Brotherston v. Putnam Investments

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
 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

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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

1We rely on facts to which the parties have stipulated and
the district court's factual findings from the two orders now on
appeal.
2One 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

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"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 self-

directed 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.

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 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.

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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).

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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.

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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.

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 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.

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 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.

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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

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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

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 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.

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 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 third-

party 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-

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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."

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 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

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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 so-

called "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

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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.

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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 case-

stated 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).

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 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

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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 cross-

appeal 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).

- 23 -
 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

- 24 -
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 defined-

contribution 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

- 25 -
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

11Morningstar 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).

- 26 -
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

- 27 -
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

- 28 -
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.

- 29 -
be subject to challenge for that reason, among others.13 It does

not, however, establish that Pomerantz's approach was across-the-

board 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.

- 30 -
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.

- 31 -
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

- 32 -
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

- 33 -
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).

- 34 -
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 "long-

recognized 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

- 35 -
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.

- 36 -
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

- 37 -
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.

- 38 -
 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);

- 39 -
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 co-

fiduciaries 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

- 40 -
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

- 41 -
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.

16Because the district court resolved this case mid-trial,
the burden of persuasion makes all the difference here.

- 42 -
 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.

- 43 -
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)).

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 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.

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 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

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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

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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.

- 48 -
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

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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.

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