DOL Backs Intel in ‘Meaningful Benchmark’ Supreme Court Case

The Department of Labor backed Intel Corp. in its Supreme Court fight over the alleged underperformance of funds in the Intel 401(k) Savings Plan, according to a court filing.

Department officials supported Intel’s argument that it would require an “apples to apples” comparison to show that the Intel funds failed to track the returns of a “meaningful benchmark.”

“A particular fund’s underperformance relative to other investments that are not made available in the same plan does not by itself raise a plausible inference of imprudent fiduciary conduct,” the department stated in an amicus brief filed last week.

The filing in Anderson v. Intel Corp. Investment Policy Committee continues a concerted effort by the DOL to weigh in on critical ERISA cases. The department has submitted briefs in several appellate cases nationwide concerning issues ranging from pension risk transfers to forfeited funds.

The DOL also joins a chorus of briefs backing Intel, including ones by the American Benefits Council; the AARP; Phyllis Borzi, former head of the Employee Benefits Security Administration; Ali Khawar, a former principal deputy assistant secretary of EBSA; and a joint brief by 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, and Stable Value Investment Association.

For the DOL, the case may test its recently proposed alternative investments rule that is currently in final rulemaking. The DOL’s brief cited an example listed in the proposed rule that a fund should be “meaningfully similar” to the fund at issue to qualify as a “meaningful benchmark” for pleading underperformance claims.

Intel, for example, created custom benchmarks for its investment funds that included alternative asset exposure.

Case Background

The Supreme Court is set to decide whether plaintiffs alleging ERISA imprudence based on investment underperformance must compare plan investments to a “meaningful benchmark”—similar funds with comparable objectives, risks and strategies. This question stems from a lawsuit by Intel employees, who claim that plan fiduciaries mismanaged retirement funds by holding alternative investments that underperformed relative to other options.

Lower courts sided with Intel: A U.S. district court dismissed the case, and the U.S. 9th Circuit Court of Appeals affirmed. Both courts found that merely alleging underperformance was not enough to show a breach of fiduciary duty under ERISA, which focuses on the prudence of the decisionmaking process, not investment results.

The original 2015 complaint alleged that, by the end of 2013, up to 36.71% of the Intel Global Diversified Fund was invested in private equity, hedge funds and commodities—riskier asset classes the plaintiffs said dragged down returns. Intel countered that these investments were meant to reduce volatility in the wake of the 2008 financial crisis. Intel further argued that the post-crisis bull market in public equities made traditional benchmarks inappropriate for evaluating the plan’s performance.

The DOL backed Intel’s defense that the fund created a “risk-mitigation objective” that could return less than an equity-driven approach during a market rally, which ERISA permits. The trade-off to this approach, in theory, is protection from downside when markets are losing.

The Supreme Court will hear the case in its next term, which begins in October.