A U.S. District Court in San Jose, Calif., dismissed claims by two former participants in two Intel Inc. defined contribution plans that fiduciaries violated their ERISA duties by offering expensive, poor performing and alternative investments.
The complaint focused on Intel’s use of hedge funds and private equity funds in the plans, which, the plaintiffs said, subjected participants’ retirement accounts to considerable risk for comparatively high fees and poor results.
“Although plaintiffs allege comparisons of the Intel funds performance to ‘peer’ and ‘comparable’ funds, plaintiffs have failed to provide sufficient allegations to support their claim that these other funds are adequate benchmarks against which to compare the Intel funds,” wrote U.S. District Judge Lucy H. Koh in a Jan. 21 opinion.
“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,” she wrote in the case of Anderson et al. vs. Intel Corp. Investment Policy Committee et al.
The judge rejected the plaintiffs’ arguments about the plan’s excessive fees because they “have again failed to plead factual allegations to support their claim” that they had provided a “meaningful benchmark” to compare fees.
The plaintiffs also argued that Intel fiduciaries “drastically departed from prevailing standards of professional asset managers,” according to their original complaint. The judge pointed out that ERISA “does not require that fiduciaries mimic the industry standard when making investments.”
The judge added that the plaintiffs did not “cite a single case to support the proposition that the deviation they highlight states a claim for breach of duty of prudence.”
Despite dismissing all claims, the judge gave the plaintiffs 30 days to file an amended complaint.
The initial complaint was filed in August 2019 by Winston R. Anderson, who invested in both Intel plans — the Intel 401(k) Savings Plan and the Intel Retirement Contribution Plan.
His lawsuit eventually intersected with one filed by Christopher Sulyma, another former Intel employee who accused Intel of ERISA violations for its plan management and the use of hedge funds and private equity.
Mr. Sulyma sued in October 2015. A U.S. magistrate judge granted Intel summary judgment in March 2017, saying Mr. Sulyma waited too long to sue.
However, the 9th U.S. Circuit Court of Appeals reversed the lower court decision, saying Mr. Sulyma lacked “actual knowledge” of the Intel fiduciaries’ alleged ERISA breaches. Without actual knowledge, the appeals court said ERISA allowed Mr. Sulyma more time to sue — six years instead of the three cited by the trial court judge.
Intel appealed to the U.S. Supreme Court, which upheld the appeals court decision in February 2020, meaning the original trial court would have to rule on the merits of Mr. Sulyma’s complaint. In May, his case was consolidated with Mr. Anderson’s complaint, which was dismissed Jan. 21.