The outcome of many ERISA cases can often turn on one key fact.
Mr. Sulyma experienced that in his ERISA case, as handed down by the U.S. Supreme Court in a recent case, Intel Corp. Investment Policy Committee v. Sulyma. Mr. Sulyma invested part of his hard-earned paycheck into his employer's 401(k) account and retirement contribution plan. After the market decline in 2008, the fiduciary fund managers began investing his retirement funds into alternative assets that had much higher fees than other investments. As a result, after the market improved, Mr. Sulyma's retirement funds had not performed nearly as well as those which had been invested more prudently.
One would think then that this case turned on whether the investments were imprudent. It did not. Instead, the case turned on when Mr. Sulyma had actual knowledge of the unreasonable fees.
ERISA requires that a plaintiff must file a lawsuit claiming breach of fiduciary duty within six years of the date of the breach. That is a rule of repose regardless of when the wrong was revealed. However, the statute has an earlier limitation barring suit three years after the date if there was actual knowledge of the alleged breach. Courts such as the Eleventh Circuit in Brock v. Nellis had ruled that the statute's actual knowledge was calculated when disclosure of information occurred rather than when the plaintiff actually saw or read the disclosing documents. So, a plan could make available a large volume of information, tucking a disclosure about fees in the middle of it like the proverbial “needle in a hay stack”, and start the clock ticking. Mr. Sulyma had received a great deal of disclosure information, but there was no proof offered that he was actually aware of the exorbitant fees.
Mr. Sulyma filed suit in California. The District Court ruled against him finding:
“It would be improper to allow Sulyma's claims to survive merely because he did not look further into the disclosures made to him.”
The Ninth Circuit disagreed and reversed, finding that “actual” in the statute means “actual” and, absent proof that Mr. Sulyma actually knew of the excessive fees, merely proving a mass of documented disclosures was not enough. The Supreme Court agreed with the Ninth Circuit and affirmed. This, in effect, reversed holdings from the Second, Third, Fifth, Sixth, Seventh, and Eleventh circuits, which all had held that there was no need to prove that the plaintiff actually saw or read the documents in the disclosures made. This ruling makes sense. As the court noted, “actual” indeed means actual.
Score one for the prudent employee who earnestly tried to invest in his retirement!
Fortunately, Mr. Sulyma had good counsel who discovered why his plans had performed so poorly. ERISA cases often turn on a key fact – one that may not be apparent or intuitive to one not experienced in such cases. We see it all the time.