James W. Watkins, III, J.D., CFP Emeritus^TM, AWMA®

Right on the heels of its historical decision in Cunningham v. Cornell University¹, SCOTUS is facing yet another crucial decision involving ERISA in Pizarro v. Home Depot, Inc². Just as in Cunningham, the key issue in Pizarro involves the question of which party has the burden of proof on the issue causation in an ERISA action once the plaintiff plausibly pleads its case and establishes a resulting loss.

Unlike Cunningham, the Court’s decision in Pizarro will not involve prohibited transactions and/or prohibited transaction exemptions. Therefore,it can be argued that the Court’s decision in Pizarro will have a broader, and greater, impact on future ERISA litigation.

The Supreme Court invited the Solicitor General (SG) of the United States to file an amicus brief in Pizarro. This is noteworthty, because the Court often shows great respect for the Solicitor General’s opinions, as they are generallywell-reasoned and accurately reflect the applicable law.

This is potentially more noteworthy due to the fact that the Solicitor General’s office submitted an amicus brief on the issue of shifting the burden of proof on causation to the plan sponsor in Putnam Investments v. Brotherston³. The SG’s arguments in its Brotherston amicus brief⁴ may provide an indication of the SG’s positions in the forthcoming Pizarro amicus brief, as the SG relied heavily on the Restatement of Trusts in its amicus brief. While the SG has changed, the Restatement has not.

The Court, the Restatement, and Fiduciary Law
In Tibble v. Edison International⁵, SCOTUS recognized the value of the Restatement of Trusts as a resource in cases involving fiduciary law.

An ERISA fiduciary must discharge his responsibility “with the care, skill, prudence, and diligence” that a prudent person “acting in a like capacity and familiar with such matters” would use. §1104(a)(1); We have often noted that an ERISA fiduciary’s duty is “derived from the common law of trusts.” In determining the contours of an ERISA fiduciary’s duty, courts often must look to the law of trusts. 

Which is exactly what the SG did in its amicus brief.¹ 

The “default rule” in ordinary civil litigation when a statute is silent is that “plaintiffs bear the burden of persuasion regarding the essential aspects of their claims.” Schaffer v. Weast, 546 U.S. 49, 57 (2005). But “[t]he ordinary default rule, of course, admits of exceptions.”⁶ Ibid.

One such exception applies under the law of trusts. This Court has repeatedly made clear that ERISA’s fiduciary duties are “derived from the common law of trusts.” Tibble v. Edison Int’l, 135 S. Ct. 1823, 1828 (2015) Accordingly,“[i]n determining the contours of an ERISA fiduciary’s duty, courts often must look to the law of trusts.” Tibble, 135 S. Ct. at 1828; see Varity, 516 U.S. at 497 (explaining that trust law offers “a starting point, after which courts must go on to ask whether, or to what extent, the language of the statute, its structure, or its purposes require departing from commonlaw trust requirements”⁷

Put another way, when a trustee has breached his duties and a related loss to the plan has occurred, “he has a defense to the extent that a loss would have occurred even though he had complied with the terms of the trust.” Restatement (Second) of Trusts § 212(4) (1959) (Second Restatement)^.9

b. Applying trust law’s burden-shifting framework to ERISA fiduciary-breach claims also furthers ERISA’s purposes. In trust law, burden shifting rests on the view that “as between innocent beneficiaries and a defaulting fiduciary, the latter should bear the risk of uncertainty as to the consequences of its breach of duty.”¹⁰

ERISA likewise seeks to “protect * * * the interests of participants in employee benefit plans” by imposing high standards of conduct on plan fiduciaries. 29 U.S.C. 1001(b). Indeed, in some circumstances, ERISA reflects congressional intent to provide more protections than trust law. Applying trust law’s burden-shifting framework,which can serve to deter ERISA fiduciaries from engaging in wrongful conduct, thus advances ERISA’s protective purposes.¹¹

By contrast, declining to apply trust-law’s burdenshifting framework could create significant barriers to recovery for conceded fiduciary breaches. That is especially true if the question of causation focuses on what the particular fiduciary would have done if it had not committed the breach (as distinguished from the substantive standard of prudence, which turns on what a reasonable person in like circumstances would do, see 29 U.S.C. 1104(a)). See Third Restatement § 100 cmt. e.1/ ¹²

The fiduciary is in the best position to provide information about how it would have made investment decisions in light of the objectives of the particular plan and the characteristics of plan participants. Indeed, this Court recognized in Schaffer that it is appropriate in some circumstances to shift the burden to establish “facts peculiarly within the knowledge of” one party.¹³

Going Forward
All signs suggest that Pizarro v. Home Depot should be an easy decision for SCOTUS:

Tibble > Restatement of Trusts > Section 100, comment f

Interestingly, the Second Circuit of Appeals followed the same logic in deciding Sacerdote v. NYU¹⁴, ruling that once the plaintiff/plan participant plausibly pleads a fiduciary beach and resulting loss, the burden of proof on the issue of causation shifts to the plan spsonsor, adding that once plaintiff meets its pleading requirements, there really is no issue of causation to transfer. I agree with the Second Circuit’s logic. Yet, for legal reasons, SCOTUS needs to officially establish that the burden of proof in ERISA cases shifts to the plan spsonsor once the plaintiff plausibily pleads both a fiduciary breach and a resulting loss.

Why? Because, in the majority of cases, based on forensic analysis, I believe that in the overwhelming majority ERISA cases, plan spsosors will not be able to carry that burden. From a forensics standpoint, a simple cost-benefit analysis, such as the Active Management Value Ratio (AMVR), establishes that most actively managed mutual funds are cost-inefficient, and, thus, imprudent under the fiduciary standards set out in the Restatement.

As for annuities, a simple breakeven analysis will generally establish the imprudence of most annuities. For other annuities, a simple comparison of relative costs, including spreads, will disqualify most annuities from being prudent under both the fiduciary duty of prudence and loyalty.

The fiduciary duty of loyalty is breached when a fiduciary acts in a manner that benefits the plan sonsor personally, or a third party, at the expense of the annuity owner. The failure of an annuity to provide a commensurate return for the additional costs and risks associated with an annuity, necessarily results in a windfall for the annuity issuer or a third party, resulting in a fiduciary breach.

I expect SCOTUS to hear the Pizarro case early duing the next term that begins next October. In the interim, prudent plan sponsors will carefully review their plans to determine which proactive fiduciary risk management strategies are appropriate going forward.

Notes
1. Cunningham v. Cornell University, United States Supreme Court, Case No. 23-1007 (2025).
2.Pizarro v. Home Depot, Inc, United States Supreme Court, Case No. 24-620 (2026).
3.Solicitor General’s Amicus Brief in Brotherston v. Putnam Investments, LLC, https://www.justice.gov/usdoj-media/osg/media/1035476/dl?inline. (Brotherston amicus brief)
4. Brotherston amicus brief, 8.
5. Tibble v. Edison International, Inc, 135 S. Ct. 1823, 1828 (2015) (Tibble)/
6. Brotherston amicus brief, 8.
7. Brotherston amicus brief, 8.
8. Brotherston amicus brief, 9.
9. Brotherston amicus brief, 9.
10. Brotherston amicus brief,10.
11. Brotherston amicus brief, 11.
12. Brotherston amicus brief, 11.
13. Brotherston amicus brief, 11.
14. Sacerdote v. New York University, 9 F.4th 95 (2d Cir. 2019).

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