The US Supreme Court has agreed to hear an appeal by Intel Corp. in a case involving the statute of limitations for the Employee Retirement Income Security Act (ERISA).
Intel is being sued by Christopher Sulyma, a former engineer for the chip maker who claims the company’s committees managing its retirement contribution and 401(k) savings plans breached their fiduciary duty by including unnecessarily risky alternative assets such as hedge funds in their plans.
When Sulyma worked at Intel from 2010 to 2012, he was a recent college graduate, and had virtually no investing experience. Intel automatically enrolled him in its retirement plan, and he was told that the default fund was his best option because financial experts would invest, monitor, and rebalance his investments for him.
Having little financial knowledge, he chose to keep the default. Sulyma’s complaint also says that in addition to being overly risky, the investments also underperformed.
In its defense, Intel said its investment policy committee selected alternative investments in hedge funds and private equity in the wake of the 2008 financial crisis in order to increase diversification and reduce volatility during periods of market decline. But the alternative investments came with higher fees, and their returns were expected to trail equity-heavy funds when the equity markets were providing strong returns. When equity markets surged after the financial crisis, the funds’ returns were lower than those of equity heavy index funds and similar portfolios.
ERISA rules stipulate that a lawsuit must be filed no more than three years after the “earliest date on which the plaintiff had actual knowledge of” the violation. At issue is whether a plaintiff can bring a lawsuit when the information relating to the violation was disclosed more than three years before the complaint was filed, even if the plaintiff may not have read the information at the time.
Congress established both a six-year statute of repose, and a three-year statute of limitations period for whenever a plaintiff gained “actual knowledge of the breach or violation.”
Lawyers for Intel argue that the lawsuit should be tossed because Sulyma had received emails directing him to documents explaining the alternative investments more than three years before he filed his suit. They say that the emails show Sulyma had knowledge of the ERISA violation and was therefore subject to the three-year statute, not the six-year one. However, the US Court of Appeals for the 9th Circuit rejected Intel’s argument, saying that the plans couldn’t rely on the statute of limitations unless they could show that Sulyma had actually read the information.
Intel says that the 9th Circuit Court’s ruling, if upheld, will enable plaintiffs to easily avoid the three-year limitations period even when a plan fiduciary has provided all the information necessary to inform participants of their claims.
“A plaintiff need only assert that he has not read the disclosures, or does not remember reading them, to create an issue of fact that defeats summary judgment regarding the applicability of the three-year limitations period and requires a defendant to disprove the assertion at trial,” Intel said in court documents.
The company also said that the decision “creates significant uncertainty and undermines the uniform national framework that is critical to the sound administration of the thousands of ERISA suits filed each year.”