Supreme Court hears Intel 401(k) case Tuesday; the ruling sets how easily any employer's plan can be sued

On Tuesday, the second day of its new term, the Supreme Court hears Anderson v. Intel Corp. Investment Policy Committee, docket 25-498, according to the Court's October argument calendar. The case is about Intel's retirement plans, but the rule it produces will apply to every private employer that offers a 401(k).

What the case is about

Intel plan participants sued the company's plan trustees, alleging they imprudently put retirement money into hedge funds and private equity and kept it there after those investments returned less than ordinary stocks and bonds, according to a Congressional Research Service legal sidebar. A district court dismissed the suit, and the Ninth Circuit agreed, because the workers had not pointed to a "meaningful benchmark": a comparable investment with similar aims and risks. The equity-heavy target-date funds they compared against had a different objective, the court said.

The question before the justices is whether a complaint built on underperformance must include such a benchmark to survive a motion to dismiss. The appeals courts have split. The Eighth Circuit has leaned on the benchmark test, while a 2-1 Sixth Circuit panel said a benchmark "may sometimes be one part of an imprudence pleading, but it is not required," CRS notes.

Why the procedural point is the whole point

The fight is over the earliest stage of a lawsuit. If a complaint survives a motion to dismiss, the case moves into discovery, where the plaintiffs get access to the plan's records and the costs climb for the defense. A benchmark requirement filters out more suits before that stage. Dropping it would let more of them through.

CRS says the decision could also reach the most common kind of 401(k) suit, the claim that a plan pays excessive recordkeeping or investment fees, because some courts apply the same benchmark test there.

Who it actually hits

ERISA, the federal law at issue, covers roughly 837,000 retirement plans holding more than $12 trillion, according to CRS. Most of those are not Intel-sized. At a company with 20 or 50 employees, the person choosing the fund lineup is often the owner, a partner or the finance manager, and ERISA makes a plan fiduciary personally liable for breaches.

That is the practical exposure. Courts judge prudence by the process a fiduciary followed, not by whether a fund later lagged. A plan with written minutes showing who reviewed the funds, how often, against what comparison and why each was kept, is in a stronger position under either rule. A plan whose lineup has not been looked at since the provider set it up has the most to lose if the Court lowers the bar.

It also matters to anyone weighing alternative assets in a workplace plan. Intel's defense is that its unusual, lower-risk strategy has no fair retail comparison. If the Court accepts that a benchmark is required and that unusual strategies need closely matched ones, it would make novel lineups harder to challenge. If it rejects the requirement, sponsors offering private equity or hedge-fund exposure would face suits that reach discovery more easily.

What to watch

Whether the justices treat a benchmark as one useful piece of evidence or a strict gate, and whether they say anything about fee cases. Congress could also step in, CRS notes, by writing a pleading standard into ERISA. A decision is expected by the end of the term, usually in June.

The term opens Monday with a climate case against Exxon and Suncor; our preview is here. More small-business coverage is in our small-business section.

Sources: Supreme Court argument calendar, Congressional Research Service. This is general information, not legal or investment advice.