Statute of New Limitations: How the Intel Decision Changes ERISA Litigation Risk

The U.S. Supreme Court unanimously affirmed the Ninth Circuit’s opinion in the 2015 case Intel Corporation Investment Policy Committee et al. v. Sulyma in February. Now that the high court has rendered its decision, the case has been remanded back to the district court, where it will proceed on its merits. In the interim, the Supreme Court’s decision has an immediate impact on plan sponsors that rely on the 3-year statute of limitations as a pivotal part of their risk mitigation strategy.

The Claim

Christopher Sulyma, a participant in retirement plans sponsored by Intel from 2010 to 2012, filed suit in 2015. Generally, he claimed the fiduciaries invested excessively in alternative assets, e.g., hedge funds, private equities and commodities, which resulted in the payment of excessive fees and sub-par performance. Intel sought early dismissal under a 3-year statute of limitations by claiming that Sulyma had “actual knowledge” of the investments during the time period in question. Intel’s defense was based on factual evidence that Sulyma had actual knowledge because he had received Fund Fact Sheets from 2010, 2011, and 2012, as well as the 2011 Qualified Default Investment Alternative Notice.

The Statute

ERISA § 413(1) provides for a 6-year statute of limitations and ERISA § 413(2) provides for a 3-year statute of limitations. A plaintiff has up to 3 years to bring a lawsuit against a fiduciary for an alleged fiduciary breach or violation when he or she has “actual knowledge” of the breach (except in the case of fraud or concealment). If the plaintiff has no knowledge of the breach, the period is 6 years.

Unfortunately, there is a long history of debate regarding what constitutes actual knowledge because the determination is inherently subjective. The Second, Third, Fifth, Sixth, Seventh and Eleventh Circuits had issued a plan-sponsor-friendly interpretation regarding actual knowledge, holding that the mere delivery of the appropriate disclosures meets the actual knowledge requirement. Their position no longer holds water since SCOTUS affirmed the Ninth Circuit’s position that “actual knowledge” means what it says.

According to SCOTUS, ERISA’s 3-year limitations provision requires more than evidence of disclosure alone. To meet § 1113(2)’s “actual knowledge” requirement, the plaintiff must in fact have become aware of that information.

Experience

SCOTUS provided its perspective, but it leaves a plan sponsor with little consolation and much consternation. According to SCOTUS, actual knowledge requires that a plaintiff must be aware of the information, which a plan sponsor can demonstrate by:

1. A plaintiff’s admission that he or she recalls reading the disclosure and was therefore aware of the information.
2. Circumstantial evidence which SCOTUS did not define but that is considered to be documented records that prove the plaintiff viewed the electronic information and took some action in response.
3. Providing evidence the plaintiff is “willfully blind” to the information.

Plan Sponsor Options

For the conscientious plan sponsor that is focused on meeting the 3-year statute as a risk mitigation strategy, now is the time to reevaluate the reporting and disclosure support provided by their covered service provider. The focus of their inquiry should be on solutions that:

1. Address required sign-ins with a description of the material covered for all participant enrollment, communication and education meetings.
2. Address participant surveys to confirm comprehension of the materials covered.
3. Address required disclosures on enrollment forms that acknowledge receipt of all necessary disclosures and the participant’s understanding of the risks associated with the investments selected.
4. Require a participant to accept a “Terms of Use” that acknowledges they read, understand and acknowledge responsibility for their investment decisions before accessing account information electronically.
5. Require that participants attend online education, i.e., a Learning Management System that includes a quiz to confirm comprehension to support actual knowledge before investing.

Conclusion

The courts should be watched closely as consultants and plan sponsors consider their risk mitigation strategies. In light of the Intel decision, “actual knowledge” will require a coordinated effort with the recordkeeper. Recordkeepers that provide a cost-effective solution will likely see an increase in business activity as risk-adverse plan sponsors seek to implement risk mitigation strategies that intend to make use of the 3-year statute of limitations.