The Department of Labor and the American Benefits Council separately urged the U.S. Supreme Court to uphold a U.S. 9th Circuit Court of Appeals ruling in favor of Intel Corp., arguing that retirement plan fiduciaries should not face litigation under ERISA based solely on an investment fund’s underperformance.
The DOL’s amicus brief, filed Friday in Anderson v. Intel Corp. Investment Policy Committee, and the employer group’s amicus brief, filed Thursday, both argue that plaintiffs alleging imprudent investment decisions must identify a “meaningful benchmark” against which a fund’s performance can be measured. Even then, the briefs argued that poor historical performance alone should not permit an inference that plan fiduciaries violated the Employee Retirement Income Security Act’s duty of prudence, because the statute focuses on the fiduciary’s decisionmaking process rather than investment results.
“[T]o support a plausible inference that a fund’s relative underperformance reflected a fiduciary’s breach of the duty of prudence, a plaintiff must measure the fund’s performance against a meaningful benchmark—a fund that shares sufficient characteristics to provide a basis for comparison,” the DOL officials argued in their brief.
The arguments somewhat mirrored Intel’s own defense filed in the court earlier this week.
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The ERISA Industry Committee, U.S. Chamber of Commerce American Retirement Association Business Roundtable, Committee on Investment of Employee Benefit Assets, Securities Industry and Financial Markets Association, Stable Value Investment Association joined in filing a separate brief that also sided with Intel.
Meanwhile, AARP; Phyllis Borzi, a former head of the Employee Benefits Security Administration; and Ali Khawar, a former principal deputy assistant secretary of EBSA, also filed briefs, supporting the plaintiffs by arguing against the 9th Circuit’s decision.
“The 9th Circuit’s ‘meaningful benchmark’ standard cannot be squared with this Court’s repeated rejection of special rules of pleading and prudence in ERISA cases, or the Court’s holdings with respect to the notice pleading standard of Rule 8(a)(2),” they argued in their brief.
The council warned that placing too much legal weight on historical returns would pressure retirement plan fiduciaries to “buy high and sell low” by chasing top-performing funds, ultimately harming retirement savers. The group also argued that such a rule would encourage a new wave of class actions against employer-sponsored retirement plans, increasing litigation costs while providing relatively modest recoveries for plan participants.
The Supreme Court agreed earlier this year to review whether plaintiffs bringing ERISA imprudence claims based on investment underperformance must plead relative to a “meaningful benchmark” demonstrating that comparable funds with similar objectives, risks and strategies performed better. The case arises from allegations by Intel employees that plan fiduciaries imprudently retained alternative investment funds that allegedly lagged other available investments.
A U.S. district court sided with Intel by dismissing the complaint, and the 9th Circuit affirmed the dismissal. The appellate court concluded that allegations of underperformance, standing alone, did not plausibly show that fiduciaries breached their duties, because ERISA evaluates the prudence of the decisionmaking process, rather than investment outcomes.
The council argued that requiring only allegations of poor performance would effectively transform every below-average investment option into potential litigation, despite the reality that many prudent investment strategies experience periods of underperformance. Citing financial studies and prior court decisions, the briefs argued that past returns are a poor predictor of future investment performance and that fiduciaries should not be forced to abandon long-term investment strategies simply because they trail benchmarks over a limited period.
The original complaint, filed in 2015, argued that by the end of 2013, up to 36.71% of the Intel Global Diversified Fund’s assets were invested in private equity , hedge funds and commodities.
The plaintiffs argued the exposures to the riskier asset classes damaged the fund’s returns, while Intel explained in its Supreme Court brief that the investments in question were intended to limit volatility following the global financial crisis of 2008. Following the crisis, public markets experienced an historic bull run that favored funds with high public equities exposure, which Intel argued were not appropriate benchmarks for the company’s 401(k) plan.
President Donald Trump’s recent push to expand access to alternative investments in defined contribution plans led to a proposal from the Department of Labor, now in the final stages of rulemaking, that would set a fiduciary roadmap for all investment options in a defined contribution plan, including alternatives. Even staunch proponents of alts in DC plans have argued the alts cap should be around 20% of a professionally managed fund, such as a TDF or a managed account.
Trump’s executive order on access to alternative investments stipulated that alternative exposure should be limited to professionally managed funds.
The ABC brief, meanwhile, also contends that courts across the country—including the Second, Third, Sixth, Seventh, Ninth and Eleventh appellate circuits—have recognized that underperformance alone cannot sustain an ERISA fiduciary-breach claim without additional flaws in the fiduciary process.
The ABC, which represents more than 400 employers and service providers involved in employee benefit plans, urged the justices to affirm the Ninth Circuit and clarify that courts should assign “very little, if any, weight” to a fund’s past performance when assessing whether fiduciaries acted prudently under ERISA.
