A unanimous Supreme Court held that a retirement plan participant does not have “actual knowledge” of information contained in plan disclosures merely by virtue of having received those disclosures.
Emphasizing the significance of “actual knowledge” in the text of the statute, the U.S. Supreme Court has held that a plaintiff suing a retirement plan administrator for fiduciary breach must in fact have become aware of the investment information for purposes of accelerating the complaint-filing deadline under Section 413(2) of ERISA. Rejecting a constructive knowledge standard, the Justices said that actual knowledge cannot be presumed merely because a fiduciary has disclosed information about allegedly imprudent investments. “As presently written,” Justice Alito wrote for a unanimous Court, “§1113(2) requires more than evidence of disclosure alone.” Rather, “the plaintiff must in fact have become aware of that information.” If, as Intel argues, such a reading of the statute is not sufficiently protective of ERISA fiduciaries, then that is a matter for Congress to take up (Intel Corp. Investment Policy Committee v. Sulyma, February 26, 2020, Alito, S.).
Under Section 413(2) of ERISA, plaintiffs with “actual knowledge” of an alleged fiduciary breach have an accelerated filing deadline: they must sue within three years of gaining that knowledge, rather than within the six-year period that would otherwise apply. The three-year limitations period runs from “the earliest date on which the plaintiff had actual knowledge of the breach or violation.” In this case, the relevant information related to the alleged fiduciary breach had been disclosed to the employee more than three years before he filed his complaint. However, the plaintiff asserted that he did not read the information, or at least did not remember having read it.
The employee in this case worked at Intel from 2010 to 2012, and was a participant in two company retirement plans. In October 2015, he filed a putative class action suit against the administrators of those plans, contending that they breached their fiduciary duty by overinvesting in alternative assets such as hedge funds. The employee received summary plan descriptions referring him to more detailed investment information. He also received emails from the fiduciaries directing participants to the NetBenefits website that provided the relevant investment disclosures. Consequently, Intel argued that his suit was untimely because it was filed more than three years after information about the alternative investment decisions were disclosed to him. However, although the employee had visited that website on many occasions, he testified that he didn’t recall reviewing the disclosures, and he was unaware of the allegedly imprudent investments during the time he was employed at the company.
Prior rulings. The district court granted summary judgment to Intel, concluding that the suit was time-barred. The Ninth Circuit reversed. While it agreed with Intel that the employee could have known about the challenged investments from the disclosures provided, the appeals court found that the employee’s testimony that he did not see the disclosures created a dispute as to when he gained “actual knowledge” for purposes of §1113(2). In contrast to the Ninth Circuit, the Sixth Circuit had reasoned that constructive knowledge was enough. And, in its petition for certiorari, Intel asserted there was “overwhelming consensus in the federal courts” on this point.
To resolve the circuit split, the Justices granted certiorari and, on December 4, 2019, heard oral argument on the question presented: “Whether the three-year limitations period in Section 413(2) of the Employee Retirement Income Security Act, 29 U.S.C. 1113(2), which runs from “the earliest date on which the plaintiff had actual knowledge of the breach or violation,” bars suit where all of the relevant information was disclosed to the plaintiff by the defendants more than three years before the plaintiff filed the complaint, but the plaintiff chose not to read or could not recall having read the information.”
ERISA means what it says. The Justices affirmed the Ninth Circuit. ERISA’s “actual knowledge” requirement is not satisfied merely by virtue of the fact that the fiduciary has disclosed the relevant investment information, the Court found. “Actual knowledge” means something more. As Justice Alito wrote, the statutory meaning is plain: “the phrase ‘actual knowledge’ does in fact mean ‘what it says.’” (And dictionaries, both legal and lay, support this construction).
Congress has drawn a clear “linguistic distinction” between actual and constructive knowledge—between what an employee actually knows and what the employee should have reason to know, the Court observed. “And when Congress has included both forms of knowledge in a provision limiting ERISA actions, it has done so explicitly. We cannot assume that it meant to do so by implication in §1113(2).”
Intel urged a broader construction of “actual knowledge”—one that would distinguish between information that an employee must affirmatively seek out from information that is directly sent to the employee, as in this case. “But if a plaintiff is not aware of a fact, he does not have ‘actual knowledge’ of that fact however close at hand the fact might be,” the Court noted. “And Congress has never added to §1113(2) the language it has used in other ERISA limitations provisions to encompass both what a plaintiff actually knows and what he reasonably could know.” Just because an employee could gain the requisite knowledge with a bit of reasonable effort does not mean he has the requisite knowledge. To so hold would “turn §1113(2) into what it is plainly not: a constructive-knowledge requirement.” Consequently at least as currently written, the statute demands proof of actual knowledge beyond disclosure alone.
Policy arguments unavailing. Intel also argued that such a strict construction of “actual knowledge” would undermine the protections that ERISA’s limitations period meant to afford to plan administrators facing legal claims “over bygone investment decisions.” The defendant protested that plan participants would simply be allowed to deny any knowledge of the allegedly imprudent investment decision and eviscerate the meaning of §1113(2). Even if that were true, the Court said, it was not reason to ignore the clear meaning of the word “actual.” Moreover, Intel’s construction of the statutory provision would diminish ERISA’s value for beneficiaries.
“Choosing between these alternatives is a task for Congress, and we must assume that the language of §1113(2) reflects Congress’s choice,” the Court pointed out. “If policy considerations suggest that the current scheme should be altered, Congress must be the one to do it.”
For fiduciaries, not all is lost. The Court was careful to note, however, that nothing here forecloses any of the “‘usual ways’” of proving actual knowledge. “Today’s opinion also does not preclude defendants from contending that evidence of ‘willful blindness’ supports a finding of ‘actual knowledge.’”
The fact that all of the relevant information is disclosed to an employee is certainly relevant to the factual dispute over whether the employee did in fact have actual knowledge of the information, “as would electronic records showing that a plaintiff viewed the relevant disclosures and evidence suggesting that the plaintiff took action in response to the information contained in them.” Moreover, employees who plead ignorance despite receiving such disclosures are still bound by oath to be truthful. And of course, a fiduciary can attempt to prove actual knowledge through “inference from circumstantial evidence.”
It was just that here, the fiduciary had argued that it need not offer any proof at all of actual knowledge. “And that is incorrect,” the unanimous Court held.
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