It was in “This is Spinal Tap” where I heard the line how there was such a fine line between stupid and clever.
When it comes to protecting retirement plans, I always say KISS, the acronym for “keep it simple stupid”. So many times I have seen plan sponsors try to be clever and there is always a high price to pay for being clever.
Intel is currently being sued by plan participants for allowing hedge fund investments in their 401(k) plans. Participants under the age of 50 were enrolled in a Global Diversified Fund with 37% exposure to hedge funds.
Hedge funds are an appropriate investment by plan sponsors for defined benefit plans where they exercise investment selection and since there are no accounts, it’s harder for plan participants to sue like under a 401(k) plan because they can eerily demonstrate harm by showing the losses in their personal account balance.
I think allowing hedge funds in any type of 410(k) plan whether participant directed or not, is a problem that has no solution. Intel as one of the top companies out there made themselves a target by allowing hedge funds because ERISA litigators are in the target business. Looks like they found a nice target and Intel should have known better. The problem is that these investment decisions were done in-house. Maybe hiring Alliance Bernstein and the litigation will shift their strategy.