Thecircuit split lets plaintiffs simply claim they never read plandocuments, and without input from SCOTUS, plaintiffs' attorneyswill be encouraged to forum-shop claims within the Ninth Circuit,Intel says. (Photo: Shutterstock)

Fiduciaries to Intel Corp.'s defined contribution plans havepetitioned the Supreme Court to clarify the Employee RetirementIncome Security Act's statute of limitations.

Intel's petition arises from a claim first brought in 2015 inthe U.S. District Court for the Northern District of California. Aformer Intel employee alleged fiduciaries to two definedcontribution plans sponsored by the firm breached ERISA by loadinga target-date fund with large allocations tohedge funds and private equity investments.

The case gained notice for Intel's aggressive use of alternative investments at a time when moresponsors were populating investment menus with passively managedinvestments in response to a growing body of excessive fee claims against 401(k) plans.

But the prudence of using alternative investments to hedgelong-term risk and volatility in a retirement plan was neveraddressed by the district court.

Instead, a magistrate judge ruled in 2017 that the claim wastime-barred under ERISA's statute of limitations, and issued asummary judgment in favor of Intel to dismiss the case.

Ninth Circuit defines 'actual knowledge'

ERISA's statute of limitations includes a provision sayingclaims against plan fiduciaries must be brought within three yearsof the earliest date a plaintiff had "actual knowledge" of abreach.

The plaintiff, who worked for Intel between 2010 and 2012,received notifications of plan documents housed on dedicatedwebsites for plan participants. A "Fund Fact Sheet," posted in2010, disclosed that Intel's alternative-centric strategy wasunderperforming index funds as equity markets recovered from theGreat Recession.

Court documents reveal that the plaintiff visited the web pagesoutside of the three-year statute of limitation. But in depositionshe testified that he did not recall reading the relevantinformation.

In November of 2018, the Ninth Circuit Court of Appealsunanimously overturned the lower court's ruling in favor ofIntel.

At issue was the definition of "actual knowledge" in ERISA'stext. The Ninth Circuit defined the phrase to mean "what it says,"according to its ruling.

"We hold that the phrase 'actual knowledge' means the plaintiffis actually aware of the facts constituting the breach, not merelythat those facts were available to the plaintiff," the NinthCircuit said.

The appellate court acknowledged Intel's evidence that theplaintiff had sufficient information at his disposal to baseallegations before the three years preceding his claim.

"However, that is insufficient," the court said. "If (theplaintiff) in fact never looked at the documents Intel provided, hecannot have had 'actual knowledge of the breach' because he cannothave been aware that imprudent investments were made and that otherIntel fiduciaries were failing to monitor or remedy thatimprudence."

Courts struggle to apply ERISA's statute of limitations

The Ninth Circuit's decision creates a split with the SixthCircuit.

In a 2010 decision in favor of Owens Corning's retirement plan,the Sixth Circuit said, "when a plan participant is given specificinstructions on how to access plan documents, their failure to readthe documents will not shield them from having actual knowledge ofthe documents' terms."

Courts across the country have struggled in applying ERISA'sstatute of limitations, write Chris Scheithauer and Rick Pearl,ERISA litigators with McDermott, Will and Emery.

The Ninth Circuit's interpretation of actual knowledge is"practically problematic," the attorneys wrote in a blog post.

"A defendant will have to prove that a plaintiff in fact readmaterials in order to show a plaintiff had knowledge of factscontained in those materials. In our experience, plaintiffs inERISA cases do not always read information about their accounts andplans, despite repeated and fulsome attempts by the plans toeducate participants. Plan fiduciaries should consider requiringparticipants to acknowledge receipt and review of materials to helpavoid a factual dispute," write the attorneys.

In its petition to the Supreme Court, attorneys for Intel arguethe Ninth Circuit's decision will render ERISA's three-yearlimitation meaningless.

"The Ninth Circuit's constricted reading of 'actual knowledge'will undermine the balance that ERISA's carefully crafteddisclosure framework seeks to achieve," according to Intel'spetition.

"Under that reading, no amount of disclosure by plan fiduciariescan ensure that plan participants will possess actual knowledge ofthe facts disclosed by the plan, enabling virtually every plaintiffto get past a motion for summary judgment. Indeed, planparticipants will be discouraged from timely reviewing thedisclosures provided by the plan, knowing that doing so willinsulate them from a limitations defense—precisely the opposite ofwhat ERISA's robust and reticulated disclosure regime is designedto accomplish," Intel's position says.

The circuit split also exposes multistate employers to differentinterpretations of ERISA, and gives plaintiffs a roadmap foravoiding the statute of limitations by simply claiming they neverread plan documents, argues Intel.

Without input from the Supreme Court, plaintiffs' attorneys willbe encouraged to forum-shop claims within the Ninth Circuit, sayIntel's attorneys; that is, seeking a venue most likely to providea favorable judgment.

"As long as the question presented remains unanswered, thousandsof employers and millions of employees will operate in anenvironment lacking predictability and uniformity concerning theERISA limitations period—a critical threshold issue in many ERISAcases," according to Intel's petition.

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