Intel May Win at the Supreme Court. Washington’s $10.8 Trillion 401(k) Bet Still Has a Lawsuit Problem.

The U.S. Supreme Court appears ready to make lawsuits over underperforming 401(k) funds a tougher climb for dissatisfied workers—a development that could be welcome news for employers, financial institutions and their advisers weighing whether they should add alternative investments to their retirement plan portfolios.

For more than a year, the federal government has been attempting to open $10.8 trillion in 401(k) assets to alternative investments, such as private equity, digital currencies and venture capital. The U.S. Department of Labor is still working out a rule that could shield employers from litigation if they follow a set process when selecting where to invest. The problem for those players is that even if the high court raises the bar for one type of suit by the end of its term in June, they still face litigation risk on other fronts, from claims over how funds are monitored to claims that fiduciaries put their own interests first.

Plaintiffs’ lawyers are not waiting, however. Employers and advisers are under pressure right now to decide how they will evaluate alternative investments, design their 401(k) plans and document each choice they make.

A ‘Meaningful Benchmark’

In August 2025, President Donald Trump issued an executive order promoting broader access to alternative assets by 401(k)s and other defined contribution plans. The order also directed the Department of Labor to prioritize actions and provide guidance that would curb “burdensome lawsuits” that challenge “reasonable decisions by loyal, regulated fiduciaries.”

The Labor Department released a proposed rule in March that includes a safe-harbor provision for fiduciaries who “objectively, thoroughly, and analytically” consider six factors when selecting “designated investment alternatives.” The six factors are: fees, performance, liquidity, valuation, complexity and benchmarks.

One of those factors, benchmarks, is at the heart of the case before the U.S. Supreme Court. In Anderson v. Intel Corp. Investment Policy Committee, a former Intel employee alleges that fiduciaries of the company’s 401(k) breached their duty under the Employee Retirement Income Security Act (ERISA) to prudently invest by shifting the plan’s target-date and diversified funds toward hedge funds and private equity, which then underperformed. The U.S. Court of Appeals for the Ninth Circuit said the claims failed to identify a “meaningful benchmark” showing that the funds did worse than comparable investments.

At oral arguments on Oct. 6, a Supreme Court majority appeared ready to agree with the Ninth Circuit. As Bloomberg Law reported, the justices’ questions suggested they would likely hold that 401(k) participants would need to make comparisons among funds. “I think what the Ninth Circuit is saying is you can't compare apples and oranges if you have a fund…that is designed to produce high returns but riskier returns,” Justice Clarence Thomas said, according to a transcript of the arguments. “And you can't compare that to a fund that is to protect against losses.”

But the justices were less certain about how far the opinion should go. Justices Elena Kagan and Amy Coney Barrett appeared concerned about forcing plaintiffs and the lower courts into searching for identical funds to compare. Would it be helpful, Barrett asked, to define “meaningful” as having “like aims and strategies, or does that risk having lower courts look for a twin?”

Limited Impact?

The federal government sided with Intel. Assistant to the Solicitor General Aimee Brown argued that a meaningful benchmark is one that shares the challenged fund's goals. “Prudence is about process and not about performance,” she told the court.

Parties filing amicus briefs lined up predictably as well. Advocates for retirees and investors urged the court to overturn the Ninth Circuit. The AARP argued that the Ninth Circuit’s benchmark standard is so restrictive that “no plaintiff with a meritorious case could succeed.” On the other side, business and employer groups said the court should avoid second-guessing fiduciaries’ investment decisions. “At every step, plaintiffs’ approach is at odds…with ERISA’s embrace of flexibility and discretion,” the U.S. Chamber of Commerce said.

Still, the Intel case is narrower than the policy debate surrounding it. It does not, for instance, challenge whether alternative assets like hedge funds and private equity belong in a 401(k) “alongside stocks and bonds,” CNBC noted.

In an article published by the National Law Review, Ballard Spahr lawyers Edward Rogers, Brian Pinheiro and Heath Kahn argued that the “practical impact of a decision” by the Supreme Court “should not…be overstated.” Most federal circuits already require some form of meaningful benchmark. Thus, the court’s “most consequential contribution” would be guidance “on what makes a benchmark ‘meaningful,’” they wrote.

The Litigation Pipeline

Whatever the court decides is also unlikely to stem the flow of litigation over alternatives. Indeed, the Ballard Spahr attorneys noted that the court’s decision to take the Intel case and to make it one of the first it heard during this year’s term has done nothing to slow the number of 401(k) underperformance claims filed in the federal courts.

For larger companies, in particular, the present uncertainty will do little to encourage them to add alternatives to their 401(k) plans. Kent Mason, a partner at Davis & Harman who specializes in ERISA and retirement plan work, told CNBC that the “largest companies are going to be the slowest” at adopting alternative assets because of the heightened litigation risks they face. Most of the action, if it occurs, will be among smaller and midsize companies, he said.

He added that the court’s decision and Labor Department’s rule will still be “subjective” and that plaintiffs’ lawyers will continue to pursue claims that companies “failed to meet their safe-harbor fiduciary obligations.”

And even when finalized, the agency’s proposed safe harbor provision may not be the final word the Trump administration hopes it will be. In an April client update, Sidley Austin flagged that the Supreme Court’s recent removal of deference for agency rulemaking “may lessen the efficacy” of the safe-harbor provision. The court in 2024 overturned the Chevron deference doctrine, which held that the courts should defer to a government agency’s statutory interpretation of an ambiguous statute.

Building the Record

The Labor Department’s proposed rule may be the best guide currently available for employers, financial institutions and their inside and outside counsel. The six factors it enumerates preview what judges may ask about an investment decision. And they could be used to create a robust documentation checklist.

The Ballard Spahr lawyers, for instance, recommended that employers and retirement plan fiduciaries document the “objectives and rationale” behind the selections they make. In an April client alert, Morrison & Foerster underlined the point, calling documentation “paramount.” The firm said fiduciaries should record “their analysis of each applicable factor” and update investment policies and procedures in response to the government’s proposed six-factor framework.

The Labor Department also suggested what a strong process might look like. Morgan, Lewis and Bockius lawyers counted 20 examples in the proposed rule aimed at addressing specific issues plan sponsors (i.e., employers) may face. And the firm noted that “litigation risk mitigation” is a primary focus of the Labor Department’s effort, with its proposal emphasizing that ERISA is a “process-based statute that affords fiduciaries ‘maximum discretion and flexibility.’”

A clear example is the Labor Department’s handling of benchmarks. The proposed rule says that fiduciaries should compare funds that have similar goals, strategies and risks. In other words, plan sponsors should make an apples-to-apples comparison—a concept floated by several of the justices at oral argument.

The proposed rule may help fiduciaries strengthen how they select alternative funds, but it says little about monitoring those funds once they’re in the plan. Morgan, Lewis & Bockius noted that the proposal offers no safe-harbor for monitoring, calling that “the bigger gap for plan fiduciaries” because monitoring is where “most fiduciary liability exposure arises.” Nor does the rule protect fiduciaries accused of putting their own interests ahead of participants’ (the duty of loyalty) or of engaging in transactions ERISA prohibits.

The Role of Fund Sponsors

The safe harbor gaps mean that employers should be designing their 401(k) fund lineups for litigation, not just regulation. To do this, they will need help from the financial institutions—the so-called “fund sponsors”—who build their portfolios.

Fund sponsors are not covered directly by the Labor Department’s proposal. But as Morrison & Foerster suggests, the rule will have “significant indirect effects” by shaping employer demand and setting the standards that the fund sponsors’ 401(k) products must meet.

When selecting a fund, for example, employers must identify a “meaningful benchmark” to compare the fund with if they want to be eligible for the safe harbor. They can, the Labor Department .said, rely on a manager’s written representations about a fund’s liquidity program and valuation process, provided they review those representations critically. A financial institution that offers 401(k) products with this kind of paperwork may find them an easier sell.

The hypothesis may be tested soon. If the notion that small and midsize employers will be more open to alternative assets proves true, they will most likely be served by networks of independent retirement-plan advisers or “aggregators.”

Those advisers are getting ready. In June, the National Association of Plan Advisors reported on a recent industry-wide survey by PIMCO showing that every aggregator firm expects some employers to add alternative investments to their retirement funds in the next year. That’s up from 37% of aggregators in the previous year’s survey.

Being Prepared

If the aggregators are right, employers and workers may soon have an array of new investment options—and the plaintiffs’ bar may have more litigation targets. At least where benchmarks are concerned, much will depend on the Supreme Court and its definition of “meaningful.” If the court agrees with a stricter standard, underperformance claims will get harder and plaintiffs will need stronger comparisons to match with their funds. If it opts for a looser definition, plaintiffs will still need a comparison, but a fund with similar goals would do.

The burden is now on employers—and defense counsel—to document each benchmark. Intel, for instance, created custom benchmarks for its funds and disclosed them to workers. “Intel clearly disclosed the aims of its funds,” the Ninth Circuit said in its opinion.

Whatever happens, however, plaintiffs are likely to adapt. A concurring judge in the Ninth Circuit’s Intel decision wrote that said that claims over whether a fiduciary has acted prudently may also proceed if plaintiffs make “direct allegations about flawed investment methods or processes,” Ropes & Gray wrote earlier this year.

Employers should not wait on the Supreme Court or the Labor Department to prepare. The Intel decision may not come until next June. And while Bloomberg Tax reported that the final Labor Department rule may be published by the end of the year, it could change in response to public comments. A number of organizations want the agency to clarify that the 20 examples it cited were illustrations rather than the “only acceptable way” for retirement plans to “satisfy the required six factors.” Employers who take the time to document their processes will be ready no matter what.

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David L. Brown is a legal affairs writer and consultant, who has served as head of editorial at ALM Media, editor-in-chief of The National Law Journal and Legal Times, and executive editor of The American Lawyer. He consults on thought leadership strategy and creates in-depth content for legal industry clients and works closely with Best Law Firms as senior content consultant.