How Long Does a Retirement-Plan Participant Have to Bring an ERISA Claim?

 

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How Long Does a Retirement-Plan Participant Have to Bring an ERISA Claim?

Did a former Intel employee wait too long to file a lawsuit alleging that the tech company's retirement plan committee breached its fiduciary duties by making poor investments? The U.S. Supreme Court heard oral argument Dec. 4 on whether the employee had three or six years to file his claims under the Employee Retirement Income Security Act (ERISA).

ERISA states that the shorter limitation period applies from "the earliest date on which the plaintiff had actual knowledge of the breach or violation." If the employee didn't have "actual" knowledge of the alleged breach, then the 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 has an opportunity resolve a circuit split and set the standard for determining what constitutes actual knowledge of a breach," explained Kimberly Jones, an attorney with Drinker Biddle & Reath in Chicago.

If the high court adopts the 9th Circuit's reasoning, she noted, retirement plans would be significantly limited in their ability to invoke the three-year limit, and participants may be encouraged to avoid reading important disclosures provided by the plan about their investments.

Michael Klenov, an attorney with Korein Tillery in St. Louis, said the Supreme Court's conservative majority seems likely to follow the textualist approach—where words in a statute are given their plain meaning—and therefore is likely to affirm the 9th Circuit. He noted, however, that a textualist interpretation in this context arguably eliminates some personal responsibility for participants and gives them a longer time to sue.

Not All Knowledge Is the Same

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.

In this case, Intel sent ERISA-mandated disclosures and e-mailed employees to let them know the documents were available on the company's website. "More than three years before [the lawsuit] was filed, Sulyma received plan disclosures that apprised him of the precise investment allocations he later claimed were imprudent," said Donald Verrilli Jr., an attorney with Munger, Tolles & Olson in Washington, D.C., who represented the retirement plan committee at oral argument. 

Justice Brett Kavanaugh noted that many people don't read ERISA disclosures. "So how do you have actual knowledge if you haven't read it?"

The employee in the case argued that he couldn't have actual knowledge. 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," he argued in a legal brief.

"When Congress said that a plaintiff must have actual knowledge, it meant what we all understand that phrase to mean, that the plaintiff himself must have real awareness," said Matthew Wessler, an attorney with Gupta Wessler in Washington, D.C., who represented the employee at oral argument.

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

Verrilli argued, however, that the 9th Circuit "was wrong to read the statute to require proof of subjective awareness." He said the appeals court's interpretation "effectively doubles from three to six years the period in which plaintiffs can exploit hindsight bias to second-guess investments, even when plans have fully disclosed the basis for those investments."

But the justices didn't seem convinced. "We do have the six-year outer limit, and then there's a special shorter limit if you have actual knowledge," noted Justice Ruth Bader Ginsburg. "And it's hard to read the word 'actual' to mean something other than, 'Yes, I, in fact, know.' "

Individual vs. Class-Action Claims

At the hearing, an issue surfaced "that is perhaps more important than the question that the Supreme Court originally agreed to decide," said Brian Netter, an attorney with Mayer Brown in Washington, D.C.

Although the case was brought as a proposed class action, determining whether a plan participant actually read disclosures requires an individual assessment.

"How does the court determine who is properly within the class of nonreaders?" Ginsburg asked. "Does every plan participant have to come into court and say, 'I read it' or 'I didn't read it?' "

Ginsburg and Kavanaugh "generally represent opposing judicial philosophies," Netter said. But they were both focused on how the limitations period would affect class certification and whether the defenses that apply to plan participants on an individual basis preclude a case from proceeding as a class action. 

"If the court's opinion delves into that topic, it could resonate broadly across and beyond ERISA litigation," Netter observed.

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