Can an Employee Who Didn’t Read Benefits Disclosures Proceed with a Lawsuit?

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Can an Employee Who Didn’t Read Benefits Disclosures Proceed with a Lawsuit?

A former Intel employee wants to sue the tech company's retirement plan committee for allegedly breaching fiduciary duties by making poor investments—but the committee says he waited too long to file the lawsuit.

The U.S. Supreme Court will hear arguments in the fall about whether the Employee Retirement Income Security Act's (ERISA's) three-year limitation period applies to the employee's claims.

ERISA states that the three-year limitation period runs from "the earliest date on which the plaintiff had actual knowledge of the breach or violation." Otherwise, if the employee didn't have "actual knowledge" of the alleged breach, a six-year limitation period applies. 

Intel's retirement committee argued that the employee's lawsuit is barred because he received all the relevant plan investment information more than three years before he filed the complaint. But the employee argued that his claim is timely because he doesn't recall reading any of the investment information until just before he filed his lawsuit.

So was receiving the information enough to trigger the three-year limit, or did the employee actually have to read it? The 9th U.S. Circuit Court of Appeals sided with the employee, but other courts have sided with employers on the issue.  

The Supreme Court's decision to hear the case "is a good sign for employers and the fiduciaries who are responsible for their benefit plans," said Emily Seymour Costin, an attorney with Alston & Bird in Washington, D.C.

What Is 'Actual' Knowledge?

In Intel Corp. Investment Policy Committee v. Sulyma, the key issue is what actions constitute "actual" knowledge and trigger the three-year limit.

In legal terms, there are different types of knowledge. "Actual" knowledge means exactly what it says: a person actually knew about something. "Constructive" knowledge, however, includes matters that a person should have known about or could have reasonably been expected to know about based on the information available to him or her. A diligent person, for instance, may have constructive knowledge about information that is readily available in public records or on a company's website.

"It was clear that the employee in this case … received the disclosures about the investments in the plan, including information about the alternative investments that are at issue in the case," noted Heather Abrigo, an attorney with Drinker Biddle & Reath in Los Angeles.

Intel sent ERISA-mandated disclosures and e-mailed employees to let them know the documents were available on the company's website. Although the employee acknowledged receipt and accessed the website and materials, he said he did not recall reading the disclosures until just before filing the lawsuit.

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

If employees "receive an e-mail with a link to an article that they don't open, no one would say that they have actual knowledge of the article's contents because they received the e-mail," the worker argued in a legal brief.

The trial court held that the employee had actual knowledge of the investments when he received the disclosures that described the investments—more than three years before he filed the suit. However, the 9th Circuit reversed the decision because the retirement committee couldn't show that the employee had actually read the disclosures. Thus, the appeals court held that there was an outstanding issue as to whether the employee had actual knowledge, which would trigger the three-year statute of limitations.

"The phrase 'actual knowledge' means the plaintiff is actually aware of the facts constituting the breach, not merely that those facts were available to the plaintiff," the 9th Circuit held.

"For employers, this is problematic," Abrigo said. "The 9th Circuit has opened the door for actions whereas despite a plan sponsor's best efforts and attempts to satisfy their fiduciary duties, a participant could claim they didn't read the disclosures … and thus did not have actual knowledge."

The appeals court's decision created a nearly impossible standard for actual knowledge, Costin said.


Some Courts Disagree

The 9th Circuit's standard is a departure from 6th Circuit rulings that do not require defendants to prove that participants actually read the information disclosed, Abrigo explained. Many district courts also have held that employers can assume participants read the disclosures and therefore have knowledge of their contents.

If the Supreme Court overrules the 9th Circuit, it will likely adopt the more lenient standard followed by other courts, Costin noted. "We believe this standard is more in line with Congress's intent," she added. "We don't believe Congress would have intended to permit participants to ignore information provided to them and then use their willful blindness to avoid application of the three-year statute."

In any event, she said, the Supreme Court's decision will bring uniformity and certainty to the appropriate standard of proof necessary to trigger the three-year limit.

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