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Intel 401(k) Ruling Settles One Issue, Leaves Others Waiting (1)

Feb. 27, 2020, 7:30 PMUpdated: Feb. 27, 2020, 9:08 PM

In settling one dispute over the law that governs retirement plans, the Supreme Court may have opened the door for others down the road.

The court set a new standard for determining the deadline for litigation over 401(k) plans under the Employee Retirement Income Security Act in a unanimous ruling Wednesday, but attorneys for plan sponsors say the decision left additional questions unanswered that could make their way back into court.

Sending employees and retirees plan information online or by mail isn’t enough for employers to shorten the six-year deadline for litigation to three years, the high court found. The justices said plan participants must read those documents because the law requires “actual knowledge” of the alleged violation in order for the lawsuit window to shrink.

The court didn’t say what information plan participants actually have to know in order to trigger the three-year deadline, attorneys for plan sponsors said.

“What facts do you have to know and do you have to know and appreciate the legal implications of it?” Jaime Santos, a partner at Goodwin Procter LLP, said.

The court explicitly noted that it wasn’t asked, and therefore didn’t address, what exactly a plaintiff must actually know about a defendant’s conduct and the relevant law in order to trigger a shorter filing deadline. The statement came in a footnote and reads like an invitation for defense attorneys to raise the question in future litigation.

“The question of what constitutes actual knowledge is something the Supreme Court might need to step in and resolve in future cases,” said Brian Netter, a partner at Mayer Brown LLP. “But the real open question the court explicitly alludes to in the last couple paragraphs of the opinion has to do with when actual knowledge can be adjudicated.”

Actual Knowledge

In briefing and during oral arguments, Intel warned the justices against articulating a standard of actual knowledge that could only be resolved at trial, where attorneys could question plaintiffs about what they knew or read. That’s a cumbersome and expensive way to resolve a question of law and would open employers to more court time.

But the opinion, authored by Justice Samuel Alito, signaled that courts can find at summary judgment that a disclosure did give an employee or retiree actual knowledge even if that person refuses to admit what he knew or what he looked at, Netter said.

Alito specifically says, “nothing in this opinion forecloses any of the ‘usual ways’ to prove actual knowledge at any stage in the litigation.” He also said “evidence of disclosure would no doubt be relevant, as would electronic records showing that a plaintiff viewed the relevant disclosures and evidence suggesting that the plaintiff took action in response to the information contained in them.”

Netter said “the necessary follow up question, then, is what information is sufficient to show that a participant actually got the information.”

Alito also made clear there’s nothing stopping attorneys from providing evidence that shows a plan participant deliberately ignored plan documents.

Santos said that poses another question for courts: Is evidence of “willful blindness” enough for a court to agree that a person had actual knowledge of the alleged violation?

Theoretical Questions

Attorneys for plan participants are less concerned that these questions will become big battleground areas in ERISA litigation.

What information plan participants must know theoretically is an open issue, said Michelle Yau, a partner at Cohen Milstein Sellers & Toll PLLC, but she predicted it won’t see much action in court.

Courts may eventually have to grapple with what information employees or retirees actually have to know, but that isn’t necessarily new, said Jerry Schlichter, founding and managing partner of Schlichter Bogard & Denton LLP.

“Those questions have already been there,” he said.

Arguing someone was willfully blind would be a relatively new tactic for defense attorneys. “The idea that someone would intentionally not read materials so that they can take a position in court is just not a significant question or common occurrence,” Schlichter said.

Express Acknowledgment

Wednesday’s ruling increases employers’ risk of litigation by making it harder to prove a participant had actual knowledge of an alleged violation, benefits attorneys say it can still be done.

“I think the biggest takeaway here is that the court did say expressly that traditional means of establishing actual knowledge still apply,” said Joshua Lichtenstein, a partner in the ERISA group at Ropes & Gray LLP.

For example, the court said electronic evidence that someone reviewed a disclosure will be taken into consideration, he said.

As more people are talking about electronic disclosures, Lichtenstein said plan sponsors and record keepers should consider adding some express acknowledge agreement to their online disclosures that make participants do something like check a box to concede they’ve read the form.

But will that sort of acknowledgment be enough?

“You would think record-keeping vendors would read this opinion and would develop methods for getting participants to acknowledge receipt of information. And the courts will have to rule on what sort of acknowledgment is sufficient,” Netter said.

(Updates with additional comment in the last paragraph. An earlier version corrected the spelling of Michelle Yau's name.)

To contact the reporter on this story: Lydia Wheeler in Washington at lwheeler@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Brent Bierman at bbierman@bloomberglaw.com

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