Supreme Court Weighs Benchmark Rule For 401(k) Lawsuits

The Supreme Court heard arguments Oct. 6 in Anderson v. Intel Corp. Investment Policy Committee, a case that could determine what retirement-plan investors must show before suing over poor returns. The justices are considering whether plaintiffs must identify an alternative investment with similar risks, goals and expected returns.

The decision could affect lawsuits against 401(k) plan sponsors and investment advisers under the Employee Retirement Income Security Act. It may also clarify how courts review claims that plan fiduciaries selected or managed investments improperly.

The case was brought in 2019 by former Intel employee Winston Anderson against trustees of the company’s retirement plan. Anderson alleges that the trustees breached their fiduciary duties after the 2008 financial crisis by changing some investment options and adding hedge funds and private-equity funds.

Anderson later cited S&P 500 index funds and funds associated with Morningstar as comparisons for the Intel investments. A federal district court in California dismissed the claims, ruling that the plaintiffs had not provided a “meaningful benchmark.” The Ninth Circuit Court of Appeals upheld the decision.

The Supreme Court is considering how closely a benchmark must match the investment under review. The plaintiffs have asked the justices to reject the “meaningful benchmark” standard used by several federal appeals courts. The justices also examined whether a benchmark must be nearly identical to the disputed fund or may be based on similar investment goals and risk levels.

Justice Elena Kagan suggested that courts could require a benchmark to be “meaningfully similar” without requiring identical investments. Justice Amy Coney Barrett questioned whether requiring similar aims and strategies might lead lower courts to demand an exact equivalent for each investment.

Will Delany, a principal at Groom Law Group who specializes in ERISA law, described the issue as a comparison between investments with similar risk and return characteristics. Plaintiffs, he said, must provide more than an example of another fund that performed better.

Investment choices are often made for their performance across different market conditions, Delany said. Comparing a fund solely with a better-performing investment may fail to account for differences in risks and expected returns.

“The metaphor we hear a lot is: It needs to be apples to apples. But does it need to be the same species of apple or not?” Delany said.

Jordan Bock, an appellate lawyer at Goodwin Procter who wrote an amicus brief for the U.S. Chamber of Commerce, described the case as one that could affect how courts review investment selections. It could also influence how plan sponsors assess their exposure to fiduciary-duty lawsuits, he said.

Bock said the Supreme Court could issue a narrow ruling without defining precisely what qualifies as a meaningful benchmark. Such a decision could leave lower courts to continue developing the standard.

The case initially raised questions about whether hedge funds and private-equity funds belong in 401(k) plans. Delany and Bock do not expect the Supreme Court to decide that issue. Courts have generally held that no investment category is automatically imprudent under ERISA.

Under that approach, a plaintiff challenging an alternative investment for underperformance may need to compare it with another investment that has similar objectives. A conservative stable-value fund, for example, may not be an appropriate benchmark for a hedge fund.

The Department of Labor proposed a rule in March that would provide legal protections for plan sponsors recommending alternative investments for 401(k) and similar accounts. The Supreme Court’s decision in the Intel case is expected in 2027.