In the March 6, 2020 issue of the Los Angeles Daily Journal, the Daily Journal published an article written by the McKennon Law Group PC’s Robert J. McKennon. The article addresses a recent case by the Supreme Court of the United States, Intel Corporation Investment Policy Committee v. Sulyma, which upheld the Ninth Circuit’s holding that generic disclosures by plan administrators do not trigger the three year statute of limitations for breach of fiduciary duty claims under ERISA. Given the Supreme Court’s emphasis on what the individual plan beneficiary consciously knows and the increasing importance of breach of fiduciary duty claims under ERISA, this will likely help a variety of plan beneficiaries by guaranteeing that their otherwise meritorious claims are not barred by a statute of limitations triggered by stray statements in the volumes of documents ERISA plans send to their beneficiaries every year.
Victory for Plan Beneficiaries in US Supreme Court Ruling
The Supreme Court’s decision in a case last week will have wide-reaching implications. Now, plan administrators can no longer hide behind the volumes of unintelligible disclosures they make every year. Employers and plan fiduciaries may now be exposed to litigation challenging plan actions for a much longer time than they had anticipated.
By Robert J. McKennon
Just a decade ago, breach-of-fiduciary-duty claims under the Employee Retirement Income Security Act were not common. That changed in 2011 when the U.S. Supreme Court broadened the scope of equitable relief available under ERISA utilizing breach of fiduciary claims in its landmark decision in Cigna Corp. v. Amara, 563 U.S. 421, 441 (2011). The Supreme Court recognized that equitable relief under ERISA could take a variety of forms, including, equitable estoppel, waiver and monetary damages in the form of equitable surcharge. Before, even if there had been a breach, the available remedies were often meaningless. Now, courts have the power to order the offending administrator to provide meaningful redress. A claim may arise from a plan’s refusal to honor a life insurance policy after it has received numerous premiums and made repeated statements that someone was covered under the policy. And, a plan may be held liable for making misstatements about the value of someone’s pension benefits. In a post-Amara world, breach of fiduciary duty claims under ERISA have become increasingly important.
Breach of fiduciary duty claims under ERISA are subject to a somewhat complicated statute of limitations. Under 29 U.S.C. Section 1113, there are three different potential deadlines by which a suit must be brought. First, “under §1113(1), suit must be filed within six years of the date of the last action which constituted a part of the breach or violation or, in cases of breach by omission, the latest date on which the fiduciary could have cured the breach or violation.” Second, “suit must be filed within three years of the earliest date on which the plaintiff had actual knowledge of the breach or violation.” Id. (emphasis added). Finally, in cases of fraud or concealment, suit must be brought within six years of the date of discovery. See id.
Given the importance of these claims in a post-Amara world, the significance of the Supreme Court’s recent decision in Intel Corporation Investment Policy Committee v. Sulyma, 2020 DJDAR (Feb. 26, 2020), becomes clear. In Sulyma, the Supreme Court handed down a commonsense opinion that will help employees secure their pension and employee benefits. In Sulyma, the court clarified that disclosure of information by a plan administrator in a generic mailing does not necessarily mean that a beneficiary possesses the “actual knowledge” required to trigger the three-year statute of limitations on a breach of fiduciary duty claim arising under ERISA.
Like many employees, Christopher Sulyma did not pay much attention to the lengthy disclosures and prospectuses associated with his employer’s 401(k) plan. Sulyma worked for Intel Corporation between 2010 and 2012, during which time he was automatically enrolled in Intel’s Target Date 2045 Fund. The fund was managed by an investment committee appointed by Intel’s board of directors. Intel provided Sulyma with various disclosures about the fund’s investments, which were also available on two websites. These documents revealed that the fund had made allocations to alternative investments such as hedge funds and private equity funds, which charged higher-than-average fees and underperformed in the market. Although Sulyma accessed some of the disclosures during his employment, he testified that he did not know that Intel had allocated the fund’s portfolio in alternative investments, or that this was the reason for the fund’s poor performance.
In 2015, Sulyma eventually learned of the fund’s poor performance and brought claims against Intel’s oversight committees under section 1104 of ERISA on the basis that Intel had made imprudent investments, failed to disclose those investments, failed to monitor the performance of those investments and failed to remedy other defendants’ ERISA violations despite knowing about them. What followed was a battle over whether Sulyma’s claims were barred by ERISA’s three-year statute of limitations.
Intel moved to dismiss Sulyma’s complaint, arguing in the district court that ERISA’s three-year statute of limitations barred Sulyma’s claims. Sulyma filed his action against Intel on October 29, 2015, and Intel claimed Sulyma had actual knowledge of the alleged breach before October 2012 because he had access to the fund documents as early as 2010. The district court sided with Intel and imputed the knowledge of the fund’s portfolio allocation to Sulyma.
On appeal, the 9th U.S. Circuit Court of Appeals reversed the district court’s granting of summary judgment. Neither “knowledge” nor “actual knowledge” is defined in ERISA. The 9th Circuit emphasized the plain meaning of the phrase. It concluded that actual knowledge refers to what the person consciously knows. The 9th Circuit found that the district court had erred when it inferred that Sulyma had actual knowledge merely because he had received fund documents that disclosed Intel’s investment strategy.
The Supreme Court affirmed the 9th Circuit’s ruling. The Supreme Court explained that “Although ERISA does not define the phrase ‘actual knowledge,’ its meaning is plain.” “[T]o have ‘actual knowledge’ of a piece of information, one must in fact be aware of it.” The court examined a variety of sources to confirm this meaning, but, as the court explained, “Dictionaries are hardly necessary to confirm the point, but they do.” Of note, the term “actual” separates the type of knowledge required by Section 1113 from the legal concept of constructive knowledge. Constructive knowledge is the kind in which the law imputes knowledge “to a person who fails to learn something that a reasonably diligent person would have learned.” By contrast, actual knowledge means that the person, at some point, consciously knew the fact in question. Here, Congress clearly intended to make clear that the person must be aware of the fact in question in order for the three-year statute of limitations to begin. Mere inclusion of the fact amid the text in volumes of documents regularly sent to plan participants is insufficient to impart actual knowledge.
The Supreme Court’s decision was not entirely bad for Intel or employers. The court explained that the “usual ways” of proving actual knowledge remain available to plan administrators. “Inferences from circumstantial evidence” can still be used by plan administrators to establish when the statute of limitations should begin to run. Furthermore, a participant cannot engage in “willful blindness,” the act of refusing to inform oneself of a piece of information. However, constructive knowledge cannot trigger the three-year statute of limitations.
The Supreme Court’s decision in Sulyma will have wide-reaching implications. Now, plan administrators can no longer hide behind the volumes of unintelligible disclosures they make every year. Employers and plan fiduciaries may now be exposed to litigation challenging plan actions for a much longer time than they had anticipated. Given the significant increase in ERISA breach of fiduciary duty claims and litigation, employees who seek to recover promised employee benefits will greatly benefit from this ruling.
Robert J. McKennon is a shareholder of McKennon Law Group PC in its Newport Beach office. His practice specializes in representing policyholders in life, health and disability insurance, insurance bad faith and ERISA litigation. He can be reached at (949) 387-9595 or [email protected] His firm’s California Insurance Litigation Blog can be found at www.californiainsurancelitigation.com.