to no 

action of Putnam that can be explained only by a disloyal 

motivation, the district court possessed ample discretion to find 

as it did. 

C. 

We discuss, finally, plaintiffs' claim for disgorgement. 

We have recognized, supra, that Putnam can be said to have received 

fees "in connection with a transaction involving the assets of the 

[P]lan," 29 U.S.C. § 1106(b)(3). Such a receipt placed on Putnam 

the obligation to satisfy the requirements of PTE 77-3. And to 

the extent that Putnam fails on remand to qualify under that 

exemption, nothing in this opinion forecloses disgorgement as an 
- 48 - 

available remedy. Plaintiffs, though, also seek to press a broader 

claim for disgorgement as part of their breach of fiduciary duty 

claim under 29 U.S.C. § 1109(a), which requires a breaching 

fiduciary to "restore to [the] plan" any profits "made through use 

of assets of the plan."18 The district court dismissed that claim 

as "legally insufficient" in view of its finding that plaintiffs 

had failed as a matter of law to show loss. Our ruling that 

plaintiffs' evidence may in fact be sufficient to establish a loss 

eliminates the district court's basis for dismissing plaintiffs' 

broader disgorgement claim, but we nevertheless affirm the 

dismissal of that claim on alternative grounds. 

The object of plaintiffs' desired disgorgement is 

$27.9 million in fees (allegedly $37.3 million in present-day 

value) obtained by Putnam as a result of offering its proprietary 

funds as investment options to the Plan. The district court had 

independently ruled, as part of its earlier summary judgment 

decision, that those fees were not derived from Plan assets, and 

thus did not implicate the bar of 29 U.S.C. § 1106(a)(1)(D) against 

any "use by or for the benefit of a party in interest, of any 

 18 Plaintiffs also seek unspecified "equitable relief." In 

view of its dismissal of all substantive claims, the district court 

understandably dismissed plaintiffs' requests for injunctive 

and/or declaratory relief. To the extent that proceedings on 

remand result in any finding for plaintiffs on the merits of their 

surviving claims, the district court will be free to consider the 

availability of injunctive or declaratory relief to the extent 

such relief is otherwise warranted. 
- 49 - 

assets of the plan" or the bar of 29 U.S.C. § 1106(b)(1) against 

a fiduciary "deal[ing] with the assets of the plan in his own 

interest or for his own account." Plaintiffs have expressly waived 

any challenge to that ruling. So defendants pointedly argue that 

plaintiffs are precluded from now claiming on appeal as part of 

their disgorgement claim that Putnam's fees were derived "through 

use of assets of the plan." 29 U.S.C. § 1109(a). 

Plaintiffs offer no argument at all for how the fees at 

issue could not have qualified as "use by or for the benefit of 

[Putnam] of any assets of the plan" under section 1106(a)(1)(D), 

or a "deal with the assets of the plan" under section 1106(b)(1), 

yet nevertheless be deemed to have been obtained by Putnam "through 

use of" Plan assets under § 1109(a). Plaintiffs have therefore 

waived any argument that the fees are subject to disgorgement under 

§ 1109(a). 

IV.

Regarding the district court's summary judgment ruling, 

we affirm the district court's dismissal of plaintiffs' prohibited 

transaction claim under section 1106(a)(1)(C); we vacate the 

district court's dismissal of plaintiffs' prohibited transaction 

claim under section 1106(b)(3); and we remand for further 

proceedings. With respect to the district court's order entering 

judgment on partial findings, we affirm the dismissal of 

plaintiffs' breach of loyalty claim and the dismissal of their 
- 50 - 

disgorgement claim, except to the extent that disgorgement may be 

a remedy for a prohibited transaction claim; we vacate the finding 

that plaintiffs have failed as a matter of law to show loss; and 

we remand for further consideration of plaintiffs' prudence claim 

in light of our holding on the burden-shifting issue. Costs are 

awarded to the plaintiffs. 

None of this means, we add, that defendants have violated 

any duties or obligations owed to the Plan or its beneficiaries. 

Rather, it simply means that we have rejected two reasons for 

concluding that such a violation necessarily did not occur, and we 

have otherwise clarified for the district court several principles 

that should guide its subsequent rulings in this case.