Supreme Court May Decide the Future of 401(k) Investment Benchmarks

Of things we consider meaningful in life — community, purpose, personal growth — benchmarks don’t usually come to mind.

But in the world of 401(k)s, meaningful benchmarks are pretty high up there. That was highlighted this week in oral arguments the US Supreme Court heard in a case known as Anderson v. Intel Corporation Investment Policy Committee. The matter arose after employees sued Intel for using a default 401(k) plan investment option that included private assets to hedge against excessive losses. Plaintiffs claimed the fund in question has lagged the S&P 500 and was an imprudent choice. The defense countered that plan administrators didn’t select it to maximize performance and that the plaintiffs’ failure to offer a meaningful benchmark should render their claims moot. 

Prior appellate rulings in this and related cases have reached conflicting conclusions about the role of “meaningful benchmarks” in the assessment of fund performance complaints of this nature. Now, the top court could settle the matter.

Intel for Dummies  

A Supreme Court decision backing Intel would mean that plaintiffs in some jurisdictions could face a bigger hurdle for claims involving investment underperformance under the Employee Retirement Income Security Act. That seems like the probable outcome based on the tenor of the majority of the justices’ questions during the Tuesday hearing, several attorneys told the Retirement Upside. But that’s far from a guaranteed outcome at this point. 

A pro-Intel ruling could spare future defendants from the substantial time and expense of discovery, though the implications for excessive-fee claims will depend on the court’s reasoning and the scope of the decision, said Bonnie Treichel, founder of Endeavor Retirement. 

“A more detailed definition of a ‘meaningful benchmark’ would provide greater certainty but could also provide a checklist for plaintiffs’ firms drafting complaints,” Treichel noted. “Remember, as well, that the DOL’s proposed investment selection rule uses ‘meaningful benchmark’ as a criterion in fund selection and review.”

Investor Protection. Regardless of who prevails in the case, one thing is sure. The oversight of retirement plans remains a serious business that involves evolving-but-exacting legal standards and significant responsibility for plan administrators. That’s as it should be, according to Dominick Freda, legal director at Better Markets, which filed briefs in the case supporting the plaintiffs. 

“American workers depend on their 401(k)s to retire with dignity,” Freda said. “There should be high standards in place protecting investors. The workers in this case claim that their plan managers gambled with their savings … and then refused to change course despite predictable underperformance. We hope the Supreme Court will agree that those allegations state a plausible ERISA claim, which is enough to let the lawsuit move forward.”