The US Supreme Court recently decided a closely watched ERISA case against employers and fiduciaries. Under Section 413 of ERISA, the statute of limitations for a fiduciary breach claim is shortened from six years to three years if the plaintiff has “actual knowledge” of the breach.
On February 26, the Supreme Court determined in Intel Corp. Investment Policy Committee v. Sulyma that the six-year statute may apply—even if the fiduciary disclosed its actions to participants in accordance with ERISA—if the participants failed to read or could not remember reading the disclosures. In the Court’s unanimous view, “actual knowledge” means the participant must have become aware of the relevant information.
Despite the result, Justice Alito’s opinion helpfully lays out a path forward for employers and plan fiduciaries.
First, fiduciaries may take steps to prove actual knowledge. This may include obtaining proof of paper or electronic delivery, or tracking the extent to which plan participants access their plan-related disclosures online. Plan fiduciaries also might consider adding disclosures to plan websites and requiring participants to review them. For example, if a plan’s investment lineup changes, participants who log into the website to review their balance or change an election might be required to open and scroll through a disclosure that describes the plan’s updated lineup, then click a button indicating that they have read and understood the disclosure.
In light of earlier case law, fiduciaries should be very careful to create a record showing these actions were prudently undertaken solely in the interests of participants and beneficiaries, and not merely to reduce the fiduciaries’ exposure to ERISA suits. Given the importance of plan investments to participants’ retirement savings, fiduciaries could prudently decide that these measures were in participants’ interests, rather than unduly burdensome.
Second, as Justice Alito pointed out, Congress is free to modify the statute. Very few statutory limitations periods require “actual knowledge.” In particular, other ERISA provisions apply a shorter limitations period where the plaintiff knew or should have known about the actions giving rise to the alleged breach.
Even the original version of Section 413 was less strict. Under the original statutory language, the three-year statute began to run upon actual knowledge, or when a report describing the alleged actions was filed with the US Department of Labor. At the time, plans were required to file summary plan descriptions and other disclosures with the Labor Department. A 1987 amendment to the statute removed this requirement. Congress removed the corresponding trigger from Section 413 but neglected to add a constructive knowledge trigger.
In addition, we would observe that the six-year limitations period highlights the importance of procedural prudence in the selection and monitoring of plan investment funds. Nearly all funds will experience ups and downs over a six-year period. To protect against inevitable performance fluctuations over a six-year period, fiduciaries should develop a robust process for evaluating funds on an ongoing basis.