The 2015 lawsuit against Intel alleged that plan managers violated their ERISA fiduciary obligations by offering too many alternative investments and inadequate disclosures of investments. The complaint focused on Intel's use of hedge funds and private equity funds, which, the plaintiffs said, subjected participants' retirement accounts to considerable risk for comparatively high fees and poor results.
Mr. Collins said the case has had a "chilling effect" on incorporating alternatives in DC plans.
But on Jan. 8, a U.S. District Court in San Jose, Calif., dismissed amended claims by participants in two Intel Inc. defined contribution plans. The dismissal came nearly a year after the judge's original dismissal of the lawsuit on Jan. 21, 2021, which allowed for an amended complaint. Among the arguments added in the amended complaint was that it was sufficient to compare the Intel plans' performance to similarly sized DC plans, but U.S. District Judge Lucy H. Koh in her Jan. 8 opinion wrote that "the argument that all plans with similarly sized contributions are meaningful benchmarks is again too conclusory to survive motion to dismiss."
Groom Law's Mr. Walsh said the decision shows that including alternatives in a DC plan doesn't necessarily mean a fiduciary process is imprudent. "Some plan sponsors are afraid that dabbling into new asset classes, whether it be private equity or others, that just being on the cutting edge of investment makes you imprudent because others aren't there," he said. "There's a sense that being a fiduciary means you're in the middle of the herd. And the District Court here is saying, 'If you've got a good process, you can lead the herd, while satisfying your obligations.'"
However, Will Hansen, Arlington, Va.-based executive director of the Plan Sponsor Council of America and chief government affairs officer at the American Retirement Association, isn't expecting DC plan sponsors to quickly add alternative options to their plans. "While yes, the outcome of that case was positive, I still think that the maybe thousands of lawsuits that have been brought over the last decade-plus still give plan sponsors hesitancy in doing anything that's seen as 'risky' to their investment lineup," he said.
Ms. McAndrews is more bullish and said incorporating alternatives in DC plans is the "right thing to do. And I think the DOL letter spells out how to do it properly and prudently. Millions of workers, savers and retirees could benefit from access to the potential benefits of the higher returns private equity can provide in their retirement plan."
With the Intel decision, Labor Department guidance and the maturation of pooled employer plans, which make it easier for employers in unrelated businesses to join a collective or pooled retirement plan for their workforces while offloading the bulk of their fiduciary responsibilities, Mr. Collins said 2022 will likely be a big year for alternatives in DC plans.
"This year we have a great deal of confidence in saying that you will see significant DC assets to come into private equity funds built for DC," he said. "We think this is going to be the year."