Trial News

To be held to the Employee Retirement Income Security Act’s (ERISA) three-year statute of limitations, ERISA-governed retirement plan participants alleging breach of fiduciary duty must have “in fact become aware” of the alleged breach, the U.S. Supreme Court has held. In a unanimous decision, the Court affirmed the Ninth Circuit’s holding that the “actual knowledge” standard under ERISA requires more than just a plan’s disclosure of investment decision-making. The decision cleared the way for plan participants who lacked the requisite awareness of a fiduciary’s breach when plan disclosure documents were made available to them to still have their claims heard in court. (Intel Corp. Inv. Policy Comm. v. Sulyma, 2020 WL 908881 (U.S. Feb. 26, 2020).)

ERISA-governed retirement plans are required to have fiduciaries who manage plans prudently—and ERISA authorizes plan participants and beneficiaries to sue for relief when fiduciaries breach that duty. Christopher Sulyma, who worked at Intel from 2010 to 2012 and participated in two Intel ERISA-governed retirement plans, alleged that Intel plan managers breached their fiduciary duties because the plans were “over-allocated to hedge funds and private equity investments” resulting in “massive losses and enormous excess fees.” In October 2015, Sulyma filed a class action on behalf of himself and other Intel ERISA plan participants in federal district court in California alleging that the plans’ fiduciaries breached their fiduciary duties by imprudently investing the plan’s assets and failed to disclose key information regarding investment decision-making to plan participants.

At issue before the Supreme Court was whether Sulyma’s suit was time barred. Lawsuits under ERISA alleging imprudent plan management are subject to one of three limitations periods, depending on the circumstances of the claim. ERISA, under 29 U.S.C. §1113, provides that claims must be filed within six years after the date of the last act or omission “which constituted part of the breach or violation” or three years after the plaintiff had “actual knowledge of the breach or violation,” whichever comes first. In the case of fraud or concealment, suit must be filed no later than six years after the plaintiff discovers the breach.

The Intel plan fiduciaries argued that the three-year limitations period applies because Sulyma could have obtained the necessary “actual knowledge” of the alleged breach by reading plan documents that were made available to him. The fiduciaries contended that Sulyma’s suit was time barred because he filed more than three years after they claimed to have made certain disclosures (mostly by posting them on various internal websites). Sulyma countered that the six-year limitations period is the triggering deadline because he did not review or receive these documents and thus did not possess the requisite “actual knowledge” to be held to the three-year limitations period. His 401(k) and retirement contribution savings statements did not disclose anything about investments in private equity or hedge funds and in fact disclosed that his plan investments were not in hedge funds or alternative investments.

The district court sided with the defendants, finding that regardless of whether Sulyma actually received or reviewed information about the plan investments, it was enough that for each year that he was a plan participant, information was made available to him on Intel’s “NetBenefits” website. This website contained “fund fact sheets” that disclosed in both narrative and graphic format what portion of plan funds were invested in hedge funds and private equity (although Sulyma testified that the disclosures, which he read after the lawsuit was filed, contained information and terminology that he did not understand).

On appeal, the Ninth Circuit disagreed, finding that while ERISA does not define “actual knowledge,” this standard could not include the constructive knowledge of a breach. When Congress originally enacted ERISA, §1113 contained an “actual knowledge” provision and a “constructive knowledge” provision (which has since been repealed), signaling that there is a distinction between these types of knowledge. Reversing the district court, the Ninth Circuit found that to show “actual knowledge” and hold Sulyma to the three-year limitations period, the Intel fiduciaries must demonstrate that Sulyma “was actually aware of the nature of the alleged breach more than three years before [his] action [was] filed.” Dispensing with the defendants’ argument that, for policy reasons, “actual knowledge” should be interpreted more broadly to include circumstances like Sulyma’s where plan disclosures were made available, the Ninth Circuit said that it is for Congress, not the courts, to “weigh the policy merits of different knowledge standards.”

The Supreme Court unanimously affirmed, agreeing that to meet the “actual knowledge” requirements under §1113, “the plaintiff must in fact have become aware of that information.” Consulting dictionary definitions of “actual” and “knowledge,” the Court found that when “actual” precedes the word “knowledge,” this “signals that the plaintiff ’s knowledge must be more than ‘potential, possible, virtual, conceivable, theoretical, hypothetical, or nominal.’” The Court also considered the policy implications of this narrow interpretation of “actual knowledge,”—reasoning that while it may diminish protections for ERISA fiduciaries, a contrary interpretation would have the unfavorable effect of reducing protections for plan participants and beneficiaries. “If policy considerations suggest that the current scheme should be altered, Congress must be the one to do it,” Justice Samuel Alito wrote.

The Court concluded by signaling to ERISA plan fiduciaries how, under its narrow interpretation of “actual knowledge,” they may still prove a plaintiff’s awareness of a fiduciary’s breach. Plaintiffs are still bound by oath in their testimony as to whether they have read plan disclosures, the Court explained, dispelling arguments that plaintiffs may falsely claim ignorance. The Court added that “actual knowledge” standard also may be met by “inference from circumstantial evidence,” where a plaintiff’s denial of knowledge is “blatantly contradicted by the record,” or when a plaintiff is engaged in “willful blindness.”  

Washington, D.C., attorney Joseph Barton, who represented Sulyma along with Matthew Wessler and Gregory Porter, also of Washington, D.C., and San Francisco attorney Joseph Creitz, said “a fiduciary should be making disclosures about a plan to protect plan participants, not to protect the fiduciary’s own interests.” Barton wasn’t surprised the Court came down in favor of the plaintiffs after Justice Brett Kavanaugh opened oral arguments noting that “[m]ost people don’t read [plan disclosures]” and asking, “how do you have actual knowledge if you haven’t read [disclosures]?” Barton added that “the defendants had no good argument on the text of the statute. The unanimous decision just demonstrates the strength of the plaintiff’s position.” Of the defendant’s policy concerns that plan participants would dishonestly claim a lack of knowledge to avoid triggering the three-year limitation period, Barton said, “in my experience, plan participants don’t lie. And defendants are free to use emails or depositions to prove any dishonesty, as Justice Alito points out.”  

“With Sulyma, the Supreme Court handed an important win to workers around the country,” said Wessler. “The Court unanimously held that ERISA fiduciaries—those entrusted with an unyielding duty to protect retirement investments—cannot escape their obligations by relying on dense and often impenetrable financial disclosures to cut in half the time workers and retirees have to bring their claims under ERISA. In reaching this commonsense conclusion, the Court refused to water down the crucial safeguards that form the bedrock of ERISA.”

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