Putnam Settles Self-Dealing ERISA Challenge

The parties in the Employee Retirement Income Security Act (ERISA) lawsuit known as Brotherston v. Putnam have reached a proposed settlement.

The case has been playing out in the U.S. District Court for the District of Massachusetts.

According to the text of the proposed agreement, the settlement resolves the plaintiffs’ class action claims against a number of Putnam defendants, including Putnam Investments LLC, Putnam Investment Management LLC, Putnam Investor Services Inc., the Putnam benefits investment committee and the Putnam benefits oversight committee.

Under the terms of the proposed settlement, Putnam will pay a gross settlement of $12.5 million into a common fund for the benefit of settlement class, which numbers at approximately 6,000.

“This is a significant monetary recovery for the class and falls well within the range of court-approved settlements in similar ERISA cases,” the agreement posits. “Moreover, the settlement also provides for prospective relief.”

Among other things, the agreement stipulates that the defendants will maintain an investment policy statement for the plan, and the Putnam benefits investment committee, dubbed the “PBIC,” “will now independently review the at-issue Putnam funds in the plan.”

“Defendants will maintain a charter for the PBIC that outlines the duties and fiduciary responsibilities of the PBIC and establishes its general quarterly meeting schedule,” the agreement stipulates. “Defendants will maintain an investment policy statement for the plan; defendants will maintain a suite of low-cost third-party passive collective investment trust (CIT) options in the plan; PBIC will meet no less than quarterly, and such meetings shall include two meetings a year to review Putnam options in the plan, with Putnam senior investment representation attending to review the funds; one meeting a year to review the third-party passive CIT options in the plan with representatives of the third party CIT provider(s); one meeting a year to review the plan’s qualified default investment alternatives [QDIAs]; and one meeting a year to review PanAgora options in the Plan with PanAgora representatives; and defendants will arrange annual training on ERISA fiduciary duties for plan fiduciaries.”

According to the agreement, these changes are intended to address the allegedly defective procedures that plaintiffs identified regarding defendants’ process for managing the plan’s investment lineup and remedy specific conduct cited by the court in connection with the partial trial of this matter.

The settlement agreement further points out that the general structure of the settlement is similar to one approved by the same court in another ERISA case involving alleged self-dealing within proprietary funds, known as Price v. Eaton Vance Corp.

Like many ERISA lawsuits, Brotherston v. Putnam has a complex and lengthy procedural history. Underlying the entire care are the original allegations that Putnam engaged in self-dealing to promote the firm’s mutual fund business and maximize profits at the expense of the plan and its participants. The defendants were also accused of allowing excessive fees as a result of a lack of monitoring and replacing investments.

Back in 2017, the district court found that Putnam followed a prudent process for selecting and monitoring funds in its retirement plan and that participants’ comparison of Putnam mutual funds’ average fees to Vanguard passively managed index funds’ average fees was flawed. However, the 1st U.S. Circuit Court of Appeals vacated the District Court’s judgment in part and remanded the case for further proceedings, leading to the current settlement agreement.