Background

On February 26, 2020, the United States Supreme Court issued a decision in the Intel Corp. Investment Policy Committee et al. v. Sulyma[1] case, significantly curtailing the circumstances in which employers and plan fiduciaries can invoke a three-year statute of limitations for an alleged breach of fiduciary duty, based on a participant’s “actual knowledge” about plan investments. Under the Employee Retirement Income Security Act of 1974 (ERISA), when a plan participant alleges a breach of fiduciary duty, the participant generally must bring the suit within six years of the alleged breach. ERISA shortens the limitations period, however, to three years from the date the plaintiff gained “actual knowledge” of the alleged breach if the participant learns of the breach. This case involved the meaning of “actual knowledge” and whether a participant has “actual knowledge” of information the participant receives in disclosures even when the participant does not read or cannot recall reading the disclosures.

In Intel, a former employee of Intel who participated in two Intel retirement plans sued Intel’s investment committee, administrative committee and finance committee (collectively, “Intel”) alleging that the plan fiduciaries had breached their fiduciary duties by overinvesting in alternative assets, such as hedge funds, private equity and commodities, that were underperforming. The plaintiff filed the suit over three years, but less than six years, after receiving plan disclosures that included information about these investments. Intel moved to dismiss the complaint as time-barred under ERISA’s three-year statute of limitations. In support, Intel provided evidence showing that it had provided the plaintiff, or made available to the plaintiff on a plan website, numerous ERISA-required disclosures–including Qualified Default Investment Alternative (QDIA) notices, Summary Plan Descriptions (SPDs) and fund fact sheets–detailing Intel’s investment decisions and plan investments in the alternative assets. Intel also submitted records showing that the plaintiff visited Intel’s intranet site containing the disclosures repeatedly during his employment. The plaintiff testified during his deposition, however, that he did not have actual knowledge about the investments because he did not remember reviewing the disclosures and did not know his account was invested in alternative investments.

The District Court granted summary judgment in favor of Intel, reasoning that “it would be improper to allow [plaintiff’s] claims to survive merely because he did not look further into the disclosures made to him.” The Federal Court of Appeals for the Ninth Circuit, however, reversed the decision. The Ninth Circuit held that “actual knowledge” means “knowledge that is actual, not merely a possible inference from ambiguous circumstances.”

The Supreme Court unanimously affirmed the Ninth Circuit’s decision, holding that “a plaintiff does not necessarily have “actual knowledge” under §1113(2) [of ERISA] of the information contained in disclosures that he receives but does not read or recall reading.” The Court reasoned that to satisfy the “actual knowledge” requirement, disclosure alone is not enough and that “the plaintiff must in fact have become aware of that information.”

The Court observed that its decision will not foreclose defendants from proving actual knowledge the “usual ways.” The Court noted that plaintiffs are “bound by oath” when testifying at a deposition about whether they read the disclosures. The Court also added that defendants can use circumstantial evidence to show actual knowledge. As the Court explained, actual knowledge can be shown through evidence that disclosures were sent to the plaintiff, as well as, electronic records showing that a plaintiff viewed the disclosures. The Court added that plaintiffs cannot contend willful blindness to support a finding of actual knowledge and that a defendant’s motion for summary judgment about actual knowledge should still be granted in circumstances where the plaintiff’s assertions are “blatantly contradicted by the record.”

Planning Opportunities

It is not clear at this time whether the Court’s decision will have a significant impact on the number of ERISA fiduciary breach claims being made. Prior Court decisions such as Tibble v. Edison, have made defenses based on statute of limitations challenging, and the Court’s holding in Intel continues that trend.

In light of the Intel decision, plan fiduciaries of qualified retirement plans may want to consider utilizing the Department of Labor’s (DOL) recently released proposed electronic safe harbor disclosure rule (the “Proposed Rule”). The Proposed Rule allows plan fiduciaries to deliver ERISA-required notices to participants by (i) providing the participants with an electronic “notice of internet availability” that identifies a website where the ERISA-required notice or disclosure is posted, and (ii) posting the notice or disclosure on the website. The Proposed Rule allows most required ERISA notices to be delivered electronically (e.g., SPDs, summary of material modifications, QDIAs and investment-related disclosures).

By delivering required ERISA notices and disclosures in accordance with the Proposed Rule, plan fiduciaries could better track a plan participant’s engagement with certain disclosures, including the number of times a plan participant visited said disclosure and the amount of time spent on the disclosure. Plan fiduciaries may also want to consider the addition of a “scroll-wrap” feature with the disclosure. Plan fiduciaries could post plan disclosures on the company’s intranet and incorporate a scroll-wrap feature which includes a clear acknowledgment by the participant at the end of the document that the participant has read and understood the contents of the disclosure. The scroll-wrap agreement would require the participant to scroll through the terms of the agreement before the participant can indicate whether they agree. Evidence of participant’s acknowledgment of the disclosure could, potentially, serve as strong evidence in proving that the participant had “actual knowledge” and help to mitigate fiduciary risk.

If you would like to discuss the impact of the Supreme Court’s decision in Intel on your business, please contact an attorney in our Employee Benefits and Executive Compensation Practice.