U.S. Supreme Court Rules “Actual Knowledge” under ERISA’s Three-Year Statute of Limitations “Means What It Says”

In Intel Corporation Investment Policy Committee v. Sulyma, the U.S. Supreme Court unanimously sided with the plan participant, allowing his breach of fiduciary duty claims to proceed because he claimed not to have “actual knowledge” under ERISA § 413(2) of claims challenging the plan fiduciaries’ investment decisions—despite receiving plan literature disclosing the details of those investments. If the plan participant is found to have “actual knowledge” of the fiduciary breach, he or she has a three-year period, running from the breach or violation, to file suit. Where no “actual knowledge” is found, however, a longer six-year statute of limitations applies.

The Sulyma decision could very well increase the number of participants who bring breach of fiduciary duty cases against trustees of 401(k) plans when investment funds do not perform as well as participants would like or when plan fees are higher than expected. The decision also calls into question the type of investment disclosures that might increase the chances that a court finds “actual knowledge.” In the current investment market, this case has potential sweeping implications. 

The Lawsuit

The plaintiff, Christopher Sulyma, worked at Intel for two years. During that time, he was a participant in two of Intel’s retirement plans, and his assets were invested in a Target Date 2045 Fund and the Intel Global Diversified Fund. After the market declined in 2008, the Intel Investment Committee increased the funds’ shares of alternative assets to stabilize the portfolio, which involved higher fees. Sulyma alleged that the two funds underperformed compared to the investment performance of other retirement portfolio options. He then sued the plan administrator, claiming it had breached its fiduciary duties by investing in alternative assets including hedge funds, private equity, and commodities. 

The plan administrator filed for summary judgement, alleging Sulyma’s claim was untimely. Specifically, Sulyma worked at Intel from 2010-2012, but he did not file the suit until 2015. Thus, he had “actual knowledge” of the plans’ investments before he filed suit and was outside the three-year limitations period. In support of its motion, the plan administrator submitted evidence that Sulyma had received several notices disclosing the plans’ investments in alternative assets. These notices included the summary plan descriptions, Qualified Default Investment Alternative (QDIA) notices, and a set of fund fact sheets. The plan administrator could also prove that Sulyma visited the service provider’s website, where these disclosures were hosted, dozens of times. 

However, Sulyma testified he didn’t remember reviewing any of the disclosures and he was not aware that his retirement assets were invested in hedge funds or private equity. He claimed that he remembered reviewing only account statements that directed him to the benefits website and that the retirement plans were invested in “short-term/other” assets without specifying which types of assets. Accordingly, he argued that the six-year limitations period applied, running from the “last action which constituted a part of the breach or violation.”

The District Court found that because Sulyma had been given the disclosures, he had “actual knowledge” of the facts underlying his claims while he was working at Intel and that his claim was filed outside the three-year limitations period. The U.S. Court of Appeals for the Ninth Circuit reversed, holding that “actual knowledge” means that “the plaintiff is actually aware of the facts constituting the breach, not merely that those facts were available to the plaintiff.” 

The Decision

The Supreme Court affirmed the Ninth Circuit in a rare unanimous decision, agreeing that a plan participant does not necessarily have “actual knowledge” of the information contained in disclosures they receive, where they claim to have not read or cannot recall reading those disclosures. To satisfy the “actual knowledge” requirement, the plan participant must “in fact have become aware of that information.” The Supreme Court also distinguished between “actual knowledge” and a “constructive knowledge” requirement that Congress has required in other ERISA limitations periods.  

The Court reasoned that “actual knowledge” means exactly that and nothing less. According to the Court, ERISA § 413(2) requires “more than evidence of disclosure alone.” An individual “must in fact have become aware of that information.” It was not enough for Sulyma to have constructive knowledge based on the plan administrator providing the disclosures.

The Court acknowledges that we can expect few plan participants to clearly remember reading and digesting the contents of ERISA disclosures. In fact, several of the justices admitted they also rarely read the investment fund disclosures. 

The Court did observe that nothing in its opinion forecloses any of the “usual ways” to prove actual knowledge at any stage in the litigation, including through “inference from circumstantial evidence.” Further, evidence of disclosure remains relevant, even if not sufficient on its own to demonstrate “actual knowledge.” In addition, the opinion does not prevent defendants from arguing that evidence of “willful blindness” supports a finding of “actual knowledge.”

Takeaways

After Sulyma, retirement plan fiduciaries will need to closely assess whether providing lengthy disclosure notices will be sufficient to invoke ERISA’s three-year statute of limitations period. Instead, they will need to consider how to face a more onerous burden of proving plan participants had “actual knowledge.” Sulyma creates a risk that the three-year statute of limitations period is neutralized unless a plan participant admits to actual knowledge, which is unlikely in a litigation setting. Effectively, that means most plan participant claims may instead be subject to the six-year statute of limitations under ERISA § 413(2). As a result, this holding provides plan participants a much longer time period to armchair quarterback and ponder whether to bring claims against plan fiduciaries to challenge the prudence of investment plan option selection and management decisions. 

Nonetheless, the Court did provide a road map for what plan fiduciaries may do to prove “actual knowledge.” At the outset, it is worth reiterating that the disclosures typically provided by the plan administrator may still be provided as evidence to support a finding of “actual knowledge.” It is also worth taking another look at the level of detail included in mailed account statements that are directed to plan participants. In addition, plan fiduciaries should brainstorm ways to maintain records to support a finding that plan participants actually did review the electronic disclosures. For example, plan fiduciaries may want to discuss with their service providers the available methods to track whether participants have requested copies of or actually accessed the electronic disclosures. Additionally, if plan fiduciaries maintain a record of acknowledgements when plan participants access these disclosures, it may be more difficult for plan participants to simply assert they did not read or do not specifically remember the relevant disclosures.  
 
For more information, please contact Gary Blachman, Reena Bajowala, Austin Anderson, or the Ice Miller LLP attorney with whom you work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.