On January 21, 2021, the United States District Court for the Northern District of California granted a motion by the Intel Corporation Investment Policy Committee to dismiss all ERISA claims brought against it by two plan participants representing a class of participants. The plaintiffs alleged, among other things, that the Committee acted imprudently by including private equity, hedge funds and commodities in a custom target date investment option in Intel’s 401(k) plan. The case was Anderson v. Intel Corp. Inv. Policy Comm., Case No. 19-CV-04618-LHK. Plaintiffs alleged specifically that the alternative investments were imprudent under ERISA because (i) they caused the Intel plan target date option to underperform and have higher fees than other target date funds available in the market; (ii) including alternative investments in a 401(k) target date portfolio deviates from prevailing standards of professional asset managers; and (iii) private equity and hedge funds pose greater investor and valuation risks and lack transparency and liquidity, making them inappropriate for a 401(k) plan. Plaintiffs also alleged that the Intel Committee failed to adequately disclose to plan participants and beneficiaries the risks, fees and expenses associated with private equity and hedge funds. Finally, plaintiffs alleged that the Intel Committee had conflicts that led it to put its own interests above the interests of the plan participants and beneficiaries.
The court determined that the plaintiffs’ allegations did not support a claim that the Intel Committee’s inclusion of alternative asset classes in the plan were imprudent under ERISA. The court also did not find any merit to the plaintiff’s lack of disclosure or conflict allegations, resulting in a full dismissal of the case against the Intel Committee. In reaching its conclusions, the court determined that the plaintiffs failed to provide sufficient authority for their assertion that the level of risk, liquidity and transparency characteristic of private equity makes it imprudent for a 401(k) plan. The court also confirmed that alleged poor performance alone is not sufficient to support a claim that the decision to make an investment was imprudent. The court re-affirmed prior court rulings that nothing in ERISA requires a plan fiduciary to offer the cheapest possible fund to its plan participants. Finally, the court rejected plaintiffs’ argument that the Intel Committee was imprudent merely because the investments held in its target date fund deviated from the composition of other target date funds.
Last June, in a big breakthrough for 401(k) investments, the Department of Labor issued guidance confirming that a 401(k) plan fiduciary would not violate its duty to act prudently solely because the fiduciary selects as an investment option a target date fund with an allocation to private equity. See DOL Issues Guidance About Private Equity Investments in 401(k) Plans. Although the court did not specifically rely on the new Department of Labor guidance, its analysis tracks the Department’s approach, thereby confirming that the regulatory guidance should provide plan fiduciaries with a helpful fiduciary framework for adding non-traditional investments, such as private equity, real estate, hedge funds and commodities, to a diversified 401(k) plan investment option.