Summary
The U.S. Supreme Court heard oral argument this week in Anderson v. Intel Corp. Investment Policy Committee, No. 25-498, which asks whether a plaintiff alleging that an ERISA plan acted imprudently in selecting an underperforming retirement plan must plead a "meaningful benchmark" against which the fund's performance can be compared. Based on the Justices' questions during the October 6 hearing, the Court appears inclined to endorse a meaningful benchmark requirement and to give lower courts guidance on what makes a benchmark "meaningful."
The Upshot
- Several Justices expressed skepticism about petitioners' claim that the Ninth Circuit required a comparator that is identical to the challenged fund, and petitioners' counsel conceded that "there is inherent comparison that needs to occur."
- Respondents and the United States agreed a comparator need not be identical, with the Solicitor General urging a test requiring only that the comparator share the challenged fund's goals.
- A benchmark requirement is a key motion-to-dismiss gatekeeper that can spare fiduciaries costly discovery and reduce repeated complaint amendments.
- The impact may be modest: most circuits already require a benchmark, and the Court may adopt a less demanding standard than some circuits apply.
The Bottom Line
Underperformance suits have continued to be filed at a steady pace since the Court granted certiorari, and the decision's most consequential contribution will likely be its guidance on what makes a benchmark "meaningful." Plan sponsors and fiduciaries should continue to document the objectives and rationale behind their investment selections and monitoring, and should consult counsel to assess how the Court's eventual standard may affect pending or threatened claims.
On October 6, the U.S. Supreme Court heard oral argument in Anderson v. Intel Corp. Investment Policy Committee, No. 25-498, a potentially significant case involving the pleading standards for ERISA class action cases alleging imprudence in selecting investment options for retirement benefits plans. At issue in Intel is whether a plaintiff alleging that an ERISA plan breached its fiduciary duty of prudence by including an underperforming fund must plead a “meaningful benchmark,” i.e., a comparable investment option, against which the challenged fund’s performance can be measured.
The case arose from the Ninth Circuit’s decision affirming dismissal of claims challenging Intel’s decision to include certain target date retirement funds and a diversified multi-asset fund in its defined contribution plans. Based on the questions at oral argument, the Court appears inclined to endorse a meaningful benchmark standard for claims based on underperforming funds and to provide lower courts some guidance on what makes a benchmark “meaningful.”
The Argument
Petitioners’ counsel argued that the meaningful benchmark rule is out of step with lenient federal pleading standards established by the Court in prior opinions such as Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal as well as ERISA precedent directing lower courts to evaluate duty of prudence claims “holistically.” Petitioners contended that the Ninth Circuit imposed an improperly rigorous standard, effectively requiring a plaintiff to identify a materially indistinguishable comparator.
Several Justices resisted that interpretation. Justice Kagan called it a “caricature” of the Ninth Circuit’s opinion, which in her view required an apples-to-apples comparison but did not go so far as to require that the two apples be “precisely the same.” Justice Alito suggested that the Intel funds’ allegedly lagging returns during one strong market period did not, by themselves, show that the fiduciaries’ risk-reduction strategy was a bad choice. Ultimately, in response to a question from Justice Gorsuch, petitioners’ counsel explained that, while he objected to the Ninth Circuit’s application of the meaningful benchmark requirement, he conceded that “for performance allegations to be relevant, ... there is inherent comparison that needs to occur.”
Respondents’ counsel argued that underperformance allegations require a meaningful benchmark because lower returns alone do not suggest imprudence. He explained that a comparator fund need not be identical and that most courts begin with the fund’s objectives and then evaluate whether the comparator’s design and implementation are similar enough to make the comparison meaningful. He added that the Court could limit its decision to requiring a meaningful benchmark without providing guidance on how to apply the requirement. But in response to a question from Justice Kagan, he said he would not oppose additional guidance, including clarification by the Court that identical asset allocations are not required.
The Solicitor General’s representative, appearing for the United States as an amicus supporting respondents, urged the Court to give lower courts guidance on applying the meaningful benchmark requirement. In her view, some courts have made the standard too demanding by requiring a comparator to match the challenged fund’s objectives, risk/reward profile, and investment strategy. She instead proposed a less demanding approach: a plaintiff relying on underperformance must provide a comparator that shares the challenged fund’s goals, so that any performance gap is more likely to reflect a flawed fiduciary process than a different investment objective.
Why the Decision Matters
A meaningful benchmark requirement functions as a substantial gatekeeper at the motion-to-dismiss stage. It spares plan sponsors and fiduciaries the expense and delay of discovery on underperformance claims. And should the Supreme Court provide guidance on this inquiry, it could reduce repeated amendments to complaints as plaintiffs search for an acceptable comparator.
The practical impact of a decision to require meaningful benchmarks should not, however, be overstated. Of all the circuits to address this issue, the Sixth Circuit is the only one not to require a meaningful benchmark, so in most of the country some version of the requirement already applies. And the Court could ultimately articulate a less demanding standard than the one that some circuits have imposed.
In addition, despite the Court’s decision to accept certiorari and schedule oral argument in the first week of this year’s term, there has been no slowdown in the number of underperformance cases filed in the federal courts. And even following the Court’s decision to take the case, the majority of lower court decisions have dismissed underperformance cases for failure to plead meaningful benchmarks, suggesting an implicit shared assumption that the Supreme Court will affirm the Ninth Circuit. As a result, the Court’s most consequential contribution will likely be the guidance it provides on what makes a benchmark “meaningful.”
We will continue to monitor the case and will report on the Court’s decision when issued. For questions, please contact a member of Ballard Spahr’s ERISA Litigation Group.
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