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Putnam Gets Industry Support in 401(k) Fund Appeal

Jan. 18, 2018, 12:42 PM

Putnam Investments LLC won the support of several industry groups in an appeal by Putnam workers challenging the affiliated mutual funds in their 401(k) plan.

The Investment Company Institute, the U.S. Chamber of Commerce, and other groups urged the U.S. Court of Appeals for the First Circuit to uphold a ruling rejecting claims that Putnam was wrong to put its own investment funds—which earned fees for the company—in the 401(k) plan for its workers. The groups argued against a judicial standard that would require Putnam—and not the workers—to prove that the challenged investments caused losses to the company retirement plan.

The lower court’s decision in favor of Putnam was the first post-trial ruling in the recent series of cases challenging financial companies that put their own investment products in their workers’ 401(k) plans. Many cases have led to early losses for the financial companies, with courts granting wins to employees of BB&T Corp., Deutsche Bank, Franklin Templeton, American Century, and Edward Jones. In the Putnam case, the judge ruled after a seven-day trial that the workers failed to identify any specific circumstances in which the company and its 401(k) plan put their own interests ahead of the workers.

The Chamber and ICI briefs were filed Jan. 17. In November 2017, AARP filed a brief supporting the Putnam workers. AARP said that 401(k) plan fiduciaries shouldn’t get a pass for breaching their duties just because their plans have some positive attributes.

The Chamber brief focused on the idea of loss causation. It asked the First Circuit to hold that companies like Putnam can’t be held liable for offering bad or conflicted investment products unless the 401(k) investors show that those products actually caused them to lose money. Requiring employers to prove there were no losses would lead to windfalls for workers and force companies to insure against harmless errors, the Chamber argued.

ICI also argued that special legal protections specifically allow companies like Putnam to offer proprietary funds to their workers in a 401(k) plan. This practice is widespread and beneficial, ICI contended, because it allows workers to benefit from the knowledge and expertise of their colleagues.

The Chamber’s brief was joined by the American Benefits Council and the Securities Industry and Financial Markets Association. The groups were represented by Goodwin Procter LLP.

ICI was represented by Groom Law Group.

The case is Brotherston v. Putnam Investments, LLC, 1st Cir., No. 17-1711, amicus briefs filed 1/17/18.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at