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Oct. 30 — Fiduciaries of Intel Corp.'s 401(k) plans were hit with a proposed class action alleging they breached their duties by investing a significant portion of the plans' assets in risky and high-cost hedge funds and private-equity investments.
The complaint, filed Oct. 29 in the U.S. District Court for the Northern District of California, alleges that the plans' fiduciaries deviated significantly from professional investment norms when they dramatically altered the plans' asset allocation models to invest in the hedge funds and private-equity investments.
As many as 100,000 Intel employees who participated in the 401(k) plans could be included in the lawsuit if the case is certified as a class action under the Employee Retirement Income Security Act.
The main defendant in the lawsuit is Intel's investment policy committee that was charged with oversight of the investments in Intel's two defined contribution retirement plans. According to the complaint, the committee was recently replaced by AllianceBernstein LP as investment manager.
Until it was replaced, the investment committee was responsible for choosing and managing the plans' investments. In this role, the committee created target date funds and the Intel Global Diversified Fund. According to the complaint, these investments weren't actually “funds,” but instead were a set of asset allocation strategies directing participant accounts to several underlying funds.
The complaint alleges that the plans invested in these funds pursuant to the asset allocation models adopted by the investment committee for the TDFs and the diversified funds. Thus it was the investment committee—not the plans and their participants—that dictated the amount of participants' assets allocated to each TDF or diversified fund, the complaint alleges.
According to the complaint, beginning in 2011 until the first quarter of 2015, the investment committee dramatically altered the asset allocation model for the TDFs by increasing their investments in hedge funds from about $50 million to $680 million.
From 2008 through the first quarter of 2015, the investment committee increased the diversified fund's exposure to hedge funds from $582 million to $1.665 billion. The diversified fund's investment in private equity also increased during this time, from about $83 million to $810 million.
“The Investment Committee's allocation decisions not only deviated greatly from prevailing asset allocation models adopted by investment professionals and plan fiduciaries, but also exposed the Plans and their participants to unreasonably costly and risky investments in hedge and private equity funds,” the lawsuit alleges.
The complaint goes on to allege that Intel's TDFs underperformed peer TDFs by approximately 400 basis points annually. Because there were billions of dollars allocated to the TDFs, the complaint alleges that the plans have lost “hundreds of millions of dollars” they would have earned if the Intel TDFs had been prudently allocated.
Intel told Bloomberg BNA on Oct. 30 that it has no comment on the lawsuit.
The complaint was filed by Cohen Milstein Sellers & Toll PLLC, Bailey & Glasser LLP, Creitz & Serebin LLP and Major Khan LLC.
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Text of the complaint is at http://www.bloomberglaw.com/public/document/Sulyma_v_Intel_Corporation_Investment_Policy_Committee_et_al_Dock.
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