Statute of Limitations under the Employee Retirement Income Security Act of 1974 (ERISA)

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By: Shagun Parekh

Summary

The Employee Retirement Income Security Act of 1974 (ERISA) protects individuals who participate in employer-sponsored retirement plans by setting minimum standards for plan administration. The act provides a three-year statute of limitations when workers have actual knowledge of an alleged ERISA breach or violation by plan fiduciaries. In December 2019, the Supreme Court ruled in Intel Corp. Investment Policy Committee v. Sulyma that if an employee has chosen to not read or does not recall having read all the relevant investment information provided by the plan, they lack actual knowledge in the event of an alleged violation. A longer six-year statute of limitations applies in these cases.

The recent Supreme Court judgement poses new legal challenges to employers and retirement plan fiduciaries.

ERISA Guidelines for Filing a Claim

ERISA violations stem from retirement plan fiduciaries unfairly administering the plan, changing its terms, not valuing assets at fair market value, and additional situations. Under ERISA, employees who participate in employer-sponsored retirement plans have the right to challenge an alleged violation by the plan fiduciaries under one of three limitations:

  • A claim must be filed within three years after the employee has actual knowledge of a breach
  • A claim must be filed within six years of the latest violation if the employee does not have actual knowledge of violations, or
  • Where there was fraud and concealment of such fraud, there is no deadline to file a related claim

The ERISA statute itself, however, does not define actual knowledge.

How did ERISA Enforcement Change?

In the Intel Corp. Investment Policy Committee v. Sulyma Supreme Court case, the plaintiff was employed by Intel and invested in their 401(k) plan. The plan did not initially include lower risk “alternative investments,” but Intel later decided to move funds to these investment types. This change led to higher fees and lower returns during times of strong stock market performance. The plaintiff sued for an alleged plan breach.

Because Intel disclosed their 401(k) investment decisions on various websites, they successfully argued in lower courts that the plaintiff had actual knowledge and therefore their claim was subject to a three-year deadline. However, the employee countered that he did not recall reading the disclosures and was not aware of the information. Therefore, he did not have actual knowledge of the alleged violation, and he should be given the longer six-year time limitation.

Using a relatively simple interpretation of actual knowledge, the Supreme Court unanimously accepted the plaintiff’s argument. This decision has powerful ramifications for employers. Employers nationwide will have to ensure that their employees really are reading all financial papers and disclosures for their retirement plans.

What is Actual Knowledge?

Actual knowledge cannot be established merely by making disclosures available or through other forms of constructive knowledge. In legal terms, “actual” indicates that an individual has either direct knowledge, or it can be reasonably inferred that they were aware based on the circumstances. “Knowledge” refers to familiarity, awareness, or understanding.

Per the Court’s 2019 decision, a plaintiff does not necessarily have actual knowledge if they receive information but do not read or cannot recall reading it. The plaintiff must in fact be sufficiently  aware of plan information to meet the standards for actual knowledge.

What Should Employers Do?

After this ruling, employers may now be exposed to litigation based on plan decisions for double the current time. To limit risks, employers should consider taking additional steps to communicate the importance of financial disclosures and documents to their employees. Additionally, an acknowledgement form should be attached to such documents to maintain a record and protect the employer’s interests.

On a positive note for employers, the Court also underlines the fact that plaintiffs who do remember the disclosures will be bound by oath to say so. This interpretation is not meant to promote deliberate ignorance.

Stay Updated

If you have any questions about how to effectively defend your business against ERISA litigation, or ways to best comply with this decision, please reach out to us at info@chugh.com. We also encourage you to forward this alert to relevant contacts who might benefit from it.

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