WASHINGTON—Supreme Court justices seemed unreceptive to arguments by retirement plan managers that a six-year limitation for plan participants to sue over mishandling investments should be halved if participants had “actual knowledge” of the misbehavior complained of sooner.
The case is known as Intel Corporation Investment Policy Committee v. Christopher M. Sulyma. Santa Clara, California-based Intel Corp. itself isn’t a party to the proceeding, which was originally brought in 2015 as a class-action lawsuit by Sulyma, a former Intel engineer.
The Trump administration supports Sulyma’s position.
The case concerns the Employee Retirement Income Security Act (ERISA), a federal statute that requires plan managers to invest the funds they control prudently. It’s important because the Supreme Court’s decision “likely will establish a uniform interpretation of ERISA’s ‘actual knowledge’ standard for statute-of-limitations purposes,” according to The National Law Review.
“Congress chose to require actual knowledge, not constructive knowledge, before the general six-year limitations period for breach of fiduciary duty claims will be cut in half, and that deliberate decision must be honored,” Sulyma’s lawyer, Matthew W.H. Wessler, told the court Dec. 4 during oral arguments.
The plan managers’ attorney, Donald Verrilli Jr., said lawsuits for breach of fiduciary duty must be brought within three years from when the plan participant “first had actual knowledge of the breach.”
When Sulyma sued in 2015, claiming the plan “imprudently overinvested in hedge funds and commodities,” he had received plan disclosures that advised him of “the precise investment allocations he later claimed were imprudent.”
But the 9th Circuit Court of Appeals found those disclosures didn’t trigger the three-year bar because Sulyma testified he hadn’t read them and therefore lacked actual knowledge of their contents, Verrilli said.
The appeals court was wrong, he said, to double from three to six years “the period in which plaintiffs can exploit hindsight bias to second-guess investments, even when plans have fully disclosed the basis for those investments, and it introduces arbitrariness and intractable proof problems.”
But several justices pushed back, saying retirement plan participants often don’t read all the complex disclosures provided to them.
“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.”
Similarly, Justice Brett Kavanaugh told Verrilli, “Most people don’t read them.”
“How can you say that they have actual knowledge if they haven’t read something?”
Chief Justice John Roberts weighed in, saying, “I mean, 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.”
Roberts told Verrilli he was wrong to assume the court “would dispense with the requirement of showing that they were actually read because we assume that they were most often actually read.”
Justice Neil Gorsuch suggested Verrilli was trying to get the court to rewrite ERISA.
There may be “very good policy arguments for maybe making that [six-year limitation] shorter, but … that’s not our province,” Gorsuch said.
“That belongs across the street,” he said, referring to the U.S. Congress.