Worker Retirement-Plan Suits Draw US Supreme Court Scrutiny (1)

The US Supreme Court agreed to rule on the requirements for lawsuits that accuse companies of offering workers imprudent investment options in their retirement plans.

The justices said Friday they will hear an appeal from two former Intel Corp. employees over the company’s allocation of worker retirement money to hedge funds and private equity funds. A federal appeals court threw out the claims.

The clash will affect the rights of millions of Americans who participate in workplace retirement programs, including 401(k) plans. The court’s ruling will shape how vulnerable sponsoring companies are to being sued when investment options perform poorly.

At issue in the case is how courts evaluate claims of retirement plan mismanagement under the Employee Retirement Income Security Act. The so-called meaningful benchmark standard, which has been used to varying degrees by the Sixth, Seventh, Eighth, Ninth, and Tenth circuits, asks whether workers alleging fiduciary imprudence in their 401(k) plans have identified a better alternative that’s sufficiently similar to the fund or fee structure being challenged.

The US Solicitor General advised the court to address this topic in a pending petition involving Parker-Hannifin Corp.’s 401(k) plan. The solicitor voiced support for a robust pleading standard for claims of 401(k) investment underperformance that requires a “meaningful benchmark for comparison” and can’t be based on conclusory comparisons to market index composites.

The Intel workers asked the Supreme Court to either hear the Parker-Hannifin case and then resolve their lawsuit accordingly, or else take their case and reject the meaningful benchmark standard as a categorical pleading rule that’s not established or supported by ERISA.

The proposed class action stems from the 2008 financial crisis, which workers say spurred Intel’s retirement committee to move the plan toward riskier investments like hedge funds, private equity, and commodities. A federal court dismissed the bulk of the case and the US Court of Appeals for the Ninth Circuit affirmed, saying the workers didn’t allege the disputed investments underperformed other funds with similar goals.

The Ninth Circuit used the case to announce its version of the meaningful benchmark standard. Fiduciary imprudence claims based on retirement investments typically require a sound comparison to other investments if they aren’t based on allegations of a flawed fiduciary process, the appeals court said.

The Intel workers criticized this approach as “incorrect and harmful.”

The long-running dispute over Intel’s retirement plan had already made one trip to the Supreme Court, which ruled in 2020 that employers can’t shorten the window 401(k) participants have to sue over plan mismanagement by simply posting plan information online or sending disclosures in the mail.

The case is Anderson v. Intel Corporation Investment Policy Committee, 25-498.

(Updates with background on case.)

To contact the reporters on this story:
Greg Stohr in Washington at gstohr@bloomberg.net;
Jacklyn Wille in Arlington at jwille2@bloomberg.net

To contact the editors responsible for this story:
Elizabeth Wasserman at ewasserman2@bloomberg.net

Steve Stroth, Jay-Anne Casuga

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