How do you measure imprudence? When plaintiffs in an ERISA lawsuit claim that 401(k) plan investment choices are imprudent because they underperform alternative choices the fiduciaries should have made, the benchmark chosen for comparison may determine the result. But how do you determine which funds are similar for this purpose? Can you just use a general benchmark like the S&P 500? Must your benchmark be closely matched to the challenged fund’s investment goals and risk and return profile? The Supreme Court’s agreement to review the Ninth Circuit’s decision in Anderson v. Intel Corp. Inv. Pol. Comm. (137 F.4th 1015 (2025)) rejecting plaintiff’s chosen benchmark on a motion to dismiss should provide the answer and establish a uniform national rule.
What Happened Below
The Intel plaintiffs objected to the inclusion of any alternative investments in their target date funds. It should be noted that these were included only in customized target date funds with a limited allocation to alternative investments. In addition to arguing that the funds were imprudent, plaintiffs argued below that using alternative investments at all was not in accordance with professional investment standards. Both the district court and the Court of Appeals for the Ninth Circuit rejected that argument.
Plaintiffs measured performance against an equity-heavy benchmark, but Intel used a composite benchmark in its communications with participants that was weighted for the different classes of investments the target date funds made. The defendants further argued that alternative investments were intended to cushion the portfolio’s volatility, since they moved in the opposite direction from stocks and mitigated losses when the stock market was down. It was to be expected, defendants argued successfully, that alternative investments would underperform the stock market when the market was up.
The Appeals Court found the benchmark used by plaintiffs to be inappropriate, stating:
“The need for a relevant comparator with similar objectives-not just a better-performing plan or investment-is implicit in ERISA’s text. By making the standard of care that of a hypothetical prudent person ‘acting in a like capacity …in the conduct of an enterprise of a like character and with like aims,’ the statute makes clear that the goals of the plan matter.” The Court then found that “…[r]ather than presenting a comparison to Intel’s composite benchmarks or to available funds with similar risk-mitigation factors and objectives,” Plaintiff Anderson “sought to compare Intel’s funds to equity-heavy retail funds that pursued different objectives—typically revenue generation.” (Id. at 2022)
The conclusion was that the Intel funds performed as intended by limiting losses even though they had lower returns when the stock market was up, and therefore the duty of prudence had not been violated.
What Have Other Courts Required? The Sixth Circuit in Johnson v. Parker-Hannifin Corp. Corp, (122 F.4th 205 (6th Cir. 2024)), held that imprudent-investment claims could proceed past the pleading stage without strictly requiring a “meaningful benchmark,” reasoning that the inquiry is “context-specific” and that a benchmark may be more or less important depending on the other allegations in the complaint.
In addition to the Ninth Circuit in Intel, the Seventh, Eighth and Tenth Circuits have adopted standards for selecting a benchmark that, while not identical, all require plaintiffs to provide a sound basis for comparison when alleging that a fiduciary should have selected different investments. See Meiners v. Wells Fargo & Co. (898 F.3d 820 (8th Cir. 2018)); Albert v. Oshkosh Corp. (47 F.4th 570 (7th Cir. 2022)); and Matney v. Barrick Gold of N. Am. (80 F.4th 1136 (10th Cir. 2023)).
What Is At Stake? If the Supreme Court determines that all that is necessary for plaintiffs to plead is that fees are too high or performance is subpar when reviewed against a general index, 401(k) plan fiduciaries will have far greater exposure to being sued because more claims will survive a motion to dismiss. The Department of Labor is now filing amicus briefs supporting defendants, a major change from the Biden administration, and will presumably be supporting defendants here. It isn’t clear how much deference the Court will give to the Department of Labor’s views. However, plaintiffs can sue on the basis that the process for selecting investments was imprudent, and the ability to pursue those claims without designating a benchmark for comparison need not be affected by the Supreme Court’s decision.
When the Supreme Court ruled in Hughes v. Northwestern University (595 U.S. 170 (2022)), Justice Sotomayor’s majority opinion recognized that there is a range of fiduciary decisions that can all be prudent. This means that courts need to recognize that there is more than one right way to invest plan assets. Will the Court extend this principle to find that there can be more than one appropriate benchmark?
Even if the Supreme Court rules that plaintiffs do not have to plead tailored benchmarks to succeed on a motion to dismiss, fiduciaries will still be able to argue that their benchmark is more appropriate as the case proceeds. Fiduciaries should also be able to challenge the time period used by plaintiffs to do the comparison. Have they cherry-picked the period or used a too short period?
Litigation Aside, The Right Benchmark Matters for Investment Selection and Review. It does not appear that the Supreme Court will be ruling soon, since oral argument has been scheduled for October. However, regardless of how the Supreme Court rules in the Intel case, fiduciaries should be using appropriate benchmarks to evaluate the performance of their investment choices. Performance should be reviewed on a regular basis, taking into account that ERISA funds are not short term investments. These reviews should not be comparing apples to oranges, and investment professionals should be consulted as necessary to select the appropriate benchmarks for 401(k) plan funds.
Fiduciaries should also be reviewing the benchmarks used in their 404a participant fee and other participant communications,, which are too often inserted in these documents by their recordkeepers without much fiduciary review, to determine whether they are appropriate and consistent with other communications sent to participants. It will be harder to argue that a benchmark is inappropriate if the fiduciaries are using it in their 401(k) plan historical performance charts. If fiduciaries have concerns about the benchmarks and their recordkeepers do not accept changes to their standard templates, fiduciaries might consider using custom benchmarks in customized performance charts, particularly if the fund includes diversified investments.
And it goes without saying that fiduciaries should carefully document their decisions measuring performance against benchmarks when they review whether to keep or replace investment options on their plan menus.
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