Supreme Court Favors Plaintiffs in ‘Actual Knowledge’ Ruling

The recent US Supreme Court Ruling on the Intel ERISA Challenge stemming from a recent lawsuit regarding employee benefits has set a new framework for the establishment of “actual knowledge” in such cases. While this update out of Washington DC isn’t major news for many political and commercial entities, it does have profound implications for employers across the country and members of the retirement planning industry.

The Supreme Court’s unanimous ruling, which is defined in a 14-page document, favors the plaintiffs in the lawsuit known as Intel Corporation Investment Policy Committee v. Sulyma. The full extent and range of the ruling’s impact has yet to be determined, but it has already had important consequences for companies in the retirement planning industry.

The ruling deals with the question of whether an individual had “actual knowledge” of a potential breach of fiduciary duties. The ruling determines that the individual needs to actually be aware of the information to have knowledge. This runs contrary to the argument that a person who has access or possession of information is bound to have actual knowledge of the contents.

This recent ruling regarding the handling of ERISA benefits claims litigation could strengthen the position of plaintiffs in future cases. By limiting the scope of “actual knowledge” to direct and subjective awareness, employers are likely to assume more responsibilities for educating employees about benefit choices so they can make fully informed decisions. Failure to do so could expose companies to liabilities stemming from improper denial of benefits.

However, this ruling does not necessarily deal with the concept of implied or “constructive” knowledge, which is the knowledge that a reasonably observant and dutiful person would achieve with the same resources or information. Pleading ignorance is not always an effective argument if employers can show they clearly presented the options and consequences during benefit selection.

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