Key Takeaway: The district court granted a motion to dismiss where plaintiffs had compared the at-issue funds to so-called “common benchmarks,” but had not alleged that those benchmarks shared similar aims, risks and rewards at the at-issue funds. The decision furthers a trend of California federal district courts closely scrutinizing allegations on motions to dismiss in ERISA cases.
On January 8, 2022, the U.S. District Court for the Northern District of California granted, with prejudice, Intel’s motion to dismiss a class action complaint filed by former employees of Intel who participated in two Intel defined contribution plans. We previously reported on this case when, after the Supreme Court earlier affirmed the Ninth Circuit’s demand, in January 2021, the district court granted, with leave to amend, Intel’s motion to dismiss a complaint challenging the investment options made available to the two plans at issue. The plaintiffs subsequently amended their complaint and Intel moved to dismiss again. In their amended complaint, the plaintiffs principally alleged that the defendants breached ERISA’s duty of loyalty and prudence in selecting, monitoring and managing the investments made available in the plans, which the plaintiffs had alleged improperly included target date portfolios that invested in significant amounts in hedge funds, private equity investments and commodities. The plaintiffs also alleged that the administrative committee failed to provide material and accurate disclosures, and additionally brought claims for failure to monitor and co-fiduciary liability.
The district court found that the plaintiffs’ claims failed because the plaintiffs still had not pled sufficient factual allegations to establish that the plaintiffs had compared the at-issue funds to appropriate benchmarks. The plaintiffs had added to their amended complaint allegations that the at-issue funds underperformed indices, Morningstar peer groups and specific peer alternatives, and alleged that these were appropriate benchmarks for the at-issue funds because they were “common” benchmarks. The Court found that allegations that benchmarks were “common” failed to plausibly plead that the performance comparisons were meaningful ones, in the absence of allegations that the benchmarks had similar aims, risks and rewards as the at-issue funds.
Further, the district court noted that certain challenged funds outperformed 80% of the largest funds chosen by the plaintiffs as benchmarks, which further demonstrated to the Court the plaintiffs’ failure to state a claim for breach of the duty of prudence. Finally, the district court also dismissed the plaintiffs’ claim for breach of duty of loyalty, holding that the plaintiffs had failed to provide any factual allegations to support their claim that the plan’s investment committee had improper aims when investing in private equity and hedge funds, and had pleaded only a potential for conflict of interest without anything more. After this order, one count remains in the case regarding a failure to provide plan documents to the plaintiff; defendants have moved for judgment on the pleadings on that count.
The case is Anderson v. Intel Corp. Inv. Policy Comm., No. 19-4618, in the Northern District of California. The decision is available here.