By Pension and Benefits Editorial Staff
For purposes of applying the three-year limitations period under ERISA Sec. 413(2), “actual knowledge” means the participant is actually aware of the facts constituting the breach, not merely that the facts are available to the participant, the U.S. Court of Appeals in San Francisco (CA-9) has ruled. Thus, a district court erred when it granted summary judgment to an employer who argued that for purposes of the three-year limitations period, the presence of information on company websites regarding the investment allocation of plan funds constituted “actual knowledge” with respect to the participant. Given that the participant testified he wasn't aware of the information, only a fact-finder could determine whether he had the requisite actual knowledge.
Investment allocation. In 2010-2012, an employee participated in two of the employer's individual account retirement plans, the Retirement Contribution Plan and the 401(k) Savings Plan. The employee's Retirement Plan account was invested in the employer's Global Diversified Fund and his Savings Plan account was invested in the employer's Target Date 2045 Fund. An employer investment committee managed the Funds' asset allocations.
When equity markets began to improve after the 2008 recession, the Funds' performance lagged behind the performance of index funds and comparable portfolios. This lag was due in part to the employer's decision to increase the Funds' investment in hedge funds and other “alternative investments.” These investment decisions were disclosed on two employer websites, including a Fact Sheet posted in 2010 stating that the Target Date fund was invested more heavily in hedge funds than comparable portfolios and was not performing well.
The participant filed suit on October 29, 2015, alleging the employer violated ERISA Sec. 404, in part by imprudently causing the Funds to be invested in the alternative investments.
District court. The district court awarded summary judgment to the employer, concluding the employee's claim was barred by the applicable statute of limitations. ERISA Sec. 413(2) provides that an action under ERISA Sec. 404 may not be commenced more than “three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.”
Actual knowledge standard. The Ninth Circuit reversed the lower court's award of summary judgment. After reviewing the legislative history of ERISA Sec. 413(2) and its own at times “conflicting” interpretations of the statute, the appellate court reasoned that “actual knowledge” must mean something between bare knowledge of the underlying transaction, which would trigger the limitations period before a plaintiff knew he or she had reason to sue, and actual legal knowledge, which only a lawyer would normally possess.
The court therefore held that, whatever the underlying ERISA claim, the limitations period begins to run once the plaintiff has sufficient knowledge to be alerted to the particular claim. Constructive knowledge is insufficient, the court emphasized. “Actual knowledge” means the plaintiff is actually aware of the facts constituting the breach, not merely that those facts were available to the plaintiff.
In this instance, the employer argued that because the 2010 Fact Sheet and other documents discussing the funds' investment strategy were posted on employer websites before the three-year limitations period began to run, the participant had actual knowledge of the breach. The appellate court rejected this argument. It's true, the court explained, that information was available to the participant, but the test under ERISA Sec. 413(2) was whether he had actual knowledge of the material. The participant accessed some of this information on the websites, but testified in a deposition that he was not actually aware his retirement accounts were invested in alternative investments. Thus, a factual dispute exists, making summary judgment inappropriate. Only a fact-finder could determine the participant had the requisite “actual knowledge” for ERISA Sec. 413(2) to bar the action.
SOURCE: Sulyma v. Intel Corporation Investment Policy Committee (CA-9).
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