3 Takeaways From Intel Retirement Plan Leaders' ERISA Win

February 18, 2021
7 minutes

This article was originally published by Law360 on Feb. 16, 2021.

The status of alternative investments as viable options on 401(k) plan menus received a significant boost on Jan. 21, as a California federal judge granted defendants' motion to dismiss in the latest development in the closely watched Anderson v. Intel Corp. Investment Policy Committee case.1

In a strongly worded opinion, U.S. District Judge Lucy Koh of the U.S. District Court for the Northern District of California rejected claims that the defendants breached their Employee Retirement Income Security Act, or ERISA, fiduciary duties by including certain alternative assets — such as hedge funds and private equity — in Intel's defined contribution plans.

This decision marks the first time that a court has substantively addressed the question of whether a sponsor of a retirement plan can be held liable for a breach of fiduciary duty for including nontraditional investment strategies on a plan's investment lineup.

For plan sponsors who have watched the recent 401(k) litigation wave progress with no sign of relenting in recent months, this decision comes as a welcome development as it should help raise the bar for plaintiffs looking to challenge these types of plan investment options.

In addition, the court's opinion may provide a road map for changes to fiduciary decision-making processes that could limit the ability of plaintiffs to bring these types of cases with regard to any investment.


This long-running case was brought by two Intel retirement plan participants and former employees, Winston Anderson and Christopher Sulyma, who sued, on behalf of themselves and other participants, alleging that the asset allocation levels of nontraditional investments in the retirement plan's target-date funds and Intel Global Diversified Fund were too heavily weighted and therefore violated ERISA's fiduciary duties.

In particular, the plaintiffs alleged that the Intel investment committee breached its duty of prudence by adopting an asset allocation model that excessively allocated assets to hedge funds, private equity and commodities, despite the higher fees incurred by those investments and the risks associated with investing in such assets.

Following a series of procedural rulings culminating in an unanimous opinion by the U.S. Supreme Court in February 2020,2 in which the court held that plaintiffs have six years to file fiduciary breach claims under ERISA and that sponsors cannot shorten the window by simply posting plan information online or sending disclosures to participants in the mail, the case was sent back to the district court to address the merits.

Here are three takeaways:

1. Employ a diligent investment selection process that includes expressly documenting the rationale for a particular investment.

The plaintiffs' core duty of prudence claims were based on allegations that the nontraditional investments underperformed and charged significantly higher fees than "peer" and "comparable" funds.

Consequently, the court focused on the benchmarks the plaintiffs proffered and whether they were appropriate comparisons.

In ultimately rejecting the plaintiffs' allegations, the court explained how the plaintiffs failed to support their claim that these other funds were adequate benchmarks, saying "simply labeling funds as 'comparable' or 'a peer' is insufficient to establish that those funds are meaningful benchmarks against which to compare the performance of the Intel funds."

The court added that there were no other factual allegations to support a finding that the funds the plaintiffs identified provided a "meaningful benchmark" against which to evaluate the performance of the Intel funds.

As a result, the court deemed the plaintiffs' allegations regarding poor performance as insufficient to state a claim for breach of the duty of prudence.

The court applied similar logic in rejecting the allegation that other comparable funds charged lower fees, finding that the plaintiffs again failed to adequately plead factual allegations to support their claim that they provided a meaningful benchmark against which to compare the fees incurred by the Intel funds.

Benchmarking has become a common feature of the 401(k) fee litigation landscape.

But doing so is highly fact-specific, and it engenders much uncertainty. For the defendants in Intel, the court ultimately found that the benchmarks the plaintiffs identified were not adequate and suitable, rejecting the idea that all funds with similar names or in similar classes are appropriate benchmarks.

A key takeaway from the case is that plan sponsors may be able to limit the ability for plaintiffs to have a court rely on their chosen benchmarks to evaluate a prudence claim by: (1) proactively utilizing a comprehensive and diligent process to select investments, whether they are private equity, hedge funds, commodities, even environmental, social and corporate governance investments; (2) making sure that whatever selections are made are premised solely on the economic and financial considerations of the participants; and (3) fully and clearly documenting the specific rationales for whatever investments are ultimately selected.

Taking these steps proactively will not preempt the need to look at comparable investments, but it can help a plan sponsor to avoid having inappropriate funds used as benchmarks.

2. There is no obligation under ERISA to always choose the cheapest investment option.

In addition to the main prudence claim, the plaintiffs made a related excessive fees allegation.

In evaluating this argument, the court explained how on its own, the defendants' failure to select the investment with the lowest fees was not sufficient to plausibly state a claim for breach of the duty of prudence, citing the 2009 decision from the U.S. Court of Appeals for the Seventh Circuit in Hecker v. Deere & Co.,3 for the principle that "nothing in ERISA requires every fiduciary to scour the market to find and offer the cheapest possible fund (which might, of course, be plagued by other problems)."

When comparing investments, it is actually imprudent for a fiduciary to focus solely on cost.

As Judge Koh explained, funds have "different aims, different risks, and different potential rewards that cater to different investors."

In other words, as the U.S Court of Appeals for the Fifth Circuit described in May 2020, in Schweitzer v. the Investment Committee of the Phillips 66 Savings Plan, prudence requires fiduciaries to consider "the totality of the circumstances, which means fiduciaries must engage in a reasoned decision-making process for investigating the merits of each investment option and ensure that each one remains in the best interest of plan participants."4

It is important for fiduciaries to be explicit in explaining why a specific type of investment was selected and appropriate for plan participants.

The more detailed the rationale for selecting a class of investments, the harder it will be for plaintiffs to claim that an investment option with lower fees and different features should have been selected instead.

3. ERISA does not require conforming to market practice.

The plan participants also alleged that the defendants' imprudence was demonstrated because the Intel funds' allocation models "drastically departed from prevailing standards of professional asset managers," claiming that by overweighting allocations of the 401(k) plans' assets to alternative investment classes, the models deviated drastically from prevailing professional asset manager standards for typical peer balanced funds and target date funds available in the market.

The court rejected this argument, explaining how ERISA requires fiduciaries to act prudently, but it does not require that fiduciaries mimic the industry standard when making investments.

Moreover, the plaintiffs did not cite a single case to support the principle that deviating from market practice stated a claim for breach of the duty of prudence.

While the market practice at the time of making an investment selection can inform fiduciary decision making, it should not be seen as a restraint.

Instead, a fiduciary needs to ensure it adheres to a diligent process for evaluating and selecting investments that results in a determination that a particular investment is reasonably designed as part of the portfolio to further the purposes of the plan — taking into consideration the risk of loss and the opportunity for gain, or other return, associated with the investment compared to the opportunity for gain, or other return, associated with reasonably available alternatives with similar risks.

If a fiduciary takes these steps, it should not be a significant concern when that process results in choosing a less common type of investment.


Until this decision, no court had addressed the question of whether including alternative assets on a defined contribution plan menu constitutes a breach of ERISA's fiduciary standards.

While this ruling does not constitute binding authority anywhere else besides the Northern District of California, it should provide ERISA plan sponsors and fiduciaries with some measure of comfort that allegations of imprudence in violation of ERISA will be strictly construed and that conclusory allegations and unwarranted inferences will be insufficient to withstand a motion to dismiss.

Moreover, when read in conjunction with the U.S. Department of Labor's information letter last year,5 defined contribution plan sponsors should have greater comfort and understanding on how to design a private equity or alternative investment option on a plan lineup, what pitfalls to look out for when it comes to selecting and monitoring such investments and how to document the investment decision-making process.

  1. Anderson v. Intel Corp. Policy Comm. , No. 19-CV-04618-LHK, 2021 WL 229235 (N.D. Cal. Jan. 21, 2021).
  2. Intel Corp. Investment Policy Comm. v. Sulyma, 140 S. Ct. 768, 206 L.Ed.2d 103 (2020).
  3. 556 F.3d 575, 586 (7th Cir. 2009).
  4. Schweitzer v. Inv. Comm. of the Phillips 66 Sav. Plan , 960 F.3d 190, 196 (5th Cir. 2020) (internal quotations omitted).
  5. Information Letter 2020-06-03, available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/06-03-2020.