A majority of justices on the Supreme Court seem to think posting 401(k) plan documents online isn’t enough for companies to shorten the amount of time participants have to sue plan managers for mishandling investments.
“Most people don’t read them,” Justice Brett Kavanaugh said during oral arguments Dec. 4.
The case, which stems from a dispute over hedge fund and private equity investments in Intel Corp.’s 401(k) plan, has the potential to set a standard for determining how long employees have to file a lawsuit under the Employee Retirement Income Security Act.
The federal law generally gives plan participants six years to sue those managing retirement plans for breaching their fiduciary duty to act prudently and diversify investments to minimize the risk of large losses. But that window is shortened to three years if the participant had “actual knowledge” of the violation sooner.
Intel’s retirement committee argued that all the relevant information was disclosed to former Intel engineer Christopher Sulyma more than three years before he filed his lawsuit in 2015. The committee said it posted plan documents online detailing the investments and sent plan participants email notifications with links to the documents.
But Justice Ruth Bader Ginsburg said even she doesn’t read all the documents she receives about her investments.
“It’s hard to read the word ‘actual’ other than ‘yes, I in fact know,’” she said.
If the justices ultimately side with Sulyma, the decision could help more ERISA claims advance to trial.
Intel’s retirement committee wants the Supreme Court to overturn the U.S. Court of Appeals for the Ninth Circuit, which said there was no evidence to show that Sulyma had read the documents he was provided. Because there was a factual dispute about whether he had “actual knowledge” of the violation, the lower court said Sulyma’s lawsuit wasn’t filed too late.
Donald Verrilli Jr., who argued on behalf of Intel’s retirement committee, said the Ninth Circuit’s decision upends a delicate balance ERISA establishes between the robust disclosures required of plan fiduciaries and the ability of participants to privately police their plans.
“Congress set this system up in 1974,” said Verrilli, a partner at Munger, Tolles & Olson LLP who served as solicitor general under the Obama administration. “It made clear that the disclosure regime was a very important part of the regulatory program.”
Verrilli said he thinks the understanding Congress was operating under when it passed the law was that people do read these disclosures when they come and therefore disclosing them to participants is enough to trigger the three-year deadline.
Ginsburg noted it may be easy for people to claim they never read the documents.
“How can the veracity of that statement be tested?” she asked Sulyma’s attorney, Matthew Wessler, a principal at Gupta Wessler PLLC.
Wessler acknowledged it would require some fact-finding.
“It is entirely possible that circumstantial evidence would prove that a plaintiff either read or knew of a particular fact,” he said.
During the hour-long proceedings, Wessler argued that most people assume their plan managers are acting in their best interest.
“Given that real-world understanding, I think it’s perfectly sensible that Congress decided not to start the three-year clock running the moment a participant receives these disclosures,” he said.
But if Congress wanted plan participants to have a six-year window to file a lawsuit, Justice Samuel Alito Jr. wanted to know why Congress would go to the trouble of including the “actual knowledge” requirement.
“Why not just have the six-year period in recognition of the fact that a lot of people, maybe most people, maybe nearly everybody, doesn’t read these things, doesn’t understand them? Why is it worth the effort?” he asked Matthew Guarnieri, an assistant to the current solicitor general, who argued in support of Sulyma.
The six-year provision is a backstop, Guarnieri explained. He said it could kick in if a participant consulted with a financial adviser who told them their investments in their plan were imprudent.
“A conversation like that would give that plaintiff actual knowledge of the breach or violation, if the claim is that the investment was imprudent and that’s not fanciful,” he said. “There are cases like that.”
Regardless of the court’s decision, the case is unlikely to end disputes over the statute of limitations for ERISA claims, one attorney who attended the arguments said.
Jaime Santos, a partner at Goodwin Procter LLP, noted there were questions from the justices about how a ruling in Sulyma’s favor would affect certifications in class actions and whether plan participants have to also understand the law enough to know a violation occurred from the information they’re provided.
“I don’t think this is the last we will see of this issue before the court,” she said.
The case is Intel Corp. Investment Policy Comm. v. Sulyma, U.S., No. 18-1116, 12/4/19.