The U.S. Supreme Court said Monday it would review an ERISA breach lawsuit covering defined contribution sponsors' responsibilities for communicating investment lineup features and participants' responsibilities for understanding plan options.
The petition to the court was filed in February by managers of the Intel Corp. 401(k) plan and other Intel organizations, seeking to overturn a ruling by the 9th U.S. Circuit Court of Appeals that held the sponsor liable for fiduciary breaches alleged by a plan participant.
Intel argued that the participant had received sufficient information about alternative investment options in the plan. Intel said the participant's lawsuit was filed beyond the three-year limitations period allowed by ERISA from the time a plaintiff had "actual knowledge of a breach or violation."
Intel told the court that the plaintiff "chose not to read or could not recall having read the information," in the case of Intel Corp. Investment Policy Committee et al. vs. Sulyma.
The participant, Christopher Sulyma, sued in October 2015, but a U.S. magistrate judge issued a summary judgment in March 2017 supporting Intel's contention that he missed the ERISA deadline and that Intel had provided sufficient information.
However, a three-judge panel of the 9th Circuit reversed and remanded the decision in November, saying Mr. Sulyma lacked sufficient knowledge of the investments based on ERISA standards.
"If Sulyma in fact never looked at the documents Intel provided, he cannot have had 'actual knowledge of the breach' because he cannot have been aware that imprudent investments were made and that other Intel fiduciaries were failing to monitor or remedy that imprudence," the appeals court wrote. "Because there was a dispute of material fact over Sulyma's actual knowledge, the district court erred by entering summary judgment in favor of Intel on these claims."
Intel's petition to the Supreme Court said the 9th Circuit Court of Appeals decision conflicts with a 2010 opinion by the 6th U.S. Circuit Court of Appeals in a similar case involving the ERISA limitations standard. Given this so-called circuit split, Intel encouraged the Supreme Court to settle the dispute among appellate courts.
The Intel case is the second large defined contribution case that the Supreme Court will hear during the next term, which starts in October.
On June 3, the court agreed to revisit its unanimous decision issued in 2014 ruling that established guidelines for lower courts to determine if stock-drop lawsuits should be dismissed or allowed to go to trial.
The 2014 ruling, Fifth Third Bancorp et al. vs. Dudenhoeffer et al., and a follow-up 2016 ruling in Harris vs. Amgen, had established a high bar for plaintiffs to claim fiduciary breaches in sponsors' offering company stock in 401(k) plans.
However, a New York federal appeals court in December ruled against International Business Machines and its 401(k) plan, saying an ERISA complaint by a plan participant met the standards established by the Supreme Court.
In overruling a pro-IBM decision by a federal district court, the appeals court said IBM's fiduciaries should have protected their retirement accounts when the company's stock fell after IBM's efforts to sell its microelectronics unit in 2014.
IBM asked the Supreme Court in March 2019 to review this ruling, alleging that the appeals court's decision "reopens the door to lawyer-driven class actions that spring up after every stock drop," according to the petition in Retirement Plans Committee et al. vs. Larry W. Jander et al.
The Supreme Court also may hear another defined contribution case, Putnam Investments LLC et al. vs. Brotherston et al., in the next term. Putnam filed a petition with the court Jan. 11, asking it to overturn an appeals court ruling against its 401(k) plan. Putnam said the Supreme Court should settle a disagreement among several appeals courts on the issue of loss causation. The dispute focuses on whether plaintiffs must prove an ERISA breach caused a loss, or whether sponsors must disprove an alleged loss was caused by the ERISA breach. The Supreme Court on April 22 asked the U.S. solicitor general to present views on this case.
