by Stephen Wilkes and Livia Aber
As we discussed in a recent Alert, the Supreme Court’s decision in Intel Investment Committee v. Sulyma requires a plaintiff’s “actual knowledge” of the fiduciary breach in order for the three-year (rather than the six-year) statute of limitations under ERISA Section 413 to apply.
In Intel, the plaintiff failed to read or could not remember reading the disclosures that were provided and available to him regarding the two investment options with respect to which he alleged the defendant breached a fiduciary duty. The defendant submitted evidence that the plaintiff had received several notices disclosing the funds’ investments in alternative products, including the qualified default investment alternative (QDIA) notice, summary plan descriptions, fund fact sheets, and evidence that the plaintiff visited the website of the plan’s service provider who posted the disclosures.
The Supreme Court found that “actual knowledge” requires more than evidence that a disclosure was made to the plaintiff. “Actual knowledge” means “the plaintiff must in fact have become aware of that information.” A plaintiff does not have actual knowledge of information that s/he received but does not read or does not remember reading; knowledge must be more than hypothetical. The opinion also referred to the legal dictionary definition of “actual knowledge” which requires “real knowledge” as distinguished from assumed or imputed knowledge, which are not sufficient to establish “actual knowledge.”
So what practices may be employed by fiduciaries to ensure that participant are reading communications and disclosures and have the requisite “awareness” of their contents? As of this writing, our best understanding of this requirement is that a plan fiduciary should do what it can to promote effective communication that encourages participants to read plan notices and disclosures. Note that the Intel opinion abstained from addressing whether “actual knowledge” equated to an understanding of the information and/or the conduct underlying the claim, although the objective of a plan fiduciary should be to make any participant communication understandable. There will be an evolution of industry best practices in response to Intel, subject as always to the facts and circumstances of each unique situation. For example:
- Holding mandatory meetings (at which attendance is tracked) after a disclosure of a particularly meaningful plan change (e.g., change in investment lineup). The plan change would be discussed and a copy of the disclosure would be provided. A portion of the meeting can be devoted to answering questions. Attendance at such a meeting would certainly help with promoting a participant’s actual knowledge of the plan information.
- To the extent overly complicated language can discourage participants from reading plan disclosures and communications, plan fiduciaries should ensure that all disclosures or communications be written in plain language. If a service provider is involved in crafting plan communications, the plan fiduciary should first review a draft to ensure it is satisfactory since “plain language” to one participant population may be different to another population.
- Holding mandatory required annual education/training for employees to educate them about the plan and importance of notices and disclosures pertaining to the plan.
- Offer a pre-recorded explanation to accompany a disclosure, which participants can opt to view. Those who choose to view/listen to the pre-recording should be tracked.
- Nothing in the opinion discouraged plan fiduciaries from utilizing any of the usual ways to prove actual knowledge (e.g., electronic records). Thus, where disclosures are disseminated electronically, delivery and read receipts should be employed.
- Develop a means to track whether participants have accessed electronic disclosures and identify those who have not. Such a tool can be used to follow-up with those who have not read the disclosure.
- In addition to the use of delivery and read receipts, plan fiduciaries should also consider the use of a product that will not permit a reader from closing the disclosure without scrolling to the end and acknowledging that s/he has read the disclosure and understands that the disclosure pertains to the particular topic in question.
The DOL released a proposed safe-harbor rule for electronic disclosures for participants in ERISA, as we previously discussed here. The proposed safe harbor encourages the use of electronic means for plan disclosures. It permits a plan administrator to meet the electronic notice requirements by providing participants who have email addresses with electronic “Notices of Internet Availability” (NOIA) which contain a link to a website hosting the disclosure. Thus, a participant would receive the NOIA within which a link to the disclosure would be embedded. A potential issue is that a participant could receive the NOIA but never click on the link to view the underlying disclosure of plan-related information. This problem may be solved if a reader was prevented from closing the NOIA without clicking on the link to the disclosure, the end of which the reader would be compelled to acknowledge reading the disclosure and being aware of its contents.
- For fiduciaries currently not using electronic delivery, obtaining proof of paper delivery alone may be insufficient to ensure participants actually read the disclosure. The words “PLEASE READ” or “IMPORTANT INFORMATION” appearing prominently on the notice may help.
The Intel opinion also stated that when challenged, plan fiduciaries could make the case for “willful blindness” on the part of a plaintiff in support of actual knowledge, that is, deliberate ignorance or consciously avoiding actual knowledge to escape responsibility. The practices described above may not only promote effective communications with participants, but may help to support a case of willful blindness.
This is an evolving area of the law and there are no bright line rules. Individualized facts and circumstances will inform the type of administrative practices that should be implemented.