The U.S. Supreme Court has ruled unanimously against the arguments of the Intel Corp. in the complex but significant lawsuit known as Intel Corporation Investment Policy Committee v. Sulyma.
As has been the case with previous Supreme Court decisions directly affecting the retirement planning industry—for example Tibble v. Edison and Fifth-Third Bank v. Dudenhoeffer—it will take some time for the full implications of the 14-page ruling to come to light. At this early juncture, the consensus among attorneys specializing in the Employee Retirement Income Security Act (ERISA) seems to be that the ruling, which spells out the high court’s understanding of the question of what establishes “actual knowledge” of a potential fiduciary breach under ERISA, will have a potentially significant effect on the law’s special three-year statute of limitations.
In short, the Supreme Court has affirmed that although ERISA does not define the phrase “actual knowledge,” its meaning is plain. Actual knowledge is only established by genuine subjective awareness of the relevant information being considered—not by the mere possession of documents or the theoretical availability of information in print or digital disclosures sent to would-be litigants. This seemingly mundane distinction is very important for ERISA litigation because of the law’s special three-year statute of limitations period that applies to fiduciary breach claims when the plaintiffs can be shown to have gained “actual knowledge” of the alleged potential breach.
“Dictionaries confirm that, to have ‘actual knowledge’ of a piece of information, one must in fact be aware of it,” the Supreme Court states in its explanatory syllabus attached to the technical ruling. “Legal dictionaries give ‘actual knowledge’ the same meaning.”
As the Supreme Court spells out, U.S. law will sometimes impute knowledge—often called “constructive” knowledge—to a person who fails to learn something that a reasonably diligent person would have learned. The addition of “actual” in ERISA Section 1113(2) therefore “signals that the plaintiff’s knowledge must be more than hypothetical” when discussing such things as the relevant statute of limitations to apply, i.e., three years or the normal six years.
“Congress has repeatedly drawn the same linguistic distinction elsewhere in ERISA,” the Supreme Court states. “When Congress has included both actual and constructive knowledge in ERISA limitations provisions, Congress has done so explicitly. But Congress has never added to Section 1113(2) the language it has used in those other provisions to encompass both forms of knowledge. Petitioners’ arguments for a broader reading of 1113(2) based on text, context, purpose and statutory history all founder on Congress’s choice of the word ‘actual.’”
The Supreme Court says the Intel petitioners may well be correct that heeding the plain meaning of 1113(2) substantially diminishes the protection that it provides for ERISA fiduciaries. “But if policy considerations suggest that the current scheme should be altered, Congress must be the one to do it,” the court states.
The Supreme Court states that its opinion “does not foreclose any of the ‘usual ways’ to prove actual knowledge at any stage in the litigation.” In other words, plaintiffs who recall or do not recall reading particular disclosures will be bound by oath to say so in their depositions. The unanimous ruling further confirms that actual knowledge can be proved through “inference from circumstantial evidence.” Also notable, the opinion does not preclude defendants from contending that evidence of “willful blindness” supports a finding of “actual knowledge.”
Early Interpretations from ERISA Attorneys
Sharing some early comments with PLANADVISER, Eversheds Sutherland partner Adam Cohen says the Supreme Court’s decision puts a heavy onus on employers to make sure participants are actually aware of any disclosures.
“The Supreme Court’s unanimous decision means that if employers want the benefit of a shorter three-year statute of limitations for many ERISA allegations, they should consider steps to ensure that participants acknowledge or otherwise affirmatively demonstrate that they have read various disclosures,” he explains.
Stepping back, Cohen says, ERISA normally stipulates a six-year statute of limitations period that applies for fiduciary breach claims. Until today, employers could expect that with good, adequate disclosure, they could basically get that six-year limitations period down to three.
“To employers, of course, this ruling is frustrating, because they feel they are making adequate and effective disclosures, but they can’t necessarily prove their participants actually read or digested the disclosures,” Cohen says. “Something else to point out is that fiduciary breach claims often argue that a breach is an ongoing thing, so in that sense, the implications of the case may be muted.”
Josh Lichtenstein, Ropes & Gray tax and benefits partner, says the Intel vs. Sulyma decision has made it clear that the full six-year statute of limitations under ERISA will apply to claims by 401(k) participants against plan sponsors in more circumstances—and on a nationwide basis.
“This decision will make it harder for plan sponsors to limit their liability for 401(k) investment menu design decisions, and it may add further momentum to the ongoing wave of fiduciary breach and fee litigation class actions that have already resulted in hundreds of millions of dollars in settlements from plan sponsors,” Lichtenstein says. “The decision will be especially impactful for plan sponsors located in circuits that have traditionally been more willing to limit the period for damages to three years, and who may find themselves more likely to be targeted by class action suits in the future.”
According to Lichtenstein and Cohen, the decision is also noteworthy because it will allow the lower courts to assess the underlying question of whether Intel acted prudently when it decided to include alternative investments, such as hedge funds and private equity funds, in its plans.
For her part, Karen Handorf, partner at Cohen Milstein and chair of the firm’s employee benefits and ERISA practice group, says the ruling is far from surprising. Notably, Handorf represents the plaintiffs in another ERISA lawsuit awaiting a ruling from the Supreme Court, Thole v. U.S. Bank.
“In my view, this new ruling affirms something that is obviously established by the statue, and so in that sense, its impact may not end up being as significant as some people are saying,” Handorf says. “As a plaintiffs’ attorney, I can tell you that I already apply the same understanding of the statute of limitations under ERISA that is affirmed in this new ruling. For us, it will not mean more cases to file.”
Handorf says that the judges in various circuits who have embraced an alternative understanding of the actual knowledge issue—i.e., that the existence of plan disclosures is in itself enough to establish actual knowledge for the purpose of ERISA litigation—were “trying to read something into the law that just isn’t there.” These lower courts have now been effectively rebuffed by the Supreme Court, Handorf says, representing an important victory for plan participants who feel they have suffered from a fiduciary breach.
Goodwin partner Jaime Santos says the Supreme Court’s decision answers one question, but it leaves open many more.
“The court did not decide the question of what, exactly, a plaintiff must know for the three-year limitations period to be triggered—whether the plaintiff need only have knowledge of the facts and, if so, which facts, or whether the plaintiff must also have knowledge of the relevant law,” Santos observes. “Those issues will be closely looked at by courts in the years to come.”
Willy Jay, also a partner at Goodwin, says the plaintiffs won this battle, but the Supreme Court outlined a number of ways in which a defendant can prove actual knowledge, including taking a deposition at which the plaintiff must testify truthfully.
“If that type of evidence is critical to a limitations defense, then limitations defenses are going to be a major obstacle to certifying a plaintiff class in this type of case,” Jay surmises.
A Complex Procedural History
Back in March 2019, the Intel retirement plans filed a writ of certiorari with the U.S. Supreme Court, asking the high court to step in and reconsider a decision handed down against the company in the 9th U.S. Circuit Court of Appeals late in 2018.
The Supreme Court granted the review in June, and the oral arguments in the case occurred in December. In their writ, the Intel plan fiduciaries suggest the late-2018 decision out of the 9th Circuit to revive claims previously dismissed as untimely by a Northern California district court created a division among the appellate courts as to whether the provision of plan documents, in itself, creates for participants’ “actual knowledge” of an alleged fiduciary breach under ERISA.
Oral arguments in this case proved, as expected, to be quite dense and technical. Both in their opening arguments and in response to the Supreme Court justices’ questions, the two sides presented very different positions about what it takes to establish “actual knowledge” under ERISA.
One of the things that came up frequently during the oral arguments was how unique or even strange this specific statute of limitations is. The justices discussed how the actual knowledge requirement under ERISA is not found in any other statute of limitations in the U.S. code or in any other state code. Among the defendants’ primary arguments was that this is a unique provision for a reason. They argued ERISA creates very detailed and fairly burdensome disclosure requirements for plan fiduciaries that are specifically designed to give plan participants all the information they would need to vindicate their rights under the statute.