A Supreme Court decision published Wednesday will make it easier for some plaintiffs to bring class actions for 401(k) fiduciary claims.
In a unanimous opinion, the court found that a three-year limit on filing claims does not apply simply because plan participants were provided with disclosures that in theory would allow them to see whether their assets are being mismanaged.
Instead, a six-year statute of limitations applies to most claims.
The decision sends a case against Intel Corp. back to a lower court, where plaintiffs can move forward with allegations that the company breached its fiduciary duty to 401(k) plan participants because of the plan’s hedge fund and private-equity investments. Participants allegedly paid high fees and suffered losses because of those holdings.
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This Supreme Court’s decision “is going to impact the number of cases that get dismissed,” said Karen Handorf, partner at Cohen Milstein.
The Supreme Court’s ruling is consistent with provisions in the Employee Retirement Income Security Act that treat defined-contribution plan participants as unsophisticated investors who cannot be expected to parse complicated disclosures about their plans and investments, she said.
In addition, the three-year limit, even for those who were aware of potential mismanagement, was troublesome, Ms. Handorf said. If a participant notices a poorly performing, high-fee investment, for example, they must wait years to suffer any harm before suing, and that harm often doesn’t happen until after three years, she said. Even the six-year limit can be difficult to meet.
“You’re sitting around waiting for yourself to be hurt, and six years and one day goes by – and you’re sunk,” she said.
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