As discussed in an earlier post on this blog, in Intel Corporation Investment Policy Committee et al. v. Sulyma, No. 18-1116 (Feb. 26, 2020), the U.S. Supreme Court addressed the statute of limitations for breach of fiduciary duty lawsuits under ERISA. In general, fiduciary breach claims are covered by the 6-year statute of limitations in 29 U.S.C. § 1113(1). However, there is a 3-year statute of limitations if the plaintiff had “actual knowledge” of the breach. 29 U.S.C. § 1113(2). Writing for a unanimous Court, Justice Alito held that “actual knowledge” “does in fact mean what it says.” According to the Justice, under this standard a plaintiff must be actually aware of the fiduciary breach – not merely have information from which he or she could have become aware of the violation – for the 3-year statute of limitations to start running.

The allegations in Sulyma may help plan sponsors, administrators, and other plan fiduciaries understand the impacts of Justice Alito’s opinion. Christopher Sulyma worked at Intel for two years. During that time, he was a participant in two Intel pension benefit plans, and his assets were invested in a target date fund and the Intel Global Diversified Fund. Sulyma didn’t like the funds’ performance. He sued the plan administrator, alleging it had breached its fiduciary duties by overinvesting in alternative assets including hedge funds, private equity, and commodities.

The plan administrator moved for summary judgment, alleging that Sulyma’s claim was untimely. According to the plan administrator, Sulyma had “actual knowledge” of the plans’ investments when he was working at Intel from 2010-2012 and had brought his claim in 2015—outside the 3-year limitations period. In support of its motion, the plan administrator submitted evidence that Sulyma had received several notices disclosing the plans’ investments in alternative assets. These notices included Qualified Default Investment Alternative (QDIA) notices, the plans’ summary plan descriptions, and a set of fund fact sheets. The plan administrator also submitted evidence that Sulyma had visited its service provider’s website dozens of times—and that the disclosures were hosted on that website. However, during his deposition, Sulyma testified he didn’t remember reviewing any of the disclosures and submitted a declaration that he was not aware that his retirement assets were invested in hedge funds or private equity. The District Court found that because Sulyma had been given the disclosures, he had actual knowledge of the facts underlying his claims while he was working at Intel, and his claim was brought outside the applicable 3-year limitations period. The Ninth Circuit disagreed, and the Supreme Court affirmed that ruling.

The Supreme Court recognized that its holding may mean that plan administrators will rarely be able to use the 3-year limitations period in Section 1113(2). Justice Alito was clear, however, that only Congress could address the policy impacts of its holding. According to the Justice: “If policy considerations suggest that the current scheme should be altered, Congress must be the one to do it.”

Plan sponsors, administrators, and other fiduciaries may want to consider that after Sulyma, simply distributing disclosures to participants is not enough for the 3-year limitations period in Section 1113(2) to apply. Defendants will have to prove that a participant actually read the notice. Justice Alito noted that in his opinion this is still possible. He said plaintiffs will be “bound by oath” to testify truthfully in depositions about whether they’ve read relevant disclosures. He also said actual knowledge could be proven by circumstantial evidence, including that a plan participant received a disclosure, or that a plaintiff took action in response to a disclosure. The opinion also said defendants could submit evidence that a plaintiff had been “willfully blind” to a disclosure in order to support a finding of “actual knowledge.” But the Court did not explain how a defendant could show “willful blindness.”

Plan fiduciaries may wish to consider the impact of the Sulyma decision on the Department of Labor’s new proposed electronic safe harbor disclosure rule. As many readers are aware, in October 2019, the DOL released a proposed safe harbor rule for electronic disclosures for plan participants in ERISA pension benefit plans. This proposed rule is intended to significantly increase the use of electronic media for plan disclosures. The proposed new rule only applies to ERISA pension benefit plans (and not to welfare benefit plans). However, the proposed rule would allow plan administrators to satisfy notice requirements by providing participants who have e-mail addresses with electronic “Notices of Internet Availability” providing participants with a link to a website hosting the disclosure. In many ways, the Sulyma decision provides some additional complexity for plan fiduciaries considering the proposed rule. If the DOL adopts the proposed regulation, plan fiduciaries for ERISA pension benefits plans may have to think about a DOL rule that pushes plan sponsors to provide more electronic disclosures, and the Sulyma case which makes clear that just providing such disclosures is not enough for a participant to have “actual knowledge” of the disclosure’s contents. In the past, plan fiduciaries had to worry about participants receiving a paper disclosure in the mail and throwing it away without reading it. Today, plan administrators may need to worry about a participant who receives an e-mail Notice of Availability, but never opens the e-mail or clicks on the enclosed link.

Going forward, plan fiduciaries may want to consider requiring employees to electronically acknowledge that they have received and understood important disclosures. Plan fiduciaries may consider discussing with their service providers ways to track whether participants have accessed electronic disclosures. The bottom line: As plan fiduciaries consider how to implement the new proposed DOL regulation regarding electronic disclosures, they may wish to consider at the same time how to adapt to the holding in Sulyma.