Intel Corporation is facing a lawsuit over the oversight of its $14.6 billion employee retirement plans. Intel’s employee retirement plan made big bets on hedge funds and private equity, sparking a lawsuit from a former employee, Christopher M. Sulyma, in October. The lawsuit names Intel and members of its board who oversee the plan’s operation and investments as defendants.
The lawsuit contends that Intel’s retirement plan investments in hedge funds and private equity have increased risks, raised costs, and hurt plan participants. The lawsuit contends that Intel employees paid higher costs and lost hundreds of millions in income they would have received if they had been investing in plain vanilla funds. Back in 2005, Intel employees were in a plain vanilla plan, investing primarily in large-capitalization stocks in the Standard & Poor’s 500.
Most of the lawsuits against 401(k) plan sponsors involve high and often hidden fees levied on participants. Recent lawsuits brought against companies offering 401(k) plans to their workers have been increasingly successful.
Intel is a respected Silicon Valley computing giant. However, company’s approach to its retirement plan was atypical as laid out in the lawsuit. The Intel plan were devised by the company’s investment committee, who chose mutual funds, hedge funds and limited partnerships as investment vehicles to achieve plan participants’ goals and determine asset allocations. Many companies choose an outside firm to create a plan consisting of low-cost mutual funds. Hedge funds, private equity portfolios and commodities are far less common in 401(k) plans, as the plans typically limit investment choices to mutual funds holding publicly traded stocks and bonds to limit risk.
The lawsuit claims Intel made inadequate disclosures about these instruments, leaving participants unable to make an informed decision about whether the investments were prudent. The lawsuit also claims that the retirement plan is being run in a manner inconsistent with fiduciary requirements. An Intel spokesman declined to comment on the litigation. Earlier this year, Intel handed over the oversight of the retirement plan to AllianceBernstein.