RECOMMENDED FOR FULL-TEXT PUBLICATION
                             Pursuant to Sixth Circuit Rule 206
                                     File Name: 12a0048p.06

                UNITED STATES COURT OF APPEALS
                                 FOR THE SIXTH CIRCUIT
                                   _________________


 RAYMOND M. PFEIL and MICHAEL KAMMER, X
                                                     -
                                                     -
 Individually and on behalf of all others
 similarly situated,                                 -
                            Plaintiffs-Appellants, -
                                                         No. 10-2302

                                                     ,
                                                      >
                                                     -
                                                     -
             v.
                                                     -
                                                     -
 STATE STREET BANK AND TRUST COMPANY,
                             Defendant-Appellee. -
                                                    N
                      Appeal from the United States District Court
                     for the Eastern District of Michigan at Detroit.
                  No. 09-12229—Denise Page Hood, District Judge.
                                  Argued: October 7, 2011
                          Decided and Filed: February 22, 2012
   Before: MARTIN and GRIFFIN, Circuit Judges; ANDERSON, District Judge.*

                                    _________________

                                          COUNSEL
ARGUED: Geoffrey M. Johnson, SCOTT & SCOTT, LLP, Cleveland Heights, Ohio,
for Appellants. Wilber H. Boies, McDERMOTT WILL & EMERY LLP, Chicago,
Illinois, for Appellee. ON BRIEF: Geoffrey M. Johnson, SCOTT & SCOTT, LLP,
Cleveland Heights, Ohio, for Appellants. Wilber H. Boies, Nancy G. Ross,
McDERMOTT WILL & EMERY LLP, Chicago, Illinois, Chris C. Scheithauer,
McDERMOTT WILL & EMERY LLP, Irvine, California, James D. VandeWyngearde,
PEPPER HAMILTON LLP, Southfield, Michigan, for Appellee. Elizabeth S. Goldberg,
UNITED STATES DEPARTMENT OF LABOR, Washington, D.C., Kent A. Mason,
DAVIS & HARMAN LLP, Washington, D.C., for Amici Curiae.




        *
        The Honorable S. Thomas Anderson, United States District Judge for the Western District of
Tennessee, sitting by designation.


                                                1
No. 10-2302        Pfeil, et al. v. State Street Bank and Trust Co.                 Page 2


                                  _________________

                                       OPINION
                                  _________________

       S. THOMAS ANDERSON, District Judge. Raymond M. Pfeil and Michael
Kammer, individually and on behalf of others similarly situated, allege that State Street
Bank and Trust breached its fiduciary duty under the Employee Retirement Income
Security Act (“ERISA”). State Street was the fiduciary for the two primary retirement
plans offered by General Motors, and the plaintiffs were plan participants. The plaintiffs
allege that State Street breached its fiduciary duty by continuing to allow participants to
invest in GM common stock, even though reliable public information indicated that GM
was headed for bankruptcy. The district court dismissed the complaint, holding that State
Street’s alleged breach of duty could not have plausibly caused losses to the plan. For
the reasons set forth below, we REVERSE the judgment of the district court and
REMAND the case for further proceedings.

                                 I. BACKGROUND

A. Factual Background

       General Motors offered separate defined contribution 401(k) profit-sharing plans
to its salaried and hourly employees. The plans maintained individual accounts for each
participant. A participant’s benefits were based on the amount of contributions and the
investment performance of the contributions. According to the complaint, the plans
offered participants several investment options, including mutual funds, non-mutual fund
investments, and the subject of this litigation: the General Motors Common Stock Fund.
Participants had control over how their funds were invested. The plans imposed no
restrictions on the participant’s allocation of assets among the investment options and
gave participants the discretion to change their allocation in any investment on any
business day. The plans invested each participant’s funds by default in the Pyramis
Strategic Balanced Fund, and not the General Motors Common Stock Fund.
No. 10-2302        Pfeil, et al. v. State Street Bank and Trust Co.                  Page 3


       The plan documents explain that the purpose of the General Motors Common
Stock Fund was “to enable Participants to acquire an ownership interest in General
Motors and is intended to be a basic design feature” of the plans. The complaint alleges
that the plans invested between $1.45 billion and $1.9 billion in plan assets in General
Motors stock during the class period. The plan documents provide that this fund “shall
be invested exclusively in [General Motors] $1-2/3 par value common stock without
regard to” diversification of assets, the risk profile of the investment, the amount of
income provided by the stock, or fluctuations in the market value of the stock. However,
the plans state that these restrictions do not apply if State Street, acting as the
independent fiduciary:

       in its discretion, using an abuse of discretion standard, determines from
       reliable public information that (A) there is a serious question concerning
       [General Motors’] short-term viability as a going concern without resort
       to bankruptcy proceedings; or (B) there is no possibility in the short-term
       of recouping any substantial proceeds from the sale of stock in
       bankruptcy proceedings.

In the event either of these conditions were met, the plan documents directed State Street
to divest the plans’ holdings in the General Motors Common Stock Fund.

       State Street became fiduciary for the plans on June 30, 2006, at a time, as the
plaintiffs allege, when General Motors was already in serious financial trouble. The
complaint alleges that General Motors’ troubles were well-documented and that
commentators increasingly opined that bankruptcy protection was “virtually a certainty”
for the company. On July 15, 2008, GM Chief Executive Officer Rick Wagner
announced that the company needed to implement a restructuring plan to combat second
quarter 2008 losses, which he described as “significant.” As part of the plan, General
Motors eliminated its dividend, reduced its salaried workforce by twenty percent, and
curtailed truck and large vehicle production, all signs of what plaintiff contend was a
“potential disaster for shareholders.” The complaint alleges that on August 1, 2008,
General Motors announced a third quarter net loss of $15.5 billion. These bleak reports
forced the company to acknowledge in its November 7, 2008 third-quarter financials that
it would exhaust cash reserves by mid-2009. Three days later, General Motors filed its
No. 10-2302        Pfeil, et al. v. State Street Bank and Trust Co.                 Page 4


Form 10-Q for third quarter 2008, disclosing that its auditors had “substantial doubt”
regarding the company’s “ability to continue as a going concern.” The plaintiffs allege
that under these circumstances, State Street should have recognized as early as July 15,
2008, that General Motors was bound for bankruptcy and that GM stock was no longer
a prudent investment for the plans.

       On November 21, 2008, State Street informed participants that it was suspending
further purchases of General Motors Common Stock Fund citing “GM’s recent earnings
announcement and related information about GM’s business.” The plaintiffs allege,
however, that State Street took no further action to divest the over fifty million shares
of General Motors stock held by plan participants at that time. On March 31, 2009, State
Street finally decided to sell off the plans’ holdings in company stock and completed the
sell-off on April 24, 2009. General Motors filed its bankruptcy petition on June 1, 2009.

B. Procedural History

       The plaintiffs filed their putative class action on June 9, 2009, alleging State
Street’s breach of fiduciary duty in violation of ERISA § 409(a), 29 U.S.C. § 1109(a).
Specifically, the complaint alleged that State Street had failed to prudently manage the
plan’s assets thereby breaching its fiduciary duty defined in ERISA § 404. The named
plaintiffs brought this action on behalf of themselves and a class of individuals defined
as: “All persons who were participants in or beneficiaries of the [General Motors 401(k)
Plans] at any time between July 15, 2008 and April 24, 2009 (the ‘Class Period’) and
whose accounts included investments in General Motors Stock.”

       State Street filed a motion to dismiss the complaint for failure to state a claim,
which the district court granted on September 30, 2010. The district court held that the
plaintiffs had sufficiently pleaded a breach of State Street’s fiduciary duty by alleging
that State Street continued to operate the General Motors Common Stock Fund after
public information raised serious questions about General Motors’ short-term viability
as a going concern without resort to bankruptcy. However, the district court concluded
that the plaintiffs had not plausibly alleged that State Street’s breach proximately caused
losses to the plans. The district court emphasized that plan participants had a menu of
No. 10-2302         Pfeil, et al. v. State Street Bank and Trust Co.                    Page 5


investment options from which to choose and that participants retained control over the
allocation of assets in their accounts at all times. Because the participants could have
elected to move their funds from the General Motors Common Stock Fund to one of the
other investments offered in the plan, the court reasoned, State Street could not be liable
for losses to the plan. Therefore, the district court granted State Street’s motion to
dismiss. The plaintiffs’ timely appeal followed.

                                     II. ANALYSIS

A. Standard of Review

        We review de novo a dismissal for failure to state a claim under Rule 12(b)(6).
Ohio ex. rel. Boggs v. City of Cleveland, 

, 519 (6th Cir. 2011). A complaint
must “contain sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face” in order to survive a motion to dismiss. Ashcroft v. Iqbal, 

, 1949 (2009) (internal quotations and citations omitted); Ctr. for Bio-Ethical
Reform, Inc. v. Napolitano, 

, 369 (6th Cir. 2011). A claim is facially
plausible if the “plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” 

(citing Bell Atl. Corp. v. Twombly, 

, 556 (2007)).

B. Duty of a Fiduciary under ERISA

        “ERISA is a comprehensive statute designed to promote the interests of
employees and their beneficiaries in employee benefit plans.” Shaw v. Delta Air Lines,
Inc., 

, 90 (1983). ERISA § 404(a), 29 U.S.C. § 1104(a)(1), establishes the
fiduciary duties of trustees administering plans governed by ERISA:

        [A] fiduciary shall discharge his duties with respect to a plan solely in the
        interest of the participants and beneficiaries and –
        (A) for the exclusive purpose of:
                (i) providing benefits to participants and their beneficiaries; and
                (ii) defraying reasonable expenses of administering the plan;
No. 10-2302          Pfeil, et al. v. State Street Bank and Trust Co.               Page 6


       (B) 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 in the conduct of an enterprise of a like
       character and with like aims;
       (C) by diversifying the investments of the plan so as to minimize the risk
       of large losses, unless under the circumstances it is clearly prudent not
       to do so; and
       (D) in accordance with the documents and instruments governing the
       plan.

“We have explained that the fiduciary duties enumerated in [the statute] have three
components.” Gregg v. Transp. Workers of Am. Int’l, 

, 840 (6th Cir. 2003).
First, a fiduciary owes a duty of loyalty “pursuant to which all decisions regarding an
ERISA plan must be made with an eye single to the interests of the participants and
beneficiaries.” 

v. Iovenko, 

, 1458 (6th Cir. 1995)
(internal quotations marks omitted)). Second, ERISA imposes “an unwavering duty to
act both as a prudent person would act in a similar situation and with single-minded
devotion to [the] plan participants and beneficiaries.” 

marks and
citation omitted). Third, ERISA fiduciaries must act for the exclusive purpose of
providing benefits to plan participants and beneficiaries. 

charged to
an ERISA fiduciary are the highest known to the law.” Chao v. Hall Holding Co., Inc.,

, 426 (6th Cir. 2002) (citation and internal quotation marks omitted).
ERISA holds a fiduciary who breaches any of these duties personally liable for any
losses to the plan that result from its breach of duty. 

(citing 29
U.S.C. § 1109(a)).

       It is undisputed in this case that the plans at issue are a specific kind of ERISA
plan known as Employee Stock Ownership Plans (“ESOPs”). ERISA authorizes certain
kinds of eligible individual account plans (“EIAP”) including ESOPs. 29 U.S.C.
§ 1107(d). An ESOP is an ERISA plan investing primarily in “qualifying employer
securities,” which is most commonly the stock of the employer creating the plan.
29 U.S.C. § 1107(d)(6)(A). An ESOP promotes a policy of employee ownership of a
company by modifying the fiduciary duty to diversify plan investments, 29 U.S.C.
No. 10-2302        Pfeil, et al. v. State Street Bank and Trust Co.                    Page 7


§ 1104 (a)(1)(C), and the prudence requirement to the extent that it requires
diversification, 29 U.S.C. §§ 1104 (a)(1)(B); 1104 (a)(2). “[A]s a general rule, ESOP
fiduciaries cannot be held liable for failing to diversify investments, regardless of
whether diversification would be prudent under the terms of an ordinary non-ESOP
pension plan.” 

.

       However, an ESOP fiduciary may be liable for failing to diversify plan assets
even where the plan required that an ESOP invest primarily in company stock. 

We have explained that ERISA’s statutory exemptions for ESOPs

       do[ ] not relieve a fiduciary . . . from the general fiduciary responsibility
       provisions of [§ 1104] which, among other things, require a fiduciary to
       discharge his duties respecting the plan solely in the interests of plan
       participants and beneficiaries and in a prudent fashion . . . nor does it
       affect the requirement . . . that a plan must be operated for the exclusive
       benefit of employees and their beneficiaries.

(citations omitted).

       ESOP fiduciaries “wear two hats” as they “are expected to administer ESOP
investments consistent with the provisions of both a specific employee benefits plan and
ERISA.” 

v. Robertson, 

, 569 (3d Cir. 1995) (internal
quotation marks omitted)). Put another way, an ESOP fiduciary must follow the plan
documents but only insofar as such documents and instruments are consistent with the
provisions of ERISA. 

In recognition of an ESOP fiduciary’s “two hats,” we
have adopted an abuse-of-discretion standard of review for an ESOP fiduciary’s decision
to invest in employer securities. 

A fiduciary’s decision to remain invested
in employer securities is presumed to be reasonable, the so-called Kuper or Moench
presumption. 

may rebut the presumption “by showing that a prudent
fiduciary acting under similar circumstances would have made a different investment
decision.” Id.; accord Quan v. Computer Sciences Corp., 

, 881–82 (9th
Cir. 2010); Kirschbaum v. Reliant Energy, Inc., 

, 254-56 (5th Cir. 2008).
No. 10-2302        Pfeil, et al. v. State Street Bank and Trust Co.                 Page 8


C. Whether the Kuper/Moench Presumption Applies at the Pleadings Stage

       While State Street is entitled to the Kuper/Moench presumption, we have not
addressed whether the presumption applies at the motion to dismiss stage. The Third
Circuit in Moench announced the presumption of reasonableness when considering an
evidentiary record on a motion for summary judgment. In Kuper, this Court adopted the
Moench presumption in reviewing the judgment of the district court, which was based
on the parties’ trial briefs, proposed findings of fact and conclusions of law, and the
stipulated record of the case. In this case the district court assumed the presumption
would apply at the pleadings stage and held that the plaintiffs pleaded sufficient facts to
rebut the presumption, particularly the allegations detailing General Motors’ precarious
financial situation during the class period and State Street’s decision to continue holding
GM stock as a plan asset.

       We find no error in the district court’s holding that, accepting the allegations of
the complaint as true, the plaintiffs have pleaded facts to overcome the presumption.
The plaintiffs have alleged that State Street failed to follow the terms of the plans
themselves, which required State Street to divest the plans’ holdings in company stock
if “there is a serious question concerning [General Motors’] short-term viability as a
going concern without resort to bankruptcy proceedings.” According to the complaint,
on July 15, 2008, General Motors announced a restructuring plan designed to improve
cash flow and save the company. By November 10, 2008, GM disclosed that its auditors
had “substantial doubt” regarding the company’s “ability to continue as a going
concern.” Nevertheless, State Street did not begin to divest the plan of its GM common
stock holdings until March 31, 2009. Based on these allegations, the plaintiffs have
sufficiently pleaded that “a prudent fiduciary acting under similar circumstances would
have made a different investment decision” and thereby overcome the presumption of
reasonableness.

       Because the plaintiffs have pleaded facts to overcome the presumption, we need
not decide whether the Kuper presumption creates a heightened pleading standard in
order to resolve this appeal. However, both parties have addressed this issue in their
No. 10-2302            Pfeil, et al. v. State Street Bank and Trust Co.                             Page 9


briefs and at oral argument. We also recognize that many district courts in this Circuit
have confronted the issue and reached conflicting decisions. E.g. In re Regions Morgan
Keegan ERISA Litig., 

, 849 (W.D. Tenn. 2010) (noting that “[a]t
least fourteen district courts in this Circuit have addressed this issue . . .” and have
“overwhelmingly declined to apply the presumption of prudence” when considering a
motion to dismiss); Dudenhoeffer v. Fifth Third Bancorp, 757 F. Supp 2d 753, 758-59
(S.D. Ohio 2010) (holding that the presumption applied at the pleadings stage in light
of Twombly and Iqbal). Therefore, we take this opportunity to address whether a
plaintiff must plead enough facts to overcome the Kuper presumption in order to survive
a motion to dismiss.

         Today, we hold that the presumption of reasonableness adopted in Kuper is not
an additional pleading requirement and thus does not apply at the motion to dismiss
stage. Our holding derives from the plain language of Kuper itself where we explained
that an ESOP plaintiff could “rebut this presumption of reasonableness by showing that
a prudent fiduciary acting under similar circumstances would have made a different
investment decision.” 

(emphasis added). The presumption of
reasonableness in Kuper was cast as an evidentiary presumption, and not a pleading
requirement. Cf. In re Citigroup ERISA Litig., 

, 129 (2d Cir. 2011) (“The
‘presumption’ is not an evidentiary presumption; it is a standard of review applied to a
decision made by an ERISA fiduciary.”). We also highlight that in Kuper we applied
the presumption to a fully developed evidentiary record, and not merely the pleadings.
As such, a plaintiff need not plead enough facts to overcome the presumption in order
to survive a motion to dismiss.1 Cf. Swierkiewicz v. Sorema N.A., 

, 510
(2002) (holding that a plaintiff was not required to plead all of the prima facie elements



         1
           We also note that many district courts in this Circuit have reached a similar conclusion. See e.g.
Sims v. First Horizon Nat’l Corp., No. 08-2293, 

, at *24 (W.D. Tenn. Sept. 30, 2009);
In re Diebold ERISA Litig., No. 06-cv-170, 

, at * 9 (N.D. Ohio May 28, 2008); In re
Goodyear Tire & Rubber Co. ERISA Litig., 

, 793 (N.D. Ohio 2006); In re Ferro Corp.
ERISA Litig., 

, 860 (N.D. Ohio 2006); In re CMS Energy ERISA Litig., 

898, 914 (E.D. Mich. 2004); Rankin v. Rots, 

, 866 (E.D. Mich. 2003); see also
Tullis v. UMB Bank, N.A., 

, 681 (6th Cir. 2008) (rejecting heightened pleading requirements
in ERISA cases that “would elevate form over substance”).
No. 10-2302        Pfeil, et al. v. State Street Bank and Trust Co.               Page 10


of the McDonnell Douglas evidentiary framework in order to survive a motion to
dismiss).

       Our holding is consistent with the standard of review for motions to dismiss
generally. Courts are required to accept the well-pleaded factual allegations of a
complaint as true and determine whether those allegations state a plausible claim for
relief. 

. It follows that courts should not make factual
determinations of their own or weigh evidence when considering a motion to dismiss.
Precisely because the presumption of reasonableness is an evidentiary standard and
concerns questions of fact, applying the presumption at the pleadings stage, and
determining whether it was sufficiently rebutted, would be inconsistent with the Rule
12(b)(6) standard. Otherwise, courts would be forced to weigh the facts pleaded against
their notion of the presumption and then determine whether the pleadings plausibly
overcame the presumption of fiduciary reasonableness.

       For example, State Street contends that the district court erred in concluding that
the facts alleged in the complaint were sufficient to rebut the presumption. Specifically,
State Street argues that there was a widely publicized expectation of government
intervention on GM’s behalf, and therefore, it was not unreasonable for the plans to
continue to hold GM stock during the class period. State Street also asserts that holding
GM stock continued to be reasonable until the White House “with all of its resources and
expertise” determined on March 31, 2009, that GM’s “viability as a going concern was
in serious doubt.” Appellee’s Br. 42. State Street maintains that no amount of discovery
will change these asserted facts. The possibility of federal intervention and its effect on
the reasonableness of holding company stock, however, present questions of fact
inappropriate for resolution on a motion to dismiss. State Street’s argument about a
possible bailout does nothing to establish that the numerous, detailed factual averments
in the complaint fail to plausibly allege that General Motors was on the road to
bankruptcy and thus had ceased to be a prudent investment for the plans. Short of
converting the motion to dismiss into a motion for summary judgment, such an approach
also invites courts to consider facts and evidence that have not been tested in formal
No. 10-2302            Pfeil, et al. v. State Street Bank and Trust Co.                         Page 11


discovery.2 Therefore, it would be improper for a court to weigh these factual assertions
against the facts pleaded in the plaintiffs’ complaint in order to determine whether the
plaintiffs had overcome the presumption of reasonableness.

         Finally, we recognize that sister circuits have reached the opposite conclusion
and held that the Kuper presumption should be considered at the pleadings stage. State
Street cites this authority in support of its assertion that the plaintiffs must plead facts
to overcome the presumption in order to state a plausible claim. We find these decisions
distinguishable because these circuits have adopted more narrowly-defined tests for
rebutting the presumption than the test this Court announced in Kuper. For instance, the
Third Circuit in Edgar v. Avaya affirmed the dismissal of a complaint, holding that the
pleadings failed to allege facts demonstrating that the fiduciary abused its discretion by
not divesting the plans of their holdings in company stock. 

, 348-49 (3d
Cir. 2007). Concerning the kinds of facts required to overcome the presumption of
reasonableness, the Third Circuit explained that a plaintiff need not necessarily prove
that a company is “on the brink of bankruptcy” but must demonstrate more than possible
fraud or corporate wrongdoing in order to rebut the presumption. 

n.13. The
Third Circuit declined to find that corporate developments likely to have a negative
effect on earnings, “or the corresponding drop in stock price [from $10.69 to $8.01],
created the type of dire situation which would require defendants to disobey the terms
of the Plans by not offering the Avaya Stock Fund as an investment option, or by
divesting the Plans of Avaya securities.” 

The Third Circuit expressly
rejected the plaintiff’s contention that application of the presumption at the motion to
dismiss stage was inconsistent with liberal notice-pleading standards. 

. The
Third Circuit held that the allegations themselves affirmatively showed that the company
was far from the sort of deteriorating financial circumstances that would permit the


         2
           Of course, even on a motion to dismiss, courts retain the discretion to take judicial notice of
certain adjudicative facts under Federal Rule of Evidence 201. See Fed. R. Evid. 201(c) & (f) (“Judicial
notice may be taken at any stage of the proceeding.”). Likewise, courts may consider written instruments
incorporated into the pleadings by reference pursuant to Rule 10(c). Nothing in our holding limits the
courts’ discretion to employ these Rules to consider uncontested facts or exhibits at the pleadings stage.
We simply conclude that applying the presumption of reasonableness to the pleadings is likely to force
courts to weigh factual assertions and run afoul of the standard of review for motions to dismiss.
No. 10-2302        Pfeil, et al. v. State Street Bank and Trust Co.               Page 12


presumption to be rebutted, commenting that “‘[m]ere stock fluctuations, even those that
trend downward significantly, [were] insufficient to establish the requisite imprudence
to rebut the Moench presumption.’” 

v. Oregon Metallurgical Corp.,

, 1099 (9th Cir. 2004)) (alterations in original).

       The Second Circuit recently reached a similar conclusion that courts should
apply the presumption of reasonableness when analyzing the plausibility of the pleadings
on a motion to dismiss. In re Citigroup ERISA 

–41. The plaintiffs
in Citigroup alleged that the bank had made “ill-advised investments in the subprime-
mortgage market while hiding the extent of those investments from Plan participants and
the public.” 

As a result of the investments, the company suffered $30 billion
in losses, and Citigroup stock lost significant value. 

Circuit explained
that in order to rebut the presumption of reasonableness, plaintiffs might not necessarily
have to plead the company’s “impending collapse” but must allege a “dire situation.”

The Second Circuit affirmed the district court’s dismissal of the prudence
claim under Rule 12(b)(6), holding that “plaintiffs fail to allege facts sufficient to show
that defendants either knew or should have known that Citigroup was in the sort of dire
situation that required them to override Plan terms in order to limit participants’
investments in Citigroup stock.” 

The Second Circuit stressed that even had
the fiduciary investigated Citigroup’s exposure to the sub-prime mortgage market, the
company’s losses and “the dire situation” in which it found itself during the class period
were not foreseeable. 

that in addition to the Second and Third Circuits, the Fifth and Ninth
Circuits have also adopted a rebuttal standard in cases involving the presumption of
reasonableness, in which plaintiffs are required to come forward with some proof of
“dire circumstances” or the “impending collapse” of the company. 

(holding that a plaintiff must prove facts that “clearly implicate the company’s
viability as an ongoing concern or show a precipitous decline in the employer’s stock
combined with evidence that the company is on the brink of collapse or is undergoing
serious mismanagement”) (internal quotations marks, citations, and ellipsis omitted);
No. 10-2302        Pfeil, et al. v. State Street Bank and Trust Co.               Page 13

(affirming summary judgment in fiduciary’s favor in
absence of evidence that company’s “viability as a going concern was ever threatened”
or that the company’s stock “was in danger of becoming essentially worthless”). The
Fifth and Ninth Circuits have also commented that the strength of the presumption
depends on other factors such as the amount of discretion given to the fiduciary under
the terms of the plan and any conflicts of interest the fiduciary may have. 

(“A guiding principle, however, is that the burden to rebut the presumption
varies directly with the strength of a plan’s requirement that fiduciaries invest in
employer stock.”) (citing 

& n. 9). Unlike the Second and
Third Circuits, however, the Fifth and Ninth Circuits have not addressed whether a
plaintiff must plead enough facts to rebut the presumption of reasonableness to survive
a motion to dismiss.

       In contrast to our sister circuits, we have not adopted a specific rebuttal standard
that requires proof that the company faced a “dire situation,” something short of “the
brink of bankruptcy” or an “impending collapse.” The rebuttal standard adopted in this
Circuit, and the one which we are bound to follow, requires a plaintiff to prove that “a
prudent fiduciary acting under similar circumstances would have made a different
investment decision.” 

. This formulation establishes an abuse
of discretion standard, much like the one set out in the plan documents at issue here, and
forces plaintiffs in cases of this type to carry a demanding burden. At the same time, this
standard retains enough flexibility to address the unique circumstances that might give
rise to a breach-of-duty claim against an ESOP fiduciary, whether the company is one
with small capitalization or a corporation “too big to fail.” We recognize that ESOP
plaintiffs, having had an opportunity to conduct formal discovery, may come forward
with rebuttal proofs of many kinds, depending on the facts of each case. Because
Kuper’s standard for rebutting the presumption is not as narrowly defined to require
proof of a “dire situation” or an “impending collapse,” we find it inappropriate to apply
it to the pleadings on a motion to dismiss, making the contrary decisions of other circuits
distinguishable.
No. 10-2302         Pfeil, et al. v. State Street Bank and Trust Co.               Page 14


        Even if we applied the Kuper standard to the pleadings in this case, we conclude
that the plaintiffs have plausibly alleged that a prudent fiduciary acting under similar
circumstances would have made a different investment decision with respect to GM
stock. In fact, we agree with the district court that the plaintiffs in this case have
plausibly alleged that General Motors was on the brink of bankruptcy, under
circumstances that would more than satisfy the “dire situation” standard of the Second,
Third, Fifth and Ninth Circuits and arguably rise to the level of the “impending collapse”
of the company.

        In sum, we conclude that the better course is to permit the lower courts to
consider the presumption in the context of a fuller evidentiary record rather than just the
pleadings and their exhibits. Therefore, we hold that while a complaint must plead facts
to plausibly allege that a fiduciary has breached its duty to the plan, the pleadings need
not overcome the presumption of reasonableness in order to survive a motion to dismiss.

D. Whether the Plaintiffs Adequately Pleaded that State Street Proximately
Caused Their Losses
        The district court granted State Street’s motion to dismiss based on its conclusion
that the plaintiffs had failed to plausibly plead a causal connection between State Street’s
alleged breach of duty and losses to the plan. The district court concluded that because
plan participants could direct their investments by choosing from a menu of investment
options and had the discretion to avoid GM stock altogether, State Street should not be
held liable for the plaintiffs’ decisions to stay invested in the General Motors Common
Stock Fund. In other words, “State Street cannot be held liable for actions which
Plaintiffs controlled.” We disagree.

        While it is true that the plaintiffs must eventually prove causation to prevail on
their claims, see 

, the plaintiffs have plausibly pleaded causation
to survive State Street’s motion to dismiss. In order to establish a causal connection
between State Street’s alleged breach of duty and losses to the plan, the plaintiffs need
only show “a causal link between the [breach of duty] and the harm suffered by the
plan,” meaning “that an adequate investigation would have revealed to a reasonable
No. 10-2302            Pfeil, et al. v. State Street Bank and Trust Co.                         Page 15


fiduciary that the investment [in GM stock] was improvident.” 

(internal
quotations and citations omitted). The plaintiffs allege that State Street allowed the
plans to continue to hold GM stock well after it became imprudent to do so and thereby
breached its duty to the plan. See Compl. ¶¶ 7-10, 71-72. According to the pleadings,
GM stock ceased to be a prudent investment on July 15, 2008, the date on which GM
announced its restructuring plan in response to its “significant” second quarter losses.
State Street did not make the decision to divest the plans of their GM stock holdings
until March 31, 2009. The plaintiffs allege that the plan suffered hundreds of millions
of dollars in losses as a result of State Street’s delay.3 Based on these allegations, the
complaint has sufficiently pleaded a causal link between State Street’s breach and losses
to the plans.

         The district court erroneously relied on the fact that the plaintiffs had the ability
to divest their 401(k) accounts of the GM stock on any given business day and held that
State Street’s alleged breach did not cause the losses to the plan. We hold that as a
fiduciary, State Street was obligated to exercise prudence when designating and
monitoring the menu of different investment options that would be offered to plan
participants. See Howell v. Motorola, Inc., 

, 567 (7th Cir.), cert. denied sub
nom. Lingis v. Dorazil, 

(2011); DiFelice v. U.S. Airways, Inc., 

, 418 n.3 (4th Cir. 2007); Langbecker v. Elec. Data. Sys. Corp., 

, 312
(5th Cir. 2007). As the Seventh Circuit explained, “[t]he choice of which investments
will be presented in the menu that the plan sponsor adopts is not within the participant’s
power. It is instead a core decision relating to the administration of the plan and the
benefits that will be offered to participants.” 

. Therefore, “[i]t
is . . . the fiduciary’s responsibility . . . to screen investment alternatives and to ensure
that imprudent options are not offered to plan participants.” Id.; see also Hecker v.
Deere & Co., 

, 711 (7th Cir. 2009) (rejecting the notion that a fiduciary

         3
           The plaintiffs need not ultimately prove that July 15, 2008 was the actual date on which it was
no longer reasonable to continue holding GM stock, only that the “imprudent date” for GM stock occurred
prior to March 31, 2009. The plaintiffs have alleged, for example, that in November 2008 GM’s own
auditors reported “substantial doubt” about the company’s “ability to continue as a going concern.”
Regardless of whether the actual “imprudent date” was in July 2008 or November 2008, the date is more
relevant to the amount of losses to the plan, and not the issue of causation.
No. 10-2302         Pfeil, et al. v. State Street Bank and Trust Co.               Page 16


“can insulate itself from liability by the simple expedient of including a very large
number of investment alternatives in its portfolio and then shifting to the participants the
responsibility for choosing among them”); accord Braden v. Wal-Mart Stores, Inc.,

, 596 (8th Cir. 2009) (holding that allegations that better investment options
existed were sufficient to state a claim for breach of fiduciary duty).

        Here State Street had a fiduciary duty to select and maintain only prudent
investment options in the plans. Indeed, State Street’s engagement letter with GM
vested State Street with the “exclusive authority under each Plan and Trust to determine
whether the Company Stock Fund continue[d] to be a prudent investment option under
[ERISA].” Despite State Street’s fiduciary duty to protect plan assets, the district court
focused on the fact that plan participants had the power to reallocate their funds among
a variety of options, only one of which was the General Motors Common Stock Fund.
A fiduciary cannot avoid liability for offering imprudent investments merely by
including them alongside a larger menu of prudent investment options. Much as one bad
apple spoils the bunch, the fiduciary’s designation of a single imprudent investment
offered as part of an otherwise prudent menu of investment choices amounts to a breach
of fiduciary duty, both the duty to act as a prudent person would in a similar situation
with single-minded devotion to the plan participants and beneficiaries, as well as the
duty to act for the exclusive purpose of providing benefits to plan participants and
beneficiaries. 

. Therefore, we reject the district court’s approach
because it would insulate the fiduciary from liability for selecting and monitoring the
menu of plan offerings so long as some of the investment options were prudent.

        State Street also cannot escape its duty simply by asserting at the pleadings stage
that the plaintiffs themselves caused the losses to the plans by choosing to invest in the
General Motors Common Stock Fund. Such a rule would improperly shift the duty of
prudence to monitor the menu of plan investments to plan participants. The Seventh
Circuit opined that such a standard “would place an unreasonable burden on
unsophisticated plan participants who do not have the resources to pre-screen investment
alternatives.” 

. While some plan participants undoubtedly
No. 10-2302          Pfeil, et al. v. State Street Bank and Trust Co.                 Page 17


possess greater sophistication than others in these matters, the fact remains ERISA
charges fiduciaries like State Street with “the highest duty known to the law,” 

, which includes the duty to prudently select investment options and the
duty to act in the best interests of the plans. For this reason, we reject State Street’s
argument that plan participants, who enjoyed access to all of the same publicly-available
information about GM’s woes during the class period as State Street, caused the plan
losses. Aside from being an untested assertion of fact, we disagree that plaintiff-
participants should be held to the same standard of care as an ERISA fiduciary,
particularly in a matter that pertains to plan administration. If the rule were otherwise,
a fiduciary administering any 401(k) where participants direct their own investments
could always argue that the participant’s decision to hold the imprudent investment was
an intervening cause and avoid any liability. Therefore, we conclude that the plaintiffs
have pleaded enough facts to make plausible their claim of a causal link between State
Street’s conduct and the losses to the plan.

E. Whether Section 404(c) of ERISA Shields State Street from Liability

         In ruling that the plaintiffs failed to adequately plead causation, the district court
relied in part on the safe harbor provision found in ERISA § 404(c). Specifically, it
stated that “Section 404(c) provides that a trustee of a plan is not liable for any loss
caused by any breach which results from the participant’s exercise of control over those
assets.” We hold that section 404(c) is not applicable at this stage of the case. Section
404(c) is an affirmative defense that is not appropriate for consideration on a motion to
dismiss when, as here, the plaintiffs did not raise it in the complaint.

         Section 404(c) contains an exception to the fiduciary duties otherwise imposed
on plan administrators when the plans delegate control over assets directly to plan
participants or beneficiaries. The relevant portion of the statute, 29 U.S.C. § 1104(c),
states
No. 10-2302        Pfeil, et al. v. State Street Bank and Trust Co.               Page 18


       (c) Control over assets by participant or beneficiary
       (1)(A) In the case of a pension plan which provides for individual
       accounts and permits a participant or beneficiary to exercise control over
       the assets in his account, if a participant or beneficiary exercises control
       over the assets in his account (as determined under regulations of the
       Secretary) –
       (i) such participant or beneficiary shall not be deemed to be a fiduciary
       by reason of such exercise, and
       (ii) no person who is otherwise a fiduciary shall be liable under this part
       for any loss, or by reason of any breach, which results from such
       participant’s or beneficiary’s exercise of control, except that this clause
       shall not apply in connection with such participant or beneficiary for any
       blackout period during which the ability of such participant or
       beneficiary to direct the investment of the assets in his or her account is
       suspended by a plan sponsor or fiduciary.

9 U.S.C. § 1104(c) (emphasis added).

       The following example illustrates the policy rationale for the section 404(c) safe
harbor defense. “If an individual account is self-directed, then it would make no sense
to blame the fiduciary for the participant’s decision to invest 40% of her assets in Fund
A and 60% in Fund B, rather than splitting assets somehow among four different funds,
emphasizing A rather than B, or taking any other decision.” 

.
The safe harbor then “ensures that the fiduciary will not be held responsible for decisions
over which it had no control.” 

v. Hewitt Assocs., 

, 262
(1993)).

       Nevertheless, the fact that a plan participant or beneficiary exercises control over
plan assets does not automatically trigger the section 404(c) safe harbor. The statute
specifies that participant control is determined under the Department of Labor (“DOL”)
regulations. 29 U.S.C. § 1104(c)(1)(A). The DOL has promulgated detailed regulations
about the section 404(c) defense, defining the circumstances under which a plan qualifies
as a section 404(c) plan. The regulations include over twenty-five requirements that
must be met before a fiduciary may invoke the section 404(c) defense. See 29 C.F.R.
§ 2550.404c-1. One such requirement is that participants be provided with “an
No. 10-2302             Pfeil, et al. v. State Street Bank and Trust Co.                           Page 19


explanation that the plan is intended to constitute a plan described in section 404(c) and
[the regulations].” 

is consistent with the legislative history of
ERISA, which suggests that Congress was reluctant to extend the section 404(c) safe
harbor to include stock funds. H.R. Conf. Rep. No. 93-1280, at 305, reprinted in 1974
U.S.C.C.A.N. 5038, 5086. The regulations, accordingly, include particularly stringent
protections with respect to stock funds.

        While we have not previously addressed the issue, we join other circuits in
recognizing that section 404(c) is an affirmative defense to a claim for breach of
fiduciary duty under ERISA, on which the party asserting the defense bears the burden
of proof. 

; Allison v. Bank One Denver, 

, 1238
(10th Cir. 2002); In re Unisys Sav. Plan Litig., 

, 446 (3d Cir. 1996); see

(referring to § 404(c) as a “defense”). Courts generally
cannot grant motions to dismiss on the basis of an affirmative defense unless the plaintiff
has anticipated the defense and explicitly addressed it in the pleadings.4 

. Here, the complaint says nothing of the detailed requirements that a party
must establish in order to rely on the defense. For its part, State Street did not assert or
prove that it had complied with the requirements of the regulation to qualify for the safe
harbor. The district court had no basis for assuming that the plans at issue here met the
regulatory requirements for the section 404(c) defense. Therefore, we hold that the
district court erred in relying on the section 404(c) safe harbor defense at this stage of
the proceedings.

        Moreover, even if the plans satisfied the regulations to qualify as section 404(c)
plans, we hold that the safe harbor defense does not apply under the circumstances
because it does not relieve fiduciaries of the responsibility to screen investments. The
Seventh Circuit recently held that “the selection of plan investment options and the
decision to continue offering a particular investment vehicle are acts to which fiduciary
duties attach, and that the [section 404(c)] safe harbor is not available for such acts.”


        4
            This fact is no less true even if the result is only “to delay the inevitable.” Appellee’s Br. 36
n.6.
No. 10-2302         Pfeil, et al. v. State Street Bank and Trust Co.               Page 20

; 

n.3 (holding that “although section
404(c) does limit a fiduciary’s liability for losses that occur when participants make poor
choices from a satisfactory menu of options, it does not insulate a fiduciary from liability
for assembling an imprudent menu in the first instance”).

        We find the Seventh Circuit’s reasoning persuasive. If the purpose of the safe
harbor is to relieve a fiduciary of responsibility “for decisions over which it had no
control,” 

, then it follows that the safe harbor should not shield
the fiduciary for a decision which it did control, such as the selection of plan investment
options.   See also 29 C.F.R. § 2550.404c-1(d)(2)(i) (“[I]f a plan participant or
beneficiary of an ERISA section 404(c) plan exercises independent control over assets
in his individual account in the manner described in [the regulation],” then the
fiduciaries may not be held liable for any loss or fiduciary breach “that is the direct and
necessary result of that participant’s or beneficiary’s exercise of control.” (emphasis
added)).

        This holding is also consistent both with the position taken by the Secretary of
Labor in her amicus curiae brief in this appeal and with the preamble to the regulations
implementing the safe harbor. See Final Regulation Regarding Participant Directed
Individual Account Plans (ERISA Section 404() Plans), 57 Fed. Reg. 46,906, 46,924
n.27 (Oct. 13, 1992) (explaining that “the act of designating investment alternatives . . .
in an ERISA section 404(c) plan is a fiduciary function to which the limitation on
liability provided by section 404(c) is not applicable”). We add that the Department of
Labor began a notice and comment rule-making proceeding in 2010 to revise its
regulations and “reiterate [the Department’s] long held position that relief afforded by
section 404(c) and the regulation thereunder does not extend to a fiduciary’s duty to
prudently select and monitor . . . designated investment alternatives under the plan.”
Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans,
73 Fed. Reg. 43,014, 43,018 (proposed July 23, 2008). The amended text of the 404(c)
regulation also provides that the safe harbor provision “does not serve to relieve a
fiduciary from its duty to prudently select and monitor any service provider or
No. 10-2302        Pfeil, et al. v. State Street Bank and Trust Co.                Page 21


designated investment alternative offered under the plan.” Fiduciary Requirements for
Disclosure in Participant-Directed Individual Account Plans, 75 Fed. Reg. 64,910,
64,946 (Oct. 20, 2010) (to be codified at 29 C.F.R. § 2550.404c-1(d)(2)(iv)). Although
the proposed amendment to the regulation is not binding or even owed any deference in
this case, it does provide additional, relevant support for the result we reach.

       We recognize that the Fifth Circuit took a contrary view in a split opinion
considering a class certification motion and held that a fiduciary may be able to rely on
the safe harbor defense when presented with claims that it improperly selected and
monitored plan investment choices. 

. The court explained
that
       a plan fiduciary may have violated the duties of selection and monitoring
       of a plan investment, but § 404(c) recognizes that participants are not
       helpless victims of every error. Participants have access to information
       about the Plan’s investments, pursuant to DOL regulations, and they are
       furnished with risk-diversified investment options. In some situations,
       as happened here, many of the Participants will react to the company’s
       bad news by buying more of its stock. Other Participants will . . . trade
       their way to profit no matter the calamity that befell the stock. Section
       404(c) contemplates an individual, transactional defense in these
       situations, which is another way of saying that in participant-directed
       plans, the plan sponsor cannot be a guarantor of outcomes for
       participants.

reasons state above, we disagree with this approach. But even were we were
to adopt it, State Street would only be able to raise the section 404(c) defense on an
individual basis at some later stage of the case, such as at the class certification stage,
but not on a motion to dismiss. However, we hold that section 404(c) does not provide
a defense to the selection of the menu of investment options that the plan will offer.

F. Whether the Plaintiffs are Collaterally Estopped

       State Street argues that the plaintiffs are collaterally estopped from bringing this
action because the issues raised are “virtually identical” to issues decided by the Second
Circuit in Young v. General Motors Investment Management Corp., 325 F. App’x 31 (2d
Cir. 2009). In order to establish preclusion, State Street must show
No. 10-2302        Pfeil, et al. v. State Street Bank and Trust Co.                Page 22


       (1) the precise issue raised in the present case must have been raised and
       actually litigated in the prior proceeding; (2) determination of the issue
       must have been necessary to the outcome of the prior proceeding; (3) the
       prior proceeding must have resulted in a final judgment on the merits;
       and (4) the party against whom estoppel is sought must have had a full
       and fair opportunity to litigate the issue in the prior proceeding.

Kosinski v. Comm’r, 

, 675 (6th Cir. 2008) (citation omitted)

       State Street has failed to establish the first element, that the precise issue raised
in this case was raised and actually litigated in a prior proceeding. The district court in
Young issued its decision on March 24, 2008. The plaintiffs in the case at bar allege that
State Street breached its duty at the earliest on July 15, 2008, several months after the
district court in Young granted summary judgment in favor of State Street and another
fiduciary on claims arising well before the ones at issue here. Therefore, putting aside
all the other requirements that must be established to invoke collateral estoppel, Young
could not have resolved the fiduciary breaches alleged to have occurred during the class
period in this case. Therefore, we hold that the plaintiffs are not collaterally estopped
from bringing this action.

       For the reasons set forth above, we REVERSE the judgment of the district court
and REMAND the case for further proceedings.