Supreme Court to Consider Benchmark Requirement in ERISA Lawsuits

WASHINGTON – The U.S. Supreme Court will hear a case that examines the legal requirements for employees suing their employers over underperforming 401(k) retirement plans. The case, *Anderson v. Intel Corporation Investment Policy Committee*, centers on what plaintiffs must allege to move their lawsuit forward in court.

More than 100 million Americans participate in employer-sponsored retirement plans, such as 401(k)s, which fall under the Employee Retirement Income Security Act (ERISA). Congress structured ERISA to encourage employers to offer these plans by aiming to limit litigation expenses.

The central question in *Anderson* involves whether a plaintiff claiming an employer's fiduciaries imprudently selected an underperforming investment must identify a "meaningful benchmark" – a comparable investment fund – in their complaint.

The case originates from Intel's retirement plans following the 2008 financial crisis. Intel's fiduciaries diversified its plans, incorporating assets like hedge funds, commodities, and private equity to reduce volatility and protect against significant losses. They informed participants that these funds prioritized loss limitation over maximizing returns, acknowledging that performance might trail stock-heavy funds during bull markets.

Plaintiffs subsequently sued, alleging the diversified funds underperformed riskier stock-heavy funds and market indexes like the S&P 500 during a prolonged period of market growth.

The U.S. Court of Appeals for the 9th Circuit ruled that when a claim relies on comparative underperformance, plaintiffs must provide a "sound basis for comparison—a meaningful benchmark." The court stated that funds with "different aims, different risks, and different potential rewards" cannot serve as valid comparisons. The 7th, 8th, and 10th Circuits have issued similar rulings. The 6th Circuit, however, has held that such a benchmark is not necessary.

ERISA's "prudent man" standard requires fiduciaries to act with the care of "a prudent man acting in a like capacity and familiar with such matters" conducting an "enterprise of a like character and with like aims." Supreme Court precedents, including *Fifth Third Bancorp v. Dudenhoeffer* (2012) and *Hughes v. Northwestern University* (2019), have addressed how this standard applies at the initial pleading stage, emphasizing the need to distinguish plausible claims from meritless ones and considering the range of reasonable judgments fiduciaries make.

Petitioners, a group of Intel plan participants, argue that the 9th Circuit's meaningful-benchmark requirement is an additional pleading standard not present in ERISA. They contend that ERISA's prudence provision focuses on a fiduciary's conduct, not on the plaintiff's ability to find a better-performing fund. They assert that under *Bell Atlantic Corp. v. Twombly* and *Ashcroft v. Iqbal*, courts should assess a complaint's allegations comprehensively, and consistent underperformance, combined with allegations about fees, strategy, and asset choices, can make a claim plausible without a benchmark. They also warn that demanding a benchmark before discovery forces plaintiffs to prove comparability when they have limited information.

Intel's fiduciaries counter that the benchmark requirement applies existing pleading standards. They note that ERISA itself uses comparative terms, such as "like capacity" and "like aims." They argue that a performance gap between dissimilar funds does not imply a flawed process because funds with different objectives and risk tolerances are expected to perform differently. They point out that their plans disclosed in advance that the diversified funds might not compare favorably to equity-heavy funds during bull markets.

Intel's fiduciaries also state that the standard is not overly restrictive. They indicate that a comparator only needs to share the challenged fund's basic aims. They also clarify that the requirement applies specifically to claims based on underperformance; plaintiffs who directly allege procedural flaws, such as fiduciaries failing to monitor investments, do not require a comparator.

Both sides cite existing legal precedent and ERISA's objectives to support their positions. Petitioners emphasize participant protection and access to the courts, while respondents highlight ERISA's allowance for diverse investment strategies and Congress's intent to prevent litigation costs from discouraging employers from offering plans.