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Supreme Court Defines ‘Actual Knowledge’ in DC Plan Suit

Supreme Court Rules That 'Actual Knowledge' Means What It Says
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1 min 31 sec

The Supreme Court in late February ruled that the statute of limitations for lawsuits alleging breach of fiduciary duty under ERISA will only be reduced to three years “when a plaintiff actually is aware” of the facts of a breach, “not when he should be.”

Background: ERISA lawsuits alleging breach of fiduciary duty are typically restricted by a six-year statute of limitations. However, that timeframe can be cut in half if the participant had “actual knowledge” of an alleged fiduciary breach (29 U.S.C. §1113(2)).

The Supreme Court’s unanimous decision in Intel Corporation Investment Policy Committee et al. v. Sulyma hinges on the use of the word “actual.” Although Intel was able to demonstrate that the plaintiff had visited a website that hosted various disclosures multiple times and received emails directing him to disclosures documenting fees and returns, the plaintiff testified that he did not remember reviewing the relevant disclosures.

Just because a reasonably diligent person should be aware of something doesn’t mean the person is, the court ruled. The decision states that the court assumes Congress acted deliberately in drafting this particular provision in ERISA to include this higher standard. The decision also assumes that plaintiffs who “recall reading particular disclosures will…be bound by oath to say so in their depositions,” and that actual knowledge can be inferred from the participant’s actions.

This decision is limited to defining the standard of actual knowledge. The case now goes back to the district court to determine whether the plaintiff’s claims in this case are credible or sufficient to meet the actual knowledge standard.

Bottom Line: Plan sponsors may wish to undergo a communications audit or redistribute important communication materials to participants to ensure they are informed about plan information. In addition, plan sponsors can work with their recordkeepers to document affirmative confirmations that participants have reviewed relevant plan information.

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