February 26, 2020

Receiving retirement plan disclosures and having "actual knowledge" of the information are not the same thing, the Supreme Court said Wednesday in a ruling against Intel Corp.'s investment policy committee, which had sought to enforce a three-year deadline for filing ERISA claims.

There is a six-year limit to file ERISA breach lawsuits if the plaintiff does not have actual knowledge and a three-year limit for those who do.

The case brought by Christopher Sulyma, a participant in two Intel defined contribution plans, alleged that plan managers violated their ERISA fiduciary obligations by offering too many alternative investments in the plans' lineups and that disclosures of investment information were inadequate. Following the 2008 financial crisis, the investment policy committee had increased both funds' allocation to hedge funds and private equity, and in 2015, Mr. Sulyma sued, alleging that the decision violated ERISA's duty of prudence and caused the plans to suffer losses from higher fees and lower investment returns relative to other funds.

Oral arguments held Dec. 4 focused on the legal standard called "actual knowledge," with several justices questioning the difference between receiving information and reading it, and acknowledging that many people, including themselves, don't read disclosures. In the unanimous decision, the justices said, "The plaintiff must in fact have become aware of that information. ... Although ERISA does not define 'actual knowledge,' its meaning is plain."

The opinion delivered by Justice Samuel Alito recognized that the Intel investment committee "may well be correct" that the interpretation "substantially diminishes the protection that it provides ERISA fiduciaries," but said that if the current scheme should be altered, "Congress must be the one to do it." The decision upholds one from the 9th U.S. Circuit Court of Appeals in San Francisco that reversed a March 2017 ruling for Intel by a U.S. magistrate judge.

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ERISA lawyer Karen L. Handorf, a partner with Cohen Milstein Sellers & Toll, said the decision “makes sense for participants who think they’ve got fiduciaries watching out for them. Just because you are somewhat aware of certain investments isn’t the same thing. You really have to understand what the investments are and know that you have a problem with them.”

The complete article can be viewed here.