A federal district court judge has
found that claims against Intel Corporation’s Investment Policy
Committee for its retirement plans is time-barred under the Employee
Retirement Income Security Act’s (ERISA)’s three-year statute of
limitations.
Christopher M. Sulyma filed a lawsuit
on behalf of two proposed classes of participants in the Intel 401(k)
Savings Plan and the Intel Retirement Contribution Plan, claiming that
the defendants breached their fiduciary duties by investing a
significant portion of the plans’ assets in risky and high-cost hedge
fund and private equity investments through custom-built target-date
funds.
The lawsuit says the Intel custom-built funds
have underperformed peer funds by approximately 400 basis points
annually. The lawsuit claims automatic enrollment and a reenrollment of
existing participants resulted in more than two-thirds of participants
being allocated to custom-built investments. It goes into great detail
about why the plaintiffs believe hedge funds and private equity funds
are inappropriate investments for ERISA retirement plans.
Intel
defendants moved for summary judgment on all of Sulyma’s claims, arguing
that the claims are time-barred under the statute of limitations. U.S.
Magistrate Judge Nathanael M. Cousins of the U.S. District Court for the
Northern District of California noted that the key issue is whether
Sulyma had actual knowledge of the underlying facts constituting his
claim within three years of filing his lawsuit.
Sulyma brought
six claims: claims I and III allege the Investment Committee defendants
breached their fiduciary duties by over-allocating the assets of the
401(k) Plan and Retirement Plan to hedge fund, private equity, and other
alternative investments. Claims II and IV allege the Administrative
Committee defendants breached their fiduciary duties by failing to
disclose required information about the funds. Claim V alleges that the
Finance Committee defendants breached their fiduciary duties by failing
to monitor the Investment Committee and Administrative Committee. Claim
VI alleges that each defendant has derivative liability for the actions
of the other defendants.
“Because there is no genuine dispute of
material fact that Sulyma had actual knowledge of the facts comprising
claims I and III, as well as knowledge of the disclosures he alleges
were unlawfully inadequate in claims II and IV, the Court grants
defendants’ motion for summary judgment on those claims, finding them
time-barred,” Cousins wrote in his opinion. “Without live primary
claims, the Court also grants summary judgment on Sulyma’s derivative
duty to monitor and co-fiduciary liability claims (claims V and VI).”
NEXT: When Sulyma had actual knowledgeAccording to the defendants, Sulyma
had actual knowledge of the facts constituting the alleged violations
of ERISA more than three years before he sued, through “annual notices,
quarterly Fund Fact Sheets, targeted emails, and two separate websites.”
Sulyma asserts the financial documents Intel uses to attribute
actual knowledge on his part were not easily accessible, and often
misleading or inconsistent, though he admits he never looked at those
documents to begin with. The documents Sulyma acknowledges receiving and
reviewing are the Intel 401(k) and Intel Retirement Contribution
Retirement Savings Statements, which “consistently advised him from 2010
to 2013 that he was invested in ‘stock 63%, bonds 16%, short-term
21%.’” The Savings Statements say nothing about investments in private
equity or hedge funds.
Cousins noted that actual knowledge exists
when a plaintiff knows of the transaction constituting the alleged
violation. He rejected Sulyma’s argument that it should adopt a “willful
blindness” standard for actual knowledge, saying the cases cited by
Sulyma are unpersuasive and do not address ERISA.
Cousins found
that Sulyma had actual knowledge of the facts underlying his substantive
claims because the financial disclosures provided information about
plan asset allocation and an overview of the logic behind investment
strategy. According to the opinion, the 2011 Qualified Default
Investment Alternatives Notice, 2012 Summary Plan Description, 2012
Annual Disclosures, and targeted emails notified Sulyma of the
challenged investment allocations. Taking into consideration the
parties’ arguments at the December 14, 2016, hearing, and after review
of these documents, Cousins agreed these documents provided Sulyma
notice of how his investments were allocated.
Though he does not
recall reviewing the Summary Plan Descriptions, each year Sulyma was a
plan participant, a Summary Plan Description was made available on the
NetBenefits website describing the assets held by the two funds in which
he invested—the GDF and TDF, the opinion says. Regarding Sulyma’s
holdings in the TDF, for example, the 2012 Summary Plan Description
advised Sulyma that “[e]ach fund offers a broadly diversified mix of
domestic and international stocks and bonds, and includes investments
not typically available to individual investors, such as hedge funds and
commodities.” As to the GDF, the same Plan Description advised Sulyma
that the asset mix of the GDF included “domestic and international
equity, global bond and short-term investments, hedge funds, private
equity, and real assets (e.g. commodities, real estate & natural
resource-focused private equity).”
“Thus, the Summary Plan
Descriptions informed plan participants that the TDF and GDF contained
the alternative investments he now alleges were imprudent,” Cousins
wrote.
In addition, according to the opinion,
Fund Facts Sheets available to Sulyma on the NetBenefits website
disclosed the amount in which the TDF and GDF were invested in hedge
funds or private equity in narrative and graphic formats, and
explanations for the inclusion of those alternative investments. “These
June 2012 Fund Fact Sheets demonstrate Sulyma had actual knowledge of
the elements of his imprudence claims more than three years before he
filed suit regarding the allocations,” Cousins concluded.