ERISA's actual knowledge requirement says what it means, and means what it says

Plan fiduciaries may be sued by participants for breach of fiduciary duty under ERISA. There’s usually a six-year time limit on filing a claim, but that deadline is reduced to three years if a participant obtains actual knowledge of the breach. The meaning of actual knowledge was unclear until the U.S. Supreme Court recently held that it means more than just the provision of information—it means personal awareness of the information.

ERISA’s clock starts when actual knowledge occurs

In October 2015, Sulyma, a participant in Intel Corporation’s (Intel) 401(k) plan, filed suit against the plan’s investment committee, alleging imprudent investment selection. Intel moved to dismiss the suit for lack of timeliness, claiming that Sulyma filed it more than three years after Intel provided investment disclosures to him.

Sulyma countered that he didn’t remember reviewing the disclosures and was, therefore, unaware of the allegedly imprudent investments. ERISA’s three-year clock, Sulyma claimed, never started ticking.

Intel argued that actual knowledge means information received by Sulyma, or that was available to him, whether or not he actually read it or could recall doing so. Intel maintained that ERISA’s clock began ticking when they provided Sulyma with plan information and the means to obtain actual knowledge.

The question before the Court was, therefore, what exactly is actual knowledge? With echoes of Dr. Seuss’s children’s book, Horton Hears a Who, the Court ruled that when Congress drafted the three-year statute of limitations to begin once a participant has actual knowledge of a breach, Congress meant what it said and said what it meant. The Court concluded that, to have actual knowledge of something, a participant "must in fact be aware of” that information. 

Under ERISA, actual knowledge means what it says

The Court ruled that actual knowledge means more than just providing participants with paper or electronic information, such as fund fact sheets and 404(a)(5) disclosures. For a participant to have actual knowledge, a participant “must in fact be aware” of that information.¹ 

The Court found that Sulyma didn’t have actual knowledge of the alleged breach, because he didn’t recall reviewing the disclosures and was, therefore, unaware of the allegedly imprudent investments. And because he was unaware, ERISA’s three-year statute of limitations hadn’t expired.  The Court also explained that any change to the actual knowledge requirement would have to be made by Congress.

Two lessons for ERISA 401(k) plan fiduciaries 

First, plan fiduciaries must continue to meet all their fiduciary obligations, including providing required plan disclosures in a timely and accurate manner, as well as prudently selecting and monitoring plan investment options

Second, the Court stated that plan fiduciaries could prove actual knowledge using a variety of means. Electronic communications provide an option, for example, with “electronic records showing the (participant) viewed the relevant disclosures and evidence suggesting the (participant) took action in response to information contained in them.”

In addition, the Court stated that, if a participant’s denial of knowledge is “blatantly contradicted by the record,” a court isn’t bound by that denial. Lastly, the Court indicated that evidence of “willful blindness” by the participant could also be useful in proving actual knowledge. As a result, plan fiduciaries should keep records that could be used in such a case.

What 401(k) plan fiduciaries should do to show actual knowledge

Actual knowledge means that participants must be aware of information, and that just providing them with information isn’t enough. And unless Congress changes ERISA’s three-year statute of limitations, plan fiduciaries relying on a timeliness defense will need to offer proof of actual knowledge—something that could be quite cumbersome in response to a class action lawsuit. Regardless of the potential administrative burden, plan fiduciaries should carefully document receipt of information, both paper and electronic, by participants. This will provide them with evidence if they’re sued for fiduciary breach.    

1 Unless otherwise noted, all references are to the Supreme Court’s decision in INTEL CORPORATION INVESTMENT POLICY COMMITTEE ET AL. v. SULYMA. 589 U.S. S.Ct.(2020). 

The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, or legal advice. Please consult your own independent advisor as to any investment, tax, or legal statements made herein.

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Chris Frank

Chris Frank, 

Head of Defined Contribution Consulting

John Hancock Retirement

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