Supreme Court: 401(k) case over private funds and underperformance

A former Intel employee sued, alleging retirement-plan fiduciaries breached their duty by including hedge funds and private equity in the company’s 401(k) lineup after those investments underperformed. Lower courts dismissed the claims, holding that underperformance alone cannot establish imprudence without alleging a "meaningful benchmark" to judge performance. During oral argument in Anderson v. Intel, several justices pressed the employee’s lawyer with an apples-and-oranges analogy - asking how courts could compare riskier, return-seeking private funds to conservative options - and repeatedly suggested that a proper benchmark or process showing fiduciary imprudence is required. The Solicitor General’s office urged the court to set parameters for what constitutes a meaningful benchmark and emphasized that prudence focuses on decision-making process, not results, while the employee’s counsel urged a holistic view of strategy and outcome.

A ruling affirming Intel would reduce litigation risk for plan sponsors and likely accelerate industry efforts to offer alternative investments within 401(k) menus, though the largest employers are expected to adopt slowly because of lingering liability concerns. ERISA does not bar alternatives, and recent shifts in Labor Department guidance - oscillating between caution and proposals to ease barriers, including a subjective six-factor selection framework - have left sponsors waiting for both a Supreme Court ruling and final DOL rules. Asset managers are preparing new products, and smaller and mid-sized employers are likeliest to move first.