Intel Wins Suit Over Use of Alternative Investments

A federal district court judge has found that claims against Intel Corporation’s Investment Policy Committee for its retirement plans is time-barred under the Employee Retirement Income Security Act’s (ERISA)’s three-year statute of limitations.

Christopher M. Sulyma filed a lawsuit on behalf of two proposed classes of participants in the Intel 401(k) Savings Plan and the Intel Retirement Contribution Plan, claiming that the defendants breached their fiduciary duties by investing a significant portion of the plans’ assets in risky and high-cost hedge fund and private equity investments through custom-built target-date funds.           

The lawsuit says the Intel custom-built funds have underperformed peer funds by approximately 400 basis points annually. The lawsuit claims automatic enrollment and a reenrollment of existing participants resulted in more than two-thirds of participants being allocated to custom-built investments. It goes into great detail about why the plaintiffs believe hedge funds and private equity funds are inappropriate investments for ERISA retirement plans.

Intel defendants moved for summary judgment on all of Sulyma’s claims, arguing that the claims are time-barred under the statute of limitations. U.S. Magistrate Judge Nathanael M. Cousins of the U.S. District Court for the Northern District of California noted that the key issue is whether Sulyma had actual knowledge of the underlying facts constituting his claim within three years of filing his lawsuit.

Sulyma brought six claims: claims I and III allege the Investment Committee defendants breached their fiduciary duties by over-allocating the assets of the 401(k) Plan and Retirement Plan to hedge fund, private equity, and other alternative investments. Claims II and IV allege the Administrative Committee defendants breached their fiduciary duties by failing to disclose required information about the funds. Claim V alleges that the Finance Committee defendants breached their fiduciary duties by failing to monitor the Investment Committee and Administrative Committee. Claim VI alleges that each defendant has derivative liability for the actions of the other defendants.

“Because there is no genuine dispute of material fact that Sulyma had actual knowledge of the facts comprising claims I and III, as well as knowledge of the disclosures he alleges were unlawfully inadequate in claims II and IV, the Court grants defendants’ motion for summary judgment on those claims, finding them time-barred,” Cousins wrote in his opinion. “Without live primary claims, the Court also grants summary judgment on Sulyma’s derivative duty to monitor and co-fiduciary liability claims (claims V and VI).”

According to the defendants, Sulyma had actual knowledge of the facts constituting the alleged violations of ERISA more than three years before he sued, through “annual notices, quarterly Fund Fact Sheets, targeted emails, and two separate websites.”

Sulyma asserts the financial documents Intel uses to attribute actual knowledge on his part were not easily accessible, and often misleading or inconsistent, though he admits he never looked at those documents to begin with. The documents Sulyma acknowledges receiving and reviewing are the Intel 401(k) and Intel Retirement Contribution Retirement Savings Statements, which “consistently advised him from 2010 to 2013 that he was invested in ‘stock 63%, bonds 16%, short-term 21%.’” The Savings Statements say nothing about investments in private equity or hedge funds.

Cousins noted that actual knowledge exists when a plaintiff knows of the transaction constituting the alleged violation. He rejected Sulyma’s argument that it should adopt a “willful blindness” standard for actual knowledge, saying the cases cited by Sulyma are unpersuasive and do not address ERISA.

Cousins found that Sulyma had actual knowledge of the facts underlying his substantive claims because the financial disclosures provided information about plan asset allocation and an overview of the logic behind investment strategy. According to the opinion, the 2011 Qualified Default Investment Alternatives Notice, 2012 Summary Plan Description, 2012 Annual Disclosures, and targeted emails notified Sulyma of the challenged investment allocations. Taking into consideration the parties’ arguments at the December 14, 2016, hearing, and after review of these documents, Cousins agreed these documents provided Sulyma notice of how his investments were allocated.

Though he does not recall reviewing the Summary Plan Descriptions, each year Sulyma was a plan participant, a Summary Plan Description was made available on the NetBenefits website describing the assets held by the two funds in which he invested—the GDF and TDF, the opinion says. Regarding Sulyma’s holdings in the TDF, for example, the 2012 Summary Plan Description advised Sulyma that “[e]ach fund offers a broadly diversified mix of domestic and international stocks and bonds, and includes investments not typically available to individual investors, such as hedge funds and commodities.” As to the GDF, the same Plan Description advised Sulyma that the asset mix of the GDF included “domestic and international equity, global bond and short-term investments, hedge funds, private equity, and real assets (e.g. commodities, real estate & natural resource-focused private equity).”

“Thus, the Summary Plan Descriptions informed plan participants that the TDF and GDF contained the alternative investments he now alleges were imprudent,” Cousins wrote.

In addition, according to the opinion, Fund Facts Sheets available to Sulyma on the NetBenefits website disclosed the amount in which the TDF and GDF were invested in hedge funds or private equity in narrative and graphic formats, and explanations for the inclusion of those alternative investments. “These June 2012 Fund Fact Sheets demonstrate Sulyma had actual knowledge of the elements of his imprudence claims more than three years before he filed suit regarding the allocations,” Cousins concluded.