A lawsuit filed in 2019 by a former Intel employee has reached the US Supreme Court. The case could decide how easily workers can challenge the way their employers invest 401(k) money, including in hedge funds and private equity.
The justices heard arguments in Anderson v. Intel Corp. Investment Policy Committee on Tuesday, Oct. 6, according to CNBC. Several appeared receptive to Intel’s side.
What the case is, and is not, about
The plaintiff says the fiduciaries who ran Intel’s retirement plan breached their duty. He points in part to the plan’s investments in hedge funds and private equity, which he says underperformed, according to CNBC.
Lower courts rejected the claims. They ruled that poor returns alone are not enough. A plaintiff must also point to a “meaningful benchmark” that lets a court judge whether the investments did badly, CNBC reported.
The case does not ask whether hedge funds and private equity may sit in a 401(k) next to stocks and bonds. CNBC says the narrower question is whether a worker alleging underperformance must identify such a benchmark. AARP’s legal advocacy arm describes the case the same way: as a dispute over what workers must plead under the federal retirement law ERISA.
What the justices said
Justice Clarence Thomas leaned on a fruit comparison. As CNBC quoted him, a fund built for high but riskier returns cannot be compared with one meant to protect against losses: “you can’t compare apples and oranges.”
CNBC reports that several other justices, including some of the court’s liberal members, also raised doubts about claims built only on underperformance. A KuCoin news summary of the hearing likewise described the justices as skeptical of the lawsuit. Nobody can say yet how the court will rule, and a decision is not expected immediately.
The other side sees it differently. Better Markets, an advocacy group that backs the workers, argues that the plan managers put savings into high-risk, high-fee investments and then refused to change course despite predictable underperformance. It says those allegations should be enough to let the case go forward.
Why ordinary savers should care
For most people, a 401(k) is the main retirement account, and the menu of investments is chosen by the employer. If workers must name a specific benchmark before a case can proceed, lawsuits over poor investment choices could be harder to start. That is the central worry on the workers’ side.
Supporters of Intel’s position make a different case. If employers think any disappointing result could bring a lawsuit, they may avoid assets that behave differently from the broad stock market. A ruling for Intel could make some plan sponsors more comfortable adding alternative investments, CNBC says. It adds that the largest employers may still move slowly.
The timing matters. CNBC notes that employers are also waiting for new Labor Department rules on private investments in retirement plans. Together, a court ruling and the new rules would shape how far private funds spread into ordinary workplace plans.
Private equity and hedge funds often charge higher fees than index funds. They can also be harder to value and to sell quickly. Whether they belong in a savings plan for everyday workers is a matter of debate, and this case does not settle it. It decides who has to prove what when a worker goes to court.
What to watch
The court’s decision will set a pleading standard for ERISA claims nationwide. A narrow ruling on benchmarks would apply to many suits over fund performance, not just ones about private assets.
Savers who want to know how their own plan invests can check the plan’s fee disclosures and investment menu, which employers must provide. Any change in the legal climate would reach them only slowly, through the choices their plan sponsors make.