Supreme Court to Consider Retirement Fund Investment Standards

Why it matters locally: The Supreme Court's decision on investment standards for retirement funds could influence the management and oversight of numerous defined-contribution plans for workers across New York, potentially affecting the financial security of their retirement savings.

WASHINGTON – The Supreme Court will hear arguments next week in *Anderson v. Intel Corp Investment Policy Committee*, a case examining the standards for claims that employers imprudently invested employee retirement funds. The specific question before the justices is whether employees alleging underperformance must present a "benchmark" to evaluate those investments. The case centers on Intel's employee retirement funds. Intel, like many employers today, offers defined-contribution plans. Under these plans, employers contribute specified amounts each year to employee investment plans. This differs from older defined-benefit plans, where employers guaranteed specific benefits upon retirement. Intel invested employee retirement funds in various options, including hedge funds and private equity. Employees filed suit, alleging that the returns from these investments indicate a breach of the fiduciary duty of prudence outlined in the Employee Retirement Income Security Act (ERISA). Lower courts dismissed these claims, stating that allegations of underperformance required a "meaningful benchmark" for assessment. Employees argue that ERISA mandates a "context-sensitive" review of fiduciary duties. They contend that the lower court's requirement for a specific benchmark contradicts the Federal Rules of Civil Procedure, which allow for a plausible inference of imprudence based on overall allegations. Employees state that Intel's significant investment in non-traditional assets, combined with relatively low returns, meets this standard. Intel's fiduciaries counter that the duty of prudence concerns the investment *process*, not the *performance*. They assert that comparing Intel's funds to better-performing alternatives does not establish imprudence unless those alternative funds shared similar investment goals. For example, they argue that a fund designed to minimize volatility, a prudent goal, might perform differently than a more aggressive fund during a market upswing. Therefore, they contend, a complaint for underperformance requires showing that Intel's funds performed worse than other funds with similar risk-mitigation objectives. Intel's fiduciaries argue the current complaint lacks such allegations and was correctly dismissed by lower courts.