Former Employee Sues Intel Corp. Over Hedge Fund, PE Allocations in Retirement Plans

Oct 30 2015 | 7:01pm ET

A raft of Intel Corporation officials are being sued by a former employee over the company’s inclusion of hedge and private equity funds in the portfolios of its defined-contribution retirement and profit-sharing plans.

The action was filed on Thursday in U.S. District Court in Northern California by former Intel employee Christopher Sulyma. It accuses several Intel executive and board-level committees and individuals of allegedly breaching their fiduciary duties under ERISA by allocating capital from its 401(k) and profit-sharing plans earmarked for the firm’s custom target-date portfolios and global diversified fund to what it characterizes as “risky and high-cost” hedge funds and private equity funds. 

According to court documents, participants were also allegedly not made fully aware of the risks, fees and expenses associated with the hedge fund and private equity investments, nor to the underperformance of the company's target-date and global diversified funds compared to their peers. As a result, the lawsuit contends Intel plan participants missed out on gains.

“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,” states the lawsuit. 

The lawsuit contends that starting in 2011, Intel’s investment committee hiked the allocation for hedge funds in the firm’s target-date portfolios from $50 million to $680 million. Meanwhile, allocation for hedge funds in the diversified global fund rose from from $582 million to $1.665 billion, and to private equity investments from $83 million to $810 million, between 2009 and 2014. 

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 and Investments, total limited partnership investments (which includes hedge funds and PE as well as wide swath of other alternative investments) across both was $3.93 billion. 

Sulyma worked for Intel from June 2010 to September 2012 and his lawsuit was filed as a class action. In June, Intel hired AllianceBernstein to manage the target-date portfolio series and the global diversified fund.

The case is Sulyma vs. Intel Corporation Investment Policy Committee et al, 5:15-cv-04977.

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