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Supreme Court Sides with Employee Who Said He Didn't Read ERISA Disclosures

A man wearing glasses is sitting at a desk in front of a computer.

A former Intel employee can proceed with a lawsuit alleging that the company's retirement plan committee breached fiduciary duties by making poor investments—even though the committee argued that he waited too long to bring the claim.

The U.S. Supreme Court ruled on Feb. 26 that an early filing deadline didn't apply simply because the company provided benefit plan disclosures. The employee said he doesn't recall reading the information, so the retirement plan committee had to prove he had 'actual' knowledge of the investments.  

What Is 'Actual' Knowledge?

In Intel Corp. Investment Policy Committee v. Sulyma, the dispute centered on whether the employee had three or six years to file his claim 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. 

The term "actual knowledge" may seem redundant, but in the legal realm, 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.

The committee argued that the lawsuit was barred because the employee received all the relevant plan investment information more than three years before he filed the complaint. The committee also had electronic evidence that the employee visited the website that hosted the disclosures.

The employee, however, argued that his claim was timely because he didn't recall reading any of the investment information until just before he filed his lawsuit.

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

Siding with the employee, the Supreme Court said in a unanimous opinion that making documents available to plan participants isn't enough to prove actual knowledge. The employee could have known about the investments through the disclosures, but his testimony raised questions for the judge or jury about whether he had 'actual' knowledge.

"Although ERISA does not define the phrase 'actual knowledge,' its meaning is plain," wrote Justice Samuel Alito Jr. for the court. "Dictionaries are hardly necessary to confirm the point, but they do."

Kimberly Jones, an attorney with Faegre Drinker in Chicago, said the ruling makes it difficult for plan fiduciaries to invoke the shorter three-year limitations period for breaches of fiduciary duty.

"The Supreme Court was bound by the plain meaning of the language," she said. "Congress would have to alter the statutory language for the standard to change."

'Willful Blindness' Won't Work

Employers still have ways to prove that an employee had actual knowledge of ERISA disclosures. "Plaintiffs who recall reading particular disclosures will of course be bound by oath to say so in their depositions," the court said. Actual knowledge can also be proved through "inference from circumstantial evidence," such as electronic records.

Additionally, employers can show evidence of an employee's "willful blindness" to support a finding of actual knowledge, the Supreme Court noted. And if a plaintiff 's denial of knowledge is "blatantly contradicted by the record," the court added, "a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment."

But the retirement committee in this case argued that it didn't need to offer proof that the employee had read the disclosures. "And that is incorrect," the court said, affirming a decision by the 9th U.S. Circuit Court of Appeals.

Employer Takeaway

Employers may have trouble proving that participants read the disclosures provided to them. "Unfortunately, the ruling encourages participants to remain blissfully ignorant and not review important investment disclosures," Jones said. "Proving actual knowledge seems virtually impossible unless participants testify that they read the documents." 

Michael Klenov, an attorney with Korein Tillery in St. Louis, said many employers already provide clear disclosures in plain language and encourage plan participants to read them.

Employers could ask employees to read through disclosures in person—in HR offices—and sign an acknowledgement afterwards, or they could attach cover letters to disclosures explaining that a failure to read will be deemed an intentional act of willful ignorance. But those steps might not curb litigation. "I doubt many employers would go to such lengths, which may create blowback from employees," Klenov said, "so I suspect they will more or less maintain the status quo."


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