ERISA’s 3-year statute of limitations does not apply where plaintiff “doesn’t remember” reviewing disclosure
On February 26, 2020, the Supreme Court handed down its decision in Sulyma v. Intel, holding, in a unanimous opinion, that ERISA’s 3-year statute of limitations, which requires “actual knowledge” of the alleged breach, does not apply where, notwithstanding that the participant received adequate disclosure of the allegedly imprudent conduct, the participant claims that he did not actually read those disclosures.
In this article we briefly review the Court’s decision.
The target date funds (TDFs) deployed as qualified default investment alternatives (QDIAs) in Intel’s two 401(k) Plans included significant allocations to alternative investments (including hedge funds). The Intel TDF alternatives/hedge fund strategy appears to have been, to some extent, a risk-hedging strategy, e.g., TDF allocations to hedge funds were more significant for older participants than for younger participants. During the period at issue (after the “Great Recession”), the performance of these funds “lagged compared to index funds and comparable portfolios.”
Plaintiff sued claiming (among other things) that (1) that the plans’ Investment Committees violated ERISA’s prudence and exclusive purpose rules by investing in these hedge funds and other alternatives, and (2) the plans’ Administrative Committees failed to adequately disclose the risks associated with those investments.
ERISA’s statute of limitations
Defendants moved to dismiss plaintiff’s claim as barred by ERISA’s 3-year statute of limitations, which runs from the date that the plaintiff had actual knowledge of the violation. Where there is no actual knowledge, an alternative 6-year statute of limitations applies, running from the date of the last action which constituted a part of the violation.
The district court granted summary judgment for Intel, holding that plaintiff’s claim was barred by ERISA 3-year statute of limitations. In that regard, it found that comprehensive disclosure provided to defendant of the TDFs’ investment strategy – including “annual notices, quarterly Fund Fact Sheets, targeted emails, and two separate websites” – constituted “actual knowledge.” The Ninth Circuit reversed and remanded, holding that if (as claimed) “Sulyma in fact never looked at the documents Intel provided, he cannot have had ‘actual knowledge of the breach.’”
Supreme Court decision
The Supreme Court upheld the Ninth Circuit’s decision, holding that ERISA’s 3-year statute of limitations “requires more than evidence of disclosure alone. That all relevant information was disclosed to the plaintiff is no doubt relevant in judging whether he gained knowledge of that information. To meet [the 3-year statute of limitations’] “actual knowledge” requirement, however, the plaintiff must in fact have become aware of that information.”
In explaining its decision, the Court observed:
Nothing in this opinion forecloses any of the “usual ways” to prove actual knowledge at any stage in the litigation. … Plaintiffs who recall reading particular disclosures will of course be bound by oath to say so in their depositions. On top of that, actual knowledge can be proved through “inference from circumstantial evidence.” … 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. And though, “[a]t the summary judgment stage, facts must be viewed in the light most favorable to the nonmoving party,” that is true “only if there is a ‘genuine’ dispute as to those facts.” … If a plaintiff ’s denial of knowledge is “blatantly contradicted by the record,” “a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment.” … Today’s opinion also does not preclude defendants from contending that evidence of “willful blindness” supports a finding of “actual knowledge.”
Significance for plan sponsors
Sponsors and plan fiduciaries may want to consider taking steps that may support claims that plaintiffs in fact have actual knowledge and that the 3-year statute of limitations should apply. As outlined by the Court (in the language quoted above), these may include developing electronic records of participant review of disclosures, or they could go so far as to require participant acknowledgment of review.
Sponsors and fiduciaries may want to meet with administrators and recordkeepers to determine whether any of these sorts of actions may be appropriate.
The Court’s ruling – which, as we noted at the top, was unanimous – will mean, however, that in many cases, even where there has been extensive disclosure of the complained-of conduct, courts will apply a 6-year statute of limitations.
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Overall, it is likely that the Supreme Court’s decision – as defendants claimed – “substantially diminishes the protection that [ERISA’s statute of limitations] provides for ERISA fiduciaries.” One indirect effect of the decision will be (in some cases at least) to extend the period for which injury can be claimed, thus increasing the amount of participant damage claims. All of this, at the margin, increases the “cost” of maintaining a plan.
We will continue to follow this issue.