DOL backs Intel in ERISA case

The Department of Labor and the American Benefits Council filed separate briefs urging the U.S. Supreme Court to uphold a lower court ruling in favor of Intel Corp. in an Employee Retirement Income Security Act case. The agencies and employer groups argue that retirement plan fiduciaries should not face litigation based solely on an investment fund’s underperformance, insisting that plaintiffs must identify a “meaningful benchmark” to measure a fund’s success.

The Department of Labor’s amicus brief, filed on Friday, and the American Benefits Council’s brief, filed on Thursday, both contend that poor historical performance alone should not permit an inference that plan fiduciaries violated the law. The DOL’s filing states that to support a plausible inference that a fund’s relative underperformance reflected a breach of the duty of prudence, a plaintiff must measure the fund’s performance against a benchmark that shares sufficient characteristics to provide a basis for comparison. The arguments largely mirror Intel’s own defense filed earlier this week.

The ERISA Industry Committee, U.S. Chamber of Commerce, American Retirement Association Business Roundtable, Committee on Investment of Employee Benefit Assets, Securities Industry and Financial Markets Association, and Stable Value Investment Association joined a separate brief that also sided with Intel.

This legal battle centers on the interpretation of ERISA, a statute that focuses on the fiduciary’s decisionmaking process rather than investment results. AARP; Phyllis Borzi, a former head of the Employee Benefits Security Administration; and Ali Khawar, a former principal deputy assistant secretary of EBSA, filed briefs supporting the plaintiffs. They argued that the 9th Circuit’s “meaningful benchmark” standard cannot be squared with the Supreme Court’s repeated rejection of special rules of pleading and prudence in ERISA cases.

The American Benefits Council warned that placing too much legal weight on historical returns would pressure retirement plan fiduciaries to “buy high and sell low” by chasing top-performing funds, ultimately harming retirement savers. The group also argued that such a rule would encourage a new wave of class actions against employer-sponsored retirement plans, increasing litigation costs while providing relatively modest recoveries for plan participants.

Requiring only allegations of poor performance would effectively transform every below-average investment option into potential litigation, despite the reality that many prudent investment strategies experience periods of underperformance. Citing financial studies and prior court decisions, the briefs argued that past returns are a poor predictor of future investment performance and that fiduciaries should not be forced to abandon long-term investment strategies simply because they trail benchmarks over a limited period.

The case arises from allegations by Intel employees that plan fiduciaries imprudently retained alternative investment funds that allegedly lagged other available investments. A U.S. district court sided with Intel by dismissing the complaint, and the 9th Circuit affirmed the dismissal. The appellate court concluded that allegations of underperformance, standing alone, did not plausibly show that fiduciaries breached their duties.

It is a familiar tension in fiduciary law: the conflict between protecting participants from excessive risk and preventing courts from micromanaging investment choices based on hindsight. When markets swing violently, as they did in 2008, fiduciaries often make defensive moves that look foolish in the calm years that follow. If the Supreme Court adopts a standard that penalizes those defensive moves simply because the market eventually rebounded, it could force companies to adopt riskier strategies to avoid being sued later, even if those strategies are less likely to succeed over the long term.

The American Benefits Council brief also contends that courts across the country—including the Second, Third, Sixth, Seventh, Ninth and Eleventh appellate circuits—have recognized that underperformance alone cannot sustain an ERISA fiduciary-breach claim without additional flaws in the fiduciary process. The American Benefits Council, which represents more than 400 employers and service providers involved in employee benefit plans, urged the justices to affirm the Ninth Circuit and clarify that courts should assign “very little, if any, weight” to a fund’s past performance when assessing whether fiduciaries acted prudently under ERISA. Wealth managers expect interest in alternatives to accelerate, and clients seek advisors skilled in estate planning.