Last week, the U.S. Supreme Court ruled against Intel Corporation in, Intel Corporation Investment Policy Committee v. Sulyma, a case with potentially far reaching implications to employers who maintain Section 401(k) retirement plans.

The case involved a class action lawsuit brought by an Intel employee who claimed that Intel, Intel committees and individuals administering two Intel retirement plans had breached their fiduciary duties under ERISA, the federal law that governs such plans, by offering two investment funds that were imprudently overinvested in “alternative investments” such as hedge funds and private equity and failed to disclose relevant facts about those allocations to plan participants.  This is but one of many similar class action ERISA lawsuits brought against large employers, universities and colleges.  The Supreme Court decision focused on the time a plaintiff has to bring such a claim.  ERISA Section 413 allows a plaintiff as long as six years to file suit following an alleged ERISA breach or violation.  However, if a plaintiff has “actual knowledge” of a breach or violation, that period is reduced to three years.

Mr. Sulyma worked at Intel Corporation from 2010 to 2012 and received numerous ERISA mandated investment disclosures, some explaining the extent to which the retirement plans were invested in alternative assets. In October 2015, he sued the administrators of the plans alleging that they had managed the plans imprudently. Intel argued that the claims were brought after the three year mark and thus too late and his lawsuit should be dismissed. Intel’s position was that the ERISA disclosures gave the plaintiff “actual knowledge” of all information necessary to challenge the Intel plans’ investments.  Although Mr. Sulyma had received the mandated notices and visited the website that hosted some of the disclosures many times, he testified that he did not remember reviewing the relevant disclosures and that he had been unaware of the allegedly imprudent investments while working at Intel.

The District Court granted summary judgment to the Intel defendants, reasoning that “[i]t would be improper to allow Sulyma’s claims to survive merely because he did not look further into the disclosures made to him.”  The US Court of Appeals for the Ninth Circuit reversed noting that although Mr. Sulyma “had sufficient information available to him to know about the allegedly imprudent investments” more than three years before filing suit, his testimony created a dispute as to when he actually gained that knowledge. The Ninth Circuit held that this was enough to create a factual dispute, preventing summary judgment and requiring a trial.

The Supreme Court agreed with the Ninth Circuit ruling that a plaintiff does not necessarily have  “actual knowledge” of the information contained in disclosures that he receives but does not read or cannot recall reading.  The Supreme Court read the ERISA “actual knowledge” requirement to mean that the plaintiff must in fact have become aware of that information and it would be inappropriate to impute knowledge based on the disclosures. The case now goes back to the District Court where the plaintiffs can move forward to try and prove the allegations. The Supreme Court stated that nothing in the decision “forecloses any of the ‘usual ways’ to prove actual knowledge at any stage in the litigation… and actual knowledge can be proved through ‘inference from circumstantial evidence’.”

The decision eliminates a potential defense available to employers when faced with a similar lawsuit. If an employer wants to avail itself of the shorter three-year statute of limitations for many ERISA allegations, steps will need to be taken to ensure that participants acknowledge or otherwise affirmatively demonstrate that they have read the various plan and investment disclosures.