Intel 401(k) case tests benchmark standard for private fund underperformance claims

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Intel 401(k) benchmark dispute

Highlights

The Supreme Court heard Anderson v. Intel Corp. Investment Policy Committee on Oct. 6, focusing on whether underperformance claims need a meaningful benchmark.
Lower courts dismissed the fiduciary breach claims, ruling underperformance alone is insufficient without plaintiffs providing a practical benchmark for comparison.
Justices indicated support for Intel, suggesting a ruling in its favor could ease litigation fears for plan sponsors adding alternative assets to 401(k) plans.

Supreme Court review of fiduciary claims

As first reported by CNBC, the case before the U.S. Supreme Court stems from a lawsuit by a former Intel employee who alleges retirement-plan fiduciaries breached their duties by investing in hedge funds and private equity, citing in part those funds' weaker performance.

Lower courts already reject those claims, holding that underperformance by itself is not enough unless plaintiffs also show a meaningful benchmark against which a court can assess the investments. The case, Anderson v. Intel Corp. Investment Policy Committee, was argued on Tuesday, Oct. 6, and focuses on a defined contribution plan such as a 401(k).

The court is not examining whether alternative assets can be included in a 401(k) plan alongside stocks and bonds. Instead, the question is whether a retirement-plan underperformance claim must allege a meaningful benchmark in order to proceed.

Implications for retirement plan sponsors

Several justices appear receptive to Intel's position during oral arguments, suggesting the court may be wary of allowing routine investment decisions by plan sponsors to become easy targets for lawsuits.

Justice Clarence Thomas summed up that concern with a fruit comparison, saying investors cannot compare apples and oranges if one fund is designed for higher but riskier returns while another is intended to protect against losses. A ruling for Intel could make some retirement plan sponsors more comfortable adding alternative investments to 401(k) plans, although the largest employers may still move cautiously as they await new Labor Department rules on private investments in retirement plans.

In our earlier article on the fourth-quarter market outlook and shifting investment themes, we discussed why investors may look past October seasonality while staying selective amid tightening financial conditions. We also highlighted signals such as narrowing market leadership, elevated credit risks, and changing capital-market dynamics that can influence risk-taking across sectors and investment vehicles.

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