The U.S. Supreme Court is considering whether employees suing over the management of a 401(k) plan must identify investments with sufficiently similar risk and return profiles as a benchmark. The decision could shape the threshold for bringing claims under the Employee Retirement Income Security Act (ERISA) and affect how retirement-plan sponsors and investment advisers assess litigation risk.
The case, Anderson v. Intel Corp. Investment Policy Committee, was argued on October 6, with a ruling expected next year. The justices are weighing whether plaintiffs must show that alternative investments could have produced better results—and how closely those alternatives must resemble the funds under challenge.
Justices weigh how similar a benchmark must be
The dispute stems from changes Intel’s plan fiduciaries made to investment options in the company’s 401(k) plan. The plaintiffs alleged that, after the 2008 recession, fiduciaries added hedge funds and private-equity funds to some options in a way that departed from accepted professional investment-management practices and breached their duties under ERISA.
Winston Anderson, a former Intel employee, filed suit in 2019. He later cited an S&P 500 index fund and funds offered by asset manager Morningstar as benchmarks for assessing the Intel investments. A federal district court in California dismissed the case, finding that the plaintiffs had not provided a “meaningful benchmark.” The Ninth Circuit Court of Appeals upheld that decision.
Anderson’s lawyers argue that courts should stop applying the “meaningful benchmark” standard used by several federal appeals courts. During oral arguments, the justices examined what qualities a comparison investment must have to help determine whether investment management was imprudent.
Justice Elena Kagan suggested the court could require benchmarks to be “substantially similar,” without demanding an exact match, and set out factors for lower courts to consider. Justice Amy Coney Barrett asked whether requiring the same objectives and strategy might lead lower courts to conclude that plaintiffs must find a near-identical “twin” for the challenged fund.
Risk and return profiles are central to comparisons
Will Delaney, head of Groom Law Group’s ERISA practice, said the justices appeared to view a simple comparison with a better-performing fund as insufficient. Plaintiffs may also need to explain whether the proposed alternative has comparable risk and return characteristics.
Investment advisers typically assess how funds behave across different market cycles and conditions, Delaney said. A lawsuit based only on one fund outperforming another, without accounting for the risks taken or the investments’ return profiles, could overlook the effect of market conditions on performance.
The standard could affect how plaintiffs build investment-management cases and how plan sponsors and advisers review and document their investment options. A lower bar for acceptable benchmarks could expose plan-related parties to more lawsuits. A requirement for close similarity, by contrast, could make it harder for plaintiffs to show that an investment choice was imprudent.
Ruling could shape the scope of fiduciary claims
Jordan Bock, an appellate lawyer at Goodwin Procter in Boston, submitted an amicus brief for the U.S. Chamber of Commerce in the Intel case. He said the court’s opinion could affect how closely judges scrutinize investment choices, how plan sponsors assess their potential liability, and the litigation risk faced by investment advisers.
Bock cautioned that the court may issue a narrow ruling without defining precisely what qualifies as a “meaningful benchmark.” In recent ERISA cases, the Supreme Court has sometimes made significant changes to how the law is interpreted and, in other instances, has directed lower courts to continue applying existing approaches.
Case is unlikely to decide whether alternatives belong in 401(k) plans
Although the lawsuit initially challenged the inclusion of hedge funds and private-equity funds in Intel’s 401(k) options, neither Bock nor Delaney expects the Supreme Court to decide directly whether such alternative investments are suitable for retirement plans. In March, the Labor Department proposed a rule that would provide legal protection to plan sponsors recommending alternative investments in 401(k) and similar accounts.
Delaney said courts generally do not treat an investment category as imprudent under ERISA solely because of its type. If plaintiffs challenge an alternative investment such as a hedge fund based on poor performance, they would need a comparator with a similar objective and investment purpose. A conservative, stable-value product may not be an appropriate yardstick for a hedge fund.
The case before the court is therefore focused on how investment comparisons should be made in ERISA litigation, rather than on whether hedge funds or private equity can be included in retirement accounts. The ruling, expected next year, will clarify what evidence employees must provide about benchmark similarity to pursue these claims.