Custom TDF Allocations Draw 401(k) Lawsuit

Plan fiduciaries have been sued for allegedly breaching their ERISA fiduciary duties in shifting allocations in a plan’s custom target-date portfolios to what it characterizes as “risky and high-cost” investments.

FINalternatives reports that the lawsuit, filed on Thursday in U.S. District Court in Northern California, contends that starting in 2011, Intel’s investment committee boosted the allocation for hedge funds in the firm’s target-date portfolios from $50 million to $680 million, while at the same time the allocation for hedge funds in the diversified global fund rose from $582 million to $1.665 billion, and to private equity investments from $83 million to $810 million, between 2009 and 2014.

The suit, filed by former Intel employee Christopher Sulyma — who, according to Pensions & Investments, is fully vested in Intel’s $8.19 billion 401(k) plan and partially vested in its $6.66 billion profit-sharing plan, also claims that participants were not made fully aware of the risks, fees and expenses associated with the hedge fund and private equity investments, or to the underperformance of the company’s target-date and global diversified funds compared to their peers.

The suit claims that, as a result, “The Plans and their participants suffered hundreds of millions of dollars in losses during the six years preceding the filing of this Complaint as compared to what they would have earned if invested in asset allocation models consistent with prevailing standards for investment experts and prudent fiduciaries.”

According to the report, Intel’s $3.63 billion target-date portfolio series is the largest element in the company’s 401(k) plan as of the end of the first quarter, while its $5.82 billion global diversified fund is the biggest in the profit-sharing plan. According to Pensions & Investments, total limited partnership investments (which includes hedge funds and private equity, among other alternative investments) across both was $3.93 billion.

Sulyma worked for Intel from June 2010 to September 2012. His lawsuit was filed as a class action. The case is Sulyma vs. Intel Corporation Investment Policy Committee et al, 5:15-cv-04977.

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One Comment

  1. url url'>Dorann Cafaro
    Posted November 2, 2015 at 10:20 am | Permalink

    I can not help but think this might be their QDIA. But whether it was or not it is the plan’s TDF and the fiduciaries do need to have a written documentation of how they made the decision they made to construct/choose that specific TDF structure. If they have that in place hopefully it addressed the amount of risk they desired and expected to experience in their option. And if they have this documentation in place (and they followed it) they should have success defending this suit. If not….Do all your plans have documentation for their QDIA and TDF decisions. If not review the sample report at QDIA.com to see if this would meet your plan’s fiduciary duties should more participants follow this legal recourse to sue over a poor performing TDF option.

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