The Supreme Court may soon tell 401(k) savers to bring a “meaningful benchmark” to court. Before it does, savers should be able to get the numbers to build one. On Oct. 6, the justices heard Anderson v. Intel Corp. Investment Policy Committee, a challenge to private equity and hedge fund holdings inside Intel’s custom retirement funds. Justice Neil Gorsuch’s question: “whether, for claims predicated on fund underperformance, a meaningful benchmark is required.”
I’ve spent 30 years allocating to private equity and hedge funds, so I’ll say it plainly: The court’s question is fair. A fund that trails the wrong yardstick proves nothing. Justice Elena Kagan said, “it’s got to be kind of an apple.” (ERISA law now turns on produce.) The standard works only if a plaintiff can find the apple.
That’s where the Intel plaintiffs say they got stuck. They allege the company over-allocated its funds to hedge funds, private equity, and commodities, taking one fund from roughly 6% of assets to 33% by 2011, according to their brief. The Northern District of California dismissed the case twice, and the 9th Circuit affirmed in May 2025. Plaintiffs’ lawyer Matthew Wessler told the justices that the 9th Circuit “ruled out all of the proposed comparators,” and that plaintiffs lack “direct information about the fiduciaries’ decision-making process.” Ropes & Gray wrote that affirmance “appears very likely,” with a ruling possibly not before spring.
On March 31, the Labor Department published a proposed safe harbor for fiduciaries who pick plan investments. Its six factors are performance, fees, liquidity, valuation, benchmarking, and complexity. A fiduciary who “objectively, thoroughly, and analytically” considers them would see its judgment “presumed to be reasonable and … entitled to significant deference,” according to the preamble. I support the goal. Workers should have a shot at private markets, and sponsors shouldn’t face a lawsuit every time a fund has a bad year.
Under 29 C.F.R. 2550.404a-5, a plan must show one-, five-, and 10-year average annual returns for each designated investment alternative whose return isn’t fixed, next to “the name and returns of an appropriate broad-based securities market index.” The Labor Department’s proposal treats that as a different job. It defines a meaningful benchmark as a comparator with “similar mandates, strategies, objectives, and risks,” and its own example says a large capitalization index is not one. The Intel plaintiffs offered the S&P 500 and Morningstar peer groups, and the 9th Circuit rejected them. Plaintiffs say plan reporting forms included no category for hedge funds or private equity funds, which made comparators “especially elusive.” The rule makes the sponsor name the index. It doesn’t make the sponsor say why that index fits, or what the plan will do if the fund keeps trailing it.
Protection should come with paperwork, though. I have run my own investment consulting firm for 16 years. When I asked my bank for a larger credit line, the banker wanted a profit-and-loss statement, a balance sheet, and two years of tax returns. Anyone seeking protection from risk shows the books first, and a sponsor asking for deference on assets that the Labor Department says “sometimes are less liquid and harder to value than traditional asset classes” should meet the same standard.
My proposal is modest. A sponsor claiming the safe harbor should give participants a one-page report each year. It would show the return the saver received after all fees in the option they hold, the benchmark the sponsor chose and why, how the comparison was calculated, the liquidity limits, and what results would trigger a review. Fees and transfer restrictions already appear in today’s rule. The benchmark rationale, the calculation method, and the review triggers don’t, and those are my proposal, not current law.
The Labor Department’s proposal already tells sponsors to determine that each fund “has a meaningful benchmark.” The report asks them to show it. The sponsor’s own benchmark hands a future plaintiff a first apple and hands the saver a scoreboard before anyone needs a lawyer. The 9th Circuit noted that the lead plaintiff knew which hedge funds and private equity funds Intel held. Knowing what a plan owns doesn’t tell a saver what it should be measured against. The Labor Department can write the report into the final rule. Nothing in it bans an asset or creates a new cause of action.
DON’T RAISE THE CEILING WITHOUT A PLAN
Jerry Maguire built a movie on “show me the money.” Savers can settle for less: Show me the benchmark.
I’ve coached youth rugby and football for years, and parents will argue about the referee all the way home. Nobody argues about the scoreboard, because everyone in the stadium can read it. The Labor Department can make sure the saver can read the score. It’s their money.
Jay Rogers is a financial professional with more than 30 years of experience in private equity, private credit, hedge funds, and wealth management. He writes about issues in finance, constitutional law, national security, human nature, and public policy.
Continue reading...
[ H/T Washington Examiner ]
