Disclose 'Sure'

There are few things more annoying in my daily existence than those ubiquitous pop-up service agreement acknowledgements.

I say annoying because they are inevitably long and “lawyerly”; there’s no way that they can readily be read (much less absorbed) in the medium in which they are presented; and the alternative to not accepting the conditions presented would seem to be to forego the update that you’ve been encouraged to accept, and that, at some point in the future would seem to have its own dire consequences. And so, probably like many, if not most, if not all, of you, means that I accept the terms, and acknowledge the disclaimers basically sight unseen (or at least unread).

Last week the U.S. Supreme Court weighed in on a case involving participant disclosures, specifically the issue of whether certain plan disclosures were sufficient to establish a participant’s “actual knowledge” of the design of Intel’s custom target-date series, which had been built including an allocation to hedge funds and other alternative investments, including private equity. The participant-plaintiff here alleged that, despite “annual notices, quarterly Fund Fact Sheets, targeted emails, and two separate websites”—and tracking that indicated that he had actually visited the web sites “repeatedly”[i] during his employment, he did not “remember reviewing” the disclosures.

SOL ‘Stance’

The difference is one of timing, because of ERISA’s statute of limitations. Those injured by an ERISA breach have three-years to file suit from when the plaintiff had actual knowledge of the violation. Without that knowledge, an alternative 6-year statute of limitations applies, running from the date of the last action which constituted a part of the violation. The suit, filed in 2015, challenged actions that occurred between 2009 and 2014.

The Intel defendants argued—and the district court agreed—that the notices established knowledge well beyond the 6-year statute of limitations. However, the appellate court disagreed, explaining that if (as claimed) “Sulyma in fact never looked at the documents Intel provided, he cannot have had ‘actual knowledge of the breach.’”

The nation’s highest court—unanimously—agreed with the appellate court, commenting that while “…relevant information disclosed to the plaintiff is no doubt relevant in judging whether he gained knowledge of that information”… to meet the “actual knowledge” criteria imposed by the legislation, “…the plaintiff must in fact have become aware of that information.”

Now, as someone who appreciates a reliance upon the black letter of the law, the decision’s clarity is somewhat reassuring. If, on the other hand, you’ve spent time and money producing and distributing the plethora of disclosures mandated by the law, you could hardly be faulted for wondering… what’s the point?

Foreclosure ‘Notice’

Doubtless anticipating the clamor of plan fiduciary jaws slamming onto desktops across the nation, Justice Alito (who authored the court’s opinion) threw a (small) bone to what seems likely to be a rapidly expanding class of plan fiduciary litigants.

“Nothing in this opinion,” he cautions, “forecloses any of the ‘usual ways’ to prove actual knowledge at any stage in the litigation. … Plaintiffs who recall reading particular disclosures will of course be bound by oath to say so in their depositions. On top of that, actual knowledge can be proved through ‘inference from circumstantial evidence.’ … Evidence of disclosure would no doubt be relevant, as would electronic records showing that a plaintiff viewed the relevant disclosures and evidence suggesting that the plaintiff took action in response to the information contained in them…”. He also noted that, “Today’s opinion also does not preclude defendants from contending that evidence of ‘willful blindness’ supports a finding of ‘actual knowledge.’”

The Impact

There’s little question that the ruling will make it harder for plan fiduciaries to claim that effective notice has been provided by the series of disclosures, mandated and otherwise. Indeed, this particular plaintiff’s ability to basically disclaim awareness despite evidence that he had spent a lot  of time on the site(s) where the disclosures were housed was, to this observer, anyway, a bit of a head scratcher, to say the least.

In response, employers will almost certainly pursue technologies (or be counseled to do so) that provide a more specific acknowledgement by participants that they have seen—and read—specific plan information before proceeding to the information they really want to see (like account balance).

Now if only the lawyers (and regulators) would craft disclosures that, if not more memorable, were at least (more) readable.

- Nevin E. Adams, JD

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[i]In their filing with the Supreme Court, Intel noted that, “during his brief tenure with Intel, respondent regularly accessed the website for those materials,” clicking on more than 1,000 web pages within that site; it was undisputed that respondent “accessed some of th[e] information” that disclosed the disputed investment decisions “on the websites.”

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Will the Administration’s Executive Order ‘Work’?

Over the coming weeks, a question that you’re likely to see posed (again and again) about the President’s Executive Order is – “will it work?”

“Work” in this case means to expand access to workplace retirement plans, for that is the stated policy of the Trump administration in issuing the order.

The answer, of course, will depend in no small part on what emerges as a result. While it’s hard to argue with the underlying principle, and even less with the foundational arguments (“Enhancing workplace retirement plan coverage is critical to ensuring that American workers will be financially prepared to retire” and “Regulatory burdens and complexity can be costly and discourage employers, especially small businesses, from offering workplace retirement plans to their employees”), at this point the order is no more than a directive to the Labor and Treasury Departments to consider and recommend some alternatives.

That said, the directives are reasonably specific – to look into ways to expand access to multiple employer plans (MEPs), and even more specifically, to look into ways to expand access to workplace retirement plans by those with “non-traditional employer-employee relationships,” to review ways to make retirement plan disclosures more “understandable and useful,” including a consideration of a “broader use” of electronic disclosures, and to at least look into and consider changes to the life expectancy assumptions imbedded in current required minimum distribution calculations.

As for the MEP directive – it’s well established that access to a workplace retirement plan has a significant positive impact on retirement security, and on the likelihood that individuals will save for retirement, and so anything that expands access to those programs is a good thing. As for the impact of MEPs, well, providers have long touted the ability of a multiple employer plan structure to expand coverage – and since plans at the smaller end of the market are unarguably sold, and not bought, at a minimum it should make it easier to profitably support and provide services to that market. But again, and as I’ve noted before, all MEPs are not created equal in terms of the security they offer retirement savings – and so, the ability to deliver on those promises will depend on the final recommendation.

While open MEPs – certainly a version that permits non-related employers to join together, and that addresses the “one bad apple” concern – are clearly the big deal in this particular order, the potential impact of the other two initiatives have the potential to be significant. For example, a recent study (underwritten by the American Retirement Association and the Investment Company Institute) of the impact of a shift in e-delivery assumptions found that participants could save more than $500 million per year, assuming about eight participant mailings per year across more than 80 million 401(k) account holders.

As for the impact of a change in the RMD calculations – well, for some people at least, that could provide some relief as well. A new study by the nonpartisan Employee Benefit Research Institute (EBRI) finds that the withdrawal amounts taken by those 71 or older are generally no greater than the RMD. In fact, in 2016, more than three-quarters of those 71 or older took only the amount they were required to take – and so, if they were required to take less, that might well mean savings that would last longer.

So, with any luck at all, this might well add up to more retirement plans, more retirement plan savers, and retirement plan savings that might last longer.

Here’s hoping.

- Nevin E. Adams, JD