Cohen & Buckmann, P.C.
Cohen & Buckmann, P.C.
EXECUTIVE COMPENSATION, PENSION & BENEFITS LAW

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EXECUTIVE COMPENSATION, PENSION & BENEFITS, INVESTMENT ADVISER LAW


 
Do Your Participants Read Their Plan Documents? Why It May Matter

Do Your Participants Read Their Plan Documents? Why It May Matter

By Carol Buckmann

                            carol@cohenbuckmann.com                                        

How long do participants have to sue for fiduciary breaches?  Sometimes procedural cases can have a big impact on employee benefit plans. One of these important cases was Tibble v. Edison, in which the U.S. Supreme Court, while technically ruling on how much time participants had to sue, established a fiduciary’s ongoing duty to monitor plan investments. The Supreme Court has just agreed to review another case on the length of time participants have to sue for fiduciary breaches. This new case may also have a significant impact on fiduciary liability. The case, which all fiduciaries should be monitoring, is Sulyma v. Intel Investment Policy Committee.  

The ERISA Issue. The Supreme Court will be interpreting ERISA Section 413, which gives participants three years from the date they had “actual knowledge” of a breach to sue if that is shorter than the general 6 year period to sue for fiduciary breaches. In this case, the plaintiff challenged alternative investments made by his plans and maintained  that he filed suit when he first became aware that the plans had made these investments. He testified that he didn’t recall reading relevant plan documents, although the SPD and other communications, including notices and investment fact sheets, had been made available to him and information was posted on the company’s website.  A federal appeals court in the 9th Circuit didn’t hold him accountable for not having read the documents he received, and determined that he was entitled to additional time to sue. It also determined that the required level of “actual knowledge” of an imprudent investment claim was not simply knowledge that the transaction had occurred, but knowledge of the fiduciary’s lack of diligence.

Since “actual knowledge” is not defined in ERISA, other courts have applied different standards. In a case against the Owens Corning Investment Review Committee, the 6th Circuit Court of Appeals adopted a more practical approach and looked to whether a participant had been provided with the relevant information and therefore had what the Sulyma court would have considered constructive notice. To that court, it was sufficient if the plaintiff should have been aware of the alleged breach. That court did not allow a participant in Sulyma’s situation additional time to sue.

A Rule Subject to Manipulation. If the Supreme Court rules against Intel, we will have a rule subject to manipulation by plaintiffs. Participants might be able to give themselves additional time to sue by ignoring or refusing to read plan documents.  How can fiduciaries counter these assertions?

As a matter of policy, a ruling against Intel would also seem to undermine the reporting and disclosure regime under ERISA and its requirements to timely provide relevant information about their plans to participants. Isn’t the whole point of providing timely and relevant information about investments to permit the participant to take appropriate action after receiving it?

What Can Plan Sponsors Do While We Wait for the Supreme Court to Decide?  Plan sponsors may want to consider tracking whether e-mails  distributing or providing links to documents are opened and  asking for written acknowledgments that  communications have been received and read to protect themselves.  They may also wish to keep careful records of when employee communications are distributed and posted.