The Supreme Court ruled employers can’t shorten the window 401(k) participants have to sue over alleged plan mismanagement by simply posting plan information online or sending disclosures in the mail.
In a unanimous ruling, the court said Wednesday that plan participants don’t necessarily have “actual knowledge” of the alleged violation required under the law to shorten the litigation window to three years if they received information about the alleged violation in disclosures but did not read or can’t recall reading them.
Plan participants generally have six years under the Employee Retirement Income Security Act to sue those managing retirement plans for not being prudent with investments. But that window is shortened to three years if the participant had “actual knowledge” of the violation sooner.
“Although ERISA does not define the phrase ‘actual knowledge,’ its meaning is plain,” Justice Samuel Alito said in delivering the court’s majority opinion.
The dispute before the high court stemmed from a proposed class action former Intel Corp. engineer Christopher Sulyma brought against the company’s retirement committee in 2015. Sulyma alleged the committee over-allocated retirement savings to hedge funds and private equity investments between 2010 and 2012, and failed to properly notify participants.
But Intel argued it was too late for Sulyma to sue because all the information he needed to know that the violation had occurred was sent to him prior to 2015, and the district court agreed. The Ninth Circuit ultimately reversed that ruling, leading to this appeal.
In the 12-page opinion affirming the Ninth Circuit’s decision, Alito addressed Intel’s claim that siding with Sulyma would allow participants to simply deny they had knowledge of the alleged violation and cut employers off from being able to shorten the litigation window, a benefit ERISA provides to protect them from suits over bygone investment decisions.
Even if that were true, the court “can’t say that heeding that the clear meaning of the word ‘actual knowledge’ renders the statute so incoherent that it must disregarded,” Alito said.
Jerry Schlichter, founding and managing partner of Schlichter Bogard & Denton, LLP, one of the leading firms that represent plan participants, called the court’s decision a win for
That’s because “the court has held that the statute means what is says: Actual knowledge means actual knowledge of the facts,” he said. “One doesn’t have actual knowledge imputed because she received a mailing. Numerous courts have held this to be the case already, but this Supreme Court decision clarifies that that will be followed by all courts moving forward.”
But Alito noted that nothing in the court’s opinion forecloses any of the usual ways that actual knowledge can be proved in litigation.
“Plaintiffs who recall reading particular disclosures will of course be bound by oath to say so in their depositions,” he said. “On top of that, actual knowledge can be proved through ‘inference from circumstantial evidence.’”
In an email, a spokesman for Intel said the company does not have any comment on the court’s decision.
Attorneys were closely watching the case for a standard in determining how long employees have to file lawsuits under ERISA.
“It does create a uniform rule nationwide that didn’t exist, and I tend to think that’s good no matter what that standard is, but gosh the opinion sure leaves a lot open that will be litigated in the future,” said Jaime Santos, a partner at Goodwin Procter LLP, said.
She notes the court’s ruling does not answer questions about what information a plan participant must actually know for the three-year litigation period to be triggered. The court explicitly said in a footnote of the opinion that question was not before the court and one they did not address.
The ruling overall, however, was not a surprise for Santos.
“Alito’s opinion pretty much stopped at the word ‘actual,’” she said. “You have to actually know something to have actual knowledge of it. It reflects the textualist court we have now.”
The case is Intel Corp. Inv. Policy Comm. v. Sulyma, U.S., No. 18-1116, 2/26/20.