Supreme Court Rules Retirement Plan Liable Despite Disclosure

February 27, 2020 Updated: February 27, 2020

WASHINGTON—Employers aren’t allowed to shorten a six-year limit for retirement plan participants to sue over mishandling investments simply by mailing participants disclosure documents or posting them online, the Supreme Court has ruled.

The unanimous decision is a victory for the Trump administration, which supported the participants’ position in the appeal.

The case is cited as Intel Corporation Investment Policy Committee v. Sulyma. Santa Clara, California-based Intel Corp. itself isn’t a party to the proceeding, which was originally brought in 2015 as a proposed class action by former Intel engineer Christopher Sulyma.

The case hinges on the meaning of language in the Employee Retirement Income Security Act (ERISA), a federal statute that requires plan managers to invest the funds they control prudently. ERISA requires plaintiffs who have “actual knowledge” of an alleged fiduciary breach to initiate a lawsuit within three years after gaining that knowledge, instead of the six-year period that would otherwise apply.

Sulyma claimed plan managers put too much of the plan participants’ retirement savings into private equity investments and hedge funds between 2010 and 2012, and failed to give those participants proper notice about what they did.

The plan managers countered that the three-year period had already run when Sulyma filed suit in 2015 because he had been furnished before 2015 with the information he needed to discover that the breach took place. In other words, the participants could be deemed to have knowledge of the contents of the disclosures if they were made available to the participants, even if they hadn’t taken the time to read them, the managers argued.

A U.S. district court agreed with the plan managers, but the 9th Circuit Court of Appeals reversed.

The Supreme Court ruling can also be viewed as a victory for plain language. That’s because the court found the phrase “actual knowledge” means exactly what it appears to mean, and rejected arguments to the contrary.

In an opinion written by Justice Samuel Alito, the Supreme Court agreed with the appeals court.

Plan participants cannot be deemed to possess “actual knowledge” of the alleged misbehavior merely because they received information about it in disclosures that they did not read or cannot remember reading, Alito wrote on behalf of the high court.

“Although ERISA does not define the phrase ‘actual knowledge,’ its meaning is plain,” Alito wrote. “[T]o have ‘actual knowledge’ of a piece of information, one must in fact be aware of it.”

“Dictionaries are hardly necessary to confirm the point, but they do. When Congress passed ERISA, the word ‘actual’ meant what it means today: ‘existing in fact or reality.’”

“So did the word ‘knowledge,’ which meant and still means ‘the fact or condition of being aware of something.’”

“Thus, to have “actual knowledge” of a piece of information, one must in fact be aware of it.”

Alito responded to an argument raised by plan managers that following the plain meaning of the phrase undermines its purpose of protecting plan managers from suits over prior investment decisions. A participant could simply deny having knowledge and deprive the managers of legal protection, managers argued.

“But even if this is true, as it may well be, we cannot say that heeding the clear meaning of the word ‘actual’ renders the statute so “‘[in]coherent’” that it must be disregarded[,]” Alito wrote, quoting from the 2016 Supreme Court opinion in Kingdomware Technologies Inc. v. U.S.

Alito also made the point that nothing in the new decision will prevent actual knowledge from being proven in future litigation using any of the “usual ways.”

“Plaintiffs who recall reading particular disclosures will of course be bound by oath to say so in their depositions,” the justice wrote. “On top of that, actual knowledge can be proved through ‘inference from circumstantial evidence,’” he wrote, quoting from Staples v. U.S., a 1994 Supreme Court ruling.

During oral arguments Dec. 4, justices said people don’t generally read the disclosures sent to them.

“Most people don’t read them,” Justice Brett Kavanaugh said. “How can you say that they have actual knowledge if they haven’t read something?”

“There are many people who don’t read these mailings,” Justice Ruth Bader Ginsburg said. “I must say I don’t read all the mailings that I get about my investments.”

Chief Justice John Roberts said, “it’s one of those things, the more and more disclosures that are required, the less and less likely it is that people are going to look at them.” It would be wrong to “dispense with the requirement of showing that they were actually read because we assume that they were most often actually read.”