Fiduciaries on Intel Corp.’s investment policy committee arebeing sued in United States District Court for the NorthernDistrict of California for directing hundreds of millions ofparticipant 401(k) assets to hedge fund and private equityinvestments in the company’s customer target-date fund.

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The suit also alleges participants in the company’s customizedGlobal Diversified Fund were exposed to asset allocation modelsthat “departed dramatically from prevailing standards employed byprofessional investment managers and plan fiduciaries,” accordingto court documents.

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That Global Diversified Fund was the sole investment option tothe “overwhelming majority” of participants in the plan, the claimalleges.

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Intel’s investment committee designed and managed the customizedfunds until early in 2015, when AllianceBernstein was hired tomanage the assets.

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Both the target-date options and the diversified fund investedin the same underlying nine investments, including an alternative investment fund,comprised of private equity investments, a hedge fund investment, and a stablevalue fund.

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Beginning in 2011, the investment committee began makingaggressive allocations to the alternative investments in Intel’scustom target-date funds, increasing assets in the hedge fundoption from about $50 million to $680 million, and increase of1,300 percent.

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Intel’s in-house management team began directing massive flowsto alternatives between 2009 and 2014, when assets in the hedgefund investment increased from roughly $582 million to about $1.67billion.

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Investments in the alternative fund increased from $83 millionto $810 million in the same period.

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The extent of those investments deviated from “prevailing” assetallocation models and exposed participants to “unreasonably costlyand risky investments,” resulting in “hundreds of millions” inlosses to participants in the six years preceding the filing of theclaim.

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The claim alleges Intel’s custom target-date fundsunderperformed peer TDFs by 400 basis points annually. In June2015, the assets in the custom funds were estimated to be 3.63billion.

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“Given the underperformance compared to peer TDFs, and thebillions of dollars allocated to Intel TDPs, the Plans have losthundreds of millions of dollars that they would have otherwiseearned had the Intel TDPs been prudently allocated since 2011,”according to the complaint.

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The claim also alleges Intel’s Global Diversified Fundunderperformed Vanguard’s balanced fund by 50 basis pointsannually.

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As of June 2015, $5.82 billion of $6.66 billion of total planassets were invested in the Global Diversified Fund.

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The lone named plaintiff in the suit is a physicist who spentabout two years at an Intel facility in New Mexico. Intel isheadquartered in Santa Clara, California.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.