In its February 26, 2020, unanimous decision in Intel Corporation Investment Policy Committee v. Sulyma, the United States Supreme Court resolved a circuit split regarding what constitutes “actual knowledge” for purposes of triggering ERISA’s three-year statute of limitations for fiduciary breach claims. (ERISA § 413(2); 29 U.S.C. § 1113(2)). The Court found that a fiduciary’s act of disclosing investment information is necessary, but not sufficient to demonstrate that a participant has actual knowledge of the information contained in investment disclosures. Simply put, to “meet § 1113(2)’s ‘actual knowledge’ requirement … the plaintiff must in fact have become aware of that information.”

This is actual knowledge, which Black’s Law Dictionary (10th ed. 2014) defines as “direct and clear knowledge, as distinguished from constructive knowledge.” Notwithstanding conventional wisdom that constructive and actual knowledge are different species, the practical relationship may be better understood as one of degrees. Actual knowledge is different from a notification, which the service operator must respond to according to section (c)(1)(C) (whereas your quote is from (c)(1)(A)): (C) upon notification of claimed infringement as described in paragraph (3), responds expeditiously to remove, or disable access to, the material that is claimed to be infringing. “Actual Knowledge” can play a role in understanding your 401k plan provisions. A good comparison most untrained investors will understand is the following example: Suppose you have a 401k retirement plan with a personal reported plan asset value of $500,000. 'Actual knowledge' means a person 'must have known' as opposed to 'should have known.' In footnote 4 of Uccello v. Laudenslayer (1975) 44 Cal App 3d 504, the court stated: ' A defendant's actual knowledge may be shown, not only by direct evidence, but also by circumstantial evidence.

Under ERISA, a plaintiff must file a lawsuit within six years of the alleged fiduciary breach, or within three years of the date the plaintiff had “actual knowledge” of the breach. (ERISA § 413; 29 U.S.C. § 1113). Sulyma filed his lawsuit challenging the prudence of the Intel 401(k) plan fiduciaries’ investment decisions more than three years, but less than six years, after Intel provided ERISA-mandated disclosures of the investments at issue.

Intel submitted evidence that Sulyma had accessed an online portal containing plan investment information, but Sulyma testified that he did not remember reviewing disclosures and was unaware that he was invested in the challenged funds. Although the district court found that the three-year limitations period applied because Sulyma had access to the information, the Ninth Circuit reversed, holding that “actual knowledge” required actually knowing what was in the disclosures.

The Supreme Court affirmed, applying a textualist, plain meaning analysis to the statutory language. The Court presumed that Congress acts intentionally when including particular language, stating that, “as presently written, § 1113(2) requires more than evidence of disclosure alone.” Based on the plain meaning of “actual knowledge” as confirmed by several dictionaries, the Court concluded that “if a plaintiff is not aware of a fact, he does not have ‘actual knowledge’ of that fact however close at hand the fact might be.” The Court seemed to acknowledge that this definition may limit fiduciaries’ ability to invoke the shorter limitations period, but advised that “if policy considerations suggest that the current scheme should be altered, Congress must be the one to do it.”

Open Issues: Litigation Will Continue

The Court’s opinion left open several issues that are sure to become topics of further litigation.

• The opinion does not squarely address what exactly the plaintiff must know to trigger the three-year limitations period. The Ninth Circuit found that actual knowledge meant something between bare knowledge of the transaction and knowledge that the transaction violated ERISA. The Supreme Court did not address this inquiry because the issue was not before the court.
• The Court held that fiduciaries still could prove actual knowledge through direct testimony, circumstantial evidence (e., electronic evidence that the information was accessed and that the plaintiff thereafter took action), or evidence of “willful blindness.” But the opinion does not offer guidance on how to prove such blindness or what type of circumstantial evidence would be sufficient. One potential consequence of the Court’s opinion is to incentivize participants not to read disclosures. How well the admonishment against “willful blindness” will counteract that incentive remains to be seen.

Takeaways and Next Steps

Plan fiduciaries should be aware that this case severely limits the ability to seek early dismissal or even summary judgment based on the three-year limitations period. Testimony and evidence concerning whether a plan participant has in fact become aware of the challenged conduct will be a primary focus. This subjective knowledge standard seems more likely to produce fact issues sending cases to trial.

Actual Knowledge Vs Constructive Knowledge

But all is not lost for the shorter, three-year statute of limitations under § 1113(2). The Court’s opinion offers some important guidance to plan fiduciaries defending claims on the basis that they are untimely.

Actual Knowledge Meaning

• Robust factual records are valuable. By highlighting the “usual ways” that defendants can establish actual knowledge, the Supreme Court provided a virtual road map for plan fiduciaries to protect themselves from untimely litigation. Fiduciaries can create a record documenting that participants received specific information and acknowledged that such information was read. Some fiduciaries may require participants to electronically acknowledge, or otherwise verify in writing, when documents have been reviewed. Further documentation of when disclosures were sent and accessed, and whether participants took action after such events, will be considered highly relevant evidence of a participant’s actual knowledge.
• Summary judgment is still on the table. The Court noted that summary judgment is still on the table because, even though inferences are drawn in favor of a non-moving party, if “a plaintiff’s denial of knowledge is blatantly contradicted by the record, a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment.” Thus, with favorable factual records, summary judgment still may be possible.
• Willful blindness may become a significant defense. What is required to prove that a participant purposely ignored ERISA-mandated disclosures remains to be determined. But the opinion signaled that courts should not encourage blissful ignorance and that evidence of same will support a finding of actual knowledge.
• Class certification can be challenged. The Supreme Court’s ruling may make class certification more difficult for plaintiffs in fiduciary breach cases. Whether a putative class member’s claim is barred by the three-year “actual knowledge” limitations provision will likely turn on a fact-intensive, individualized inquiry into what, if anything, a plaintiff knew about challenged conduct and when they knew it.

Actual Knowledge Defined

Although the Supreme Court certainly resolved a circuit split on the narrow issue of whether a participant’s mere receipt of disclosures can trigger actual knowledge, the opinion raises additional questions and these issues will continue to be litigated for years to come. As a result of the decision, it may be more difficult to get ERISA breach of fiduciary duties claims dismissed on the basis that those claims are untimely. Plan fiduciaries would be well served to evaluate their disclosure process and assess whether modifications are appropriate in light of the Supreme Court’s ruling. Fiduciaries also should remember that establishing and following prudent procedures for making fiduciary decisions continues to be critically important.