Under ERISA, a plaintiff must file a lawsuit within six years of an alleged breach of fiduciary duty, or within three years if the plaintiff had “actual knowledge” of the breach. There has been a longstanding split among the circuits regarding what constitutes “actual knowledge” for purposes of determining whether ERISA’s three-year limitations period should apply. On February 26, 2020, the Supreme Court settled this issue in Intel Corp. Investment Policy Committee v. Sulyma, 140 S. Ct. 768 (2020). In that decision, the Supreme Court held that a participant must have a genuine subjective awareness of information, and, therefore, the mere availability of plan disclosures will not, in itself, establish “actual knowledge” of a potential breach of fiduciary duty under ERISA.
In light of this decision and the Department of Labor’s recent issuance of a final rule on the new safe harbor for the electronic delivery of retirement plan notices, plan sponsors will want to consider how this safe harbor might help them satisfy the actual knowledge standard set forth in Intel. (For more information on the final rule, please see our article “At Last! DOL Issues New Electronic Disclosure Safe Harbor for Retirement Plans”).
In the Intel case, plaintiff Sulyma worked for Intel and participated in two Intel retirement plans. Sulyma brought suit against the Investment Policy Committee of these plans alleging that the plan fiduciaries breached their fiduciary duty by over-investing in certain alternative investments (hedge funds, private equity and commodities). In its defense, Intel argued that Sulyma’s claim was barred by ERISA’s three-year statute of limitations because Sulyma was provided various ERISA-mandated disclosures about the plans’ alternative investments, giving him “actual knowledge” of the alleged breach of fiduciary duty more than three years prior to his filing of the lawsuit. The district court ruled in Intel’s favor, finding that Sulyma’s claims were barred by the statute of limitations even if, as Sulyma argued, he did not “remember reviewing” the disclosures. The Ninth Circuit reversed, holding that “actual knowledge” requires that the participant actually know the facts underlying his claim.
In unanimously upholding the Ninth Circuit’s decision, the Supreme Court focused on lay person and legal definitions and ERISA legislative intent to find that ERISA “requires more than evidence of disclosure alone…to meet §1113(2)’s ‘actual knowledge’ requirement, however, the plaintiff must in fact have become aware of that information.” The Court took no position on the Ninth Circuit’s analysis of the question of what exactly a plaintiff must actually know about a defendant’s conduct and the relevant law in order for the shorter three-year limitation period to apply.
In addition, the Court specifically emphasized that “nothing in this opinion forecloses any of the ‘usual ways’ to prove actual knowledge” such as using of electronic records to show that a plaintiff viewed the relevant disclosures, and other evidence suggesting that the plaintiff took action in response to the information contained in them. The Court also made it clear that future plaintiffs could not claim lack of knowledge of such disclosures through “willful blindness” or false deposition testimony.
While the Court’s decision is a narrow one, it will likely make it more difficult for plan fiduciaries to succeed on a three-year statute of limitations defense. However, qualified retirement plan sponsors and fiduciaries will want to consider whether the new electronic disclosure safe harbor might help them satisfy the actual knowledge standard set forth in Intel. The DOL rule allows electronic delivery of any ERISA-required pension benefit plan notice, if specified requirements are met. However, the new disclosure rule will not be helpful under the Intel decision unless it can be proven that the plaintiff actually read the disclosure being given out.
By delivering required ERISA notices and disclosures in accordance with the Final rule, it may be possible to better track a plan participant’s engagement with the disclosures such as the number of times a participant viewed the disclosure and for how long. In addition, it may also be worth adding an electronic acknowledgment or “scroll-wrap” feature with each disclosure, which would require a participant to acknowledge that they received and understand the information provided. Evidence of a participant’s acknowledgment of the disclosure might later serve as evidence in proving that the participant had “actual knowledge” and help reduce potential exposure to fiduciary liability.