Supreme Court weighs 401(k) case about private funds, underperformance

Key Points:

• The Supreme Court heard arguments in the Anderson v. Intel Corp. case, focusing on whether 401(k) retirement plan underperformance claims require a "meaningful benchmark" for assessing fiduciary duty breaches, rather than challenging the inclusion of alternative investments like private equity or hedge funds.
• Justices appeared skeptical of allowing underperformance claims without appropriate benchmarks, using metaphors like comparing apples to oranges to emphasize the need for relevant performance comparisons; legal experts predict the Court may side with Intel, affirming lower court rulings.
• Employers are awaiting the Court's decision and finalized Labor Department rules on alternative investments, as many have delayed adding private funds to 401(k) menus due to litigation fears and regulatory uncertainty, despite growing interest and new product offerings from asset managers.
• While ERISA does not prohibit alternative investments in 401(k)s, shifting federal policies have influenced market dynamics, with recent proposals aiming to provide clearer guidance and reduce barriers for plan sponsors considering these options.
• Although alternative investments are common in defined benefit plans, large employers remain cautious in incorporating them into 401(k)s due to litigation risk, with smaller and mid-size companies expected to adopt private funds earlier as demand and product availability increase.