Supreme Court and DOL are pursuing parallel paths on ‘meaningful benchmarks’ —and what it means for DC plan management - Pensions & Investments

The Department of Labor and Supreme Court are working in parallel to establish consistent standards governing the use of "meaningful benchmarks" in ERISA litigation involving defined-contribution plan management. This coordinated regulatory approach addresses a growing source of uncertainty: conflicting rulings across federal appellate courts on what constitutes an adequate benchmark for plaintiffs alleging investment underperformance in 401(k) plans.

The divergence centers on evidentiary burdens and pleading standards. Most federal circuit courts have required plaintiffs pursuing relative-underperformance theories to identify a meaningful benchmark for comparison before advancing their claims. However, the Sixth Circuit's majority decision in the Parker Hannifin case—which oversees a $4.3 billion Cleveland-based 401(k) plan—departed from this consensus. That ruling overturned a district court dismissal of claims brought by Schlichter Bogard LLP on behalf of plan participants alleging that Northern Trust target-date funds suffered "significant and ongoing quantitative deficiencies" resulting in losses estimated between $45 million and $73 million, despite the availability of lower-cost alternatives.

In response, the DOL filed amicus briefs explicitly supporting plan fiduciaries and backing the Supreme Court's review of the case. The Labor Department noted that "the majority's reasoning departs from the consensus in other courts of appeals" and called on the Court to "grant review and restore uniformity to ERISA pleading standards." This intervention signals the DOL's view that the Sixth Circuit decision creates an undesirable litigation environment that weakens an important mechanism to prevent costly claims based on meritless pleadings.

Concurrently, the DOL has proposed a landmark rule on fiduciary duties in selecting designated investment alternatives, expected to be addressed by the Supreme Court in its fall 2026 term. The proposal aims to clarify how plan sponsors should evaluate alternative investments for inclusion in retirement plans and is anticipated to expand access to alternative investment products within 401(k) structures. For alternative investment managers, this regulatory convergence presents a strategic opportunity to develop products specifically designed to meet the clarified fiduciary selection standards emerging from both the Supreme Court decision and the DOL's final rule.

The resolution of the "meaningful benchmark" standard across these parallel regulatory pathways will materially impact plan sponsor exposure to ERISA litigation, the competitiveness of alternative investment managers seeking 401(k) platform inclusion, and the evidentiary thresholds required to sustain underperformance claims.