Supreme Court justices Wednesday probed both sides of an ERISA breach lawsuit covering defined contribution sponsors' responsibilities for communicating investment lineup features and participants' responsibilities for understanding plan options.
Intel Corp.'s investment policy committee asked the court earlier this year to review litigation involving a participant in two Intel defined contribution plans.
The participant alleged that plan managers violated their ERISA obligations by offering too many alternative investments in the plans' lineups and that the plans' disclosures of investment information were inadequate. The investment policy committee had argued that the participant missed the three-year deadline for filing ERISA claims.
Wednesday's oral arguments focused on the legal standard called "actual knowledge."
Donald B. Verrilli Jr., a partner with Munger, Tolles & Olson, who represented Intel, argued that more than three years before the participant — Christopher Sulyma — filed his lawsuit in October 2015 he received plan disclosures that "apprised him of the precise investment allocations he later claimed were imprudent."
Several justices took issue with the idea that just because a participant receives information about their retirement plan that they will read it.
"Many people don't read them," said Justice Brett Kavanaugh. "So how do you have actual knowledge if you haven't read it?"
There is a six-year limit to file ERISA breach lawsuits if the plaintiff does not have actual knowledge and a three-year limit for those who do.
Justice Ruth Bader Ginsburg said it's hard to take the word "actual" to mean something other than "yes, I, in fact, know. And as Justice Kavanaugh pointed out, there are many people who don't read these mailings. I must say I don't read all the mailings that I get about my investments."
Matthew Wessler, a principal at Gupta Wessler who represented the plaintiff, argued that the three-year clock shouldn't start until a person reads and understands the information provided about their retirement plan.
Ms. Ginsburg pushed back on that notion. "If the plaintiff says, 'I didn't read it,' the court has to accept that? I mean, how can the veracity of that statement be tested?" she said.
Justice Samuel Alito asked Mr. Wessler if someone were to read a provided disclosure but not understand it if they could then say they didn't have actual knowledge. When Mr. Wessler said yes, Mr. Alito responded, "So then this is meaningless, the actual knowledge is meaningless."
Matthew Guarnieri, assistant to the solicitor general, said to have actual knowledge, the plaintiff's knowledge "must exist as a matter of fact" as he argued in support of the plaintiff's case. "Knowledge that is imputed or implied to the plaintiff as a matter of law does not suffice," he added. "That is what 'actual' means in this context."
And if the actual knowledge standard is not met, the default six-year period should govern the timeliness of the plaintiff's claims, he said.
In closing, Mr. Verrilli said expanding the window to bring these types of lawsuits would open plans up to even more litigation. He also said there would be class-actions lawsuits where it needs to be determined if each class member had "actual knowledge or not based on these kinds of circumstantial proof that we were talking about. Just think of what a catastrophe that's going to be in the class-action context."
In March 2017, a U.S. magistrate judge issued a summary judgment supporting Intel's contention that Mr. Sulyma missed the ERISA deadline and that Intel had provided sufficient information.
However, a three-judge panel of the 9th U.S. Circuit Court of Appeals reversed and remanded the decision in November 2018, saying Mr. Sulyma lacked sufficient knowledge of the investments based on ERISA standards.
The Supreme Court will now decide the case's fate.
Staff writer Robert Steyer contributed to this story.