Picture the committee meeting. The 2008 crash is fresh, and Intel’s (INTC) plan fiduciaries decide the company’s target-date funds need something that won’t fall off a cliff next time — hedge funds, private equity, a little ballast. They write the trade-off down for participants: more protection in bad markets, slight underperformance in good ones. Then markets rally, for years. Former employees sue, saying the mix trailed ordinary stock and bond funds and cost more. On Tuesday that lawsuit, Anderson v. Intel, reached the Supreme Court — and, by Chris Cumming’s account in Wednesday’s Journal, the justices mostly sounded like they’d rather hear a different complaint.
The legal question is narrow and the stakes aren’t. To survive a motion to dismiss, does a participant have to point to a meaningful benchmark — an investment with a similar mandate, strategy and risk — or is a lag behind the S&P 500 enough? The Ninth Circuit said benchmark, and tossed the suit. On Tuesday, Justices Alito, Jackson and Kagan all expressed puzzlement at the plaintiff’s argument. Whether a strategy is reasonable, Alito said, “cannot be judged based on how that strategy performed in one particular instance.” Several justices likened damages without a benchmark to “apples and oranges.” Kagan called the dismissal “a pretty reasonable decision.” The Justice Department argued for Intel too; so did the private-equity and hedge-fund trade groups. AARP, the Pension Rights Center and Better Markets argued the other way: uphold this, and it becomes nearly impossible to sue an irresponsible plan manager.
Why Wall Street is watching
Here’s why an A6 story carries a trillion-dollar footnote. Private-fund managers have wanted a slice of the $15 trillion in defined-contribution accounts for years. Putting alternatives in a 401(k) is already legal, yet almost no employer does it, and the lawyers’ explanation is the class-action threat. A win for Intel tightens the standard for those suits and, as Cumming puts it, smooths private equity’s path into your plan. It arrives alongside the Labor Department’s proposed six-factor safe harbor from March — performance, fees, liquidity, valuation, benchmarking, complexity — which Jay Rogers, in Tuesday’s op-ed, notes isn’t final. Rogers, who’s spent 30 years running portfolios full of exactly these assets, puts the whole fight on one word: benchmark. The Labor rule and the Intel case come at it from opposite ends — one sets what a committee must study before it buys, the other what a worker must show before suing. A ruling is expected in June or July.
Our read
This is Retirement (M10) with an Investments/Risk (IN04) spine, and it rhymes with two things we’ve written this month: the SEC’s push to let private funds reach retail, and the exit-door problem when those funds gate redemptions. If the court goes the way Tuesday sounded, the benchmarking job moves from the courtroom to you. When a private-equity sleeve shows up inside your target-date fund — and after this, it may — the questions to ask your plan are the safe harbor’s own list: what’s the fee load, how is it valued and how often, what can I actually sell and when, and what comparator did the committee write down before it bought? A fund that lagged the S&P 500 in a rally isn’t automatically imprudent; the justices are right about that. A fund nobody can price or exit for years is a different animal, and no ruling changes what illiquidity does to a retiree who needs the money in a down year.
On the ticker: Intel (INTC) sits in 3 of our model books as a small tech position — held at weight; nothing added — and this case is about Intel’s plan committee, not its chips. The desk’s verdict on private equity in 401(k)s is watch: we don’t own it in any book, and we’d want a benchmark we understand before we did. Pull your plan’s fund lineup and fee disclosure once a year, not when the lawsuit’s already filed. Nobody checks for the umbrella after they’re wet.