Favorable Updates for the Alternative Investments Industry in Critical ERISA Lawsuit
On Thursday, January 21, 2021, Judge Lucy Koh of the United States District Court for the Northern District of California granted Intel’s motion to dismiss the claims that had been alleged against it in Sulyma v. Intel Corp. Investment Policy Committee.
As many of you may already know, this Intel lawsuit has been watched carefully by the industry as an indication for what the future may hold when it comes to alternative investments within ERISA covered plans. Originally filed in 2015, the lawsuit alleges that members of the Intel Corp. Investment Policy Committee breached their fiduciary duties by investing a significant portion of the plans’ assets in hedge fund and private equity investments by way of custom target-date funds offered in Intel’s defined contribution retirement plans. The case has thus far been a major deterrent keeping plan fiduciaries from incorporating alternatives assets into retirement plans.
In the most recent decision, the court rejected the plaintiff’s argument that the investment in non-traditional investments were per se imprudent. Additionally, the court also dismissed the plaintiff’s argument that the allocation to alternative investments departed from prevailing norms, noting that “ERISA requires that fiduciaries act prudently, but it does not require that fiduciaries mimic the industry standard when making investments.”
While this is the decision of a single district court, plan fiduciaries could cite the ruling should they be faced with similar lawsuits. As a whole, the decision marks a win for the portfolio diversifying investments (PDI) industry in the continued modernization of plan investment opportunities, potentially opening the door for similar assets to be included within ERISA covered plans in the future. The IPA, led by a task force from the IPA Board of Directors, is actively engaged is carving out a path for inclusion of PDIs as an allocation in defined contribution plans.
Lastly, it’s important to note that that the court granted the plaintiff the right to amend their complaint and that other courts are not specifically compelled to follow this specific legal analysis.
If you have any questions, please don’t hesitate to reach out to Tony or me.
SVP, Government Affairs and General Counsel
Institute for Portfolio Alternatives