SCOTUS Ruling Alert! Plan sponsors and fiduciaries may risk litigation

SCOTUS Ruling Alert! Plan Sponsors And Fiduciaries May Risk Litigation

  1. Don’t Fear the Ruling
  2. Here’s what the Court Found
  3. How advisors can benefit from this ruling
  4. This ruling will not change anytime soon
  5. Here are some next steps for advisors

Just when you thought Reg-BI was enough to worry about, a new court ruling just set a new standard for advising employer-plans.

Intel lost a significant ERISA Supreme Court court ruling that increased the employer’s responsibilities to disclose information to employees adequately. This court ruling is a BIG deal, but this article contains vital elements that can help advisors prepare their plan sponsors and see a competitive advantage to attract new ones.


Don’t Fear the Ruling


First, our blog  touched on how more and more plan sponsors are looking to switch their advising services. Employers want more financial education for employees from their plan advisors.  Ultimately, this SCOTUS ruling means more opportunities for advisors to showcase how their standard exceeds a plan sponsor’s existing service.

Many employers think that delivering the required disclosure documents to their employees is sufficient. Well, up until this month, that was true.

Intel delivered quarterly and annual statements, summary descriptions, and qualified investment alternatives to the plaintiff. Not enough – says the court.

In other words, plan sponsors can disclose everything they are required to do and still not meet the ERISA disclosure standard.


Here’s what the Court Found

First, a quick review of two ERISA sections (bare with me, they’re essential):


The 413[2] part of ERISA sets a 3-yr Statute of Limitations (SoL) that begins when workers have “actual knowledge” of an alleged breach or violation.

Section 413[1] extends that statute to 6 years.

The court found that the 3-year statute of limitations does not begin after delivering the required documents or even by a worker choosing not to read or not recalling investment information.

Ooph indeed… let’s get rid of the legal jargon.

In plain language: fiduciaries are exposed to more lawsuits from employees because there is a higher standard for evaluating claims.

Many employers rely on that 3-year SoL to dismiss claims, but their existing practices are not sufficient, and they are most likely subject to the 6-year standard.


Main findings:

  • Employers and plan sponsors are subject to a 6-year statute of limitations, not the original 3-year.
  • Fiduciaries need to take more steps to communicate the importance of plan documents and receive proof that employees read and understood their plan portfolio.

How advisors can benefit from this ruling:

Many plan sponsors are not doing enough to inform their employees of their investment decisions. Advisors can target mismanaged plans and prove that their service is superior by emphasizing the following:

  • Stress the importance of financial education for employees.
  • Develop workshops to showcase portfolio summaries and precise composition.
  • Use document trackers to record when employees have opened and entirely read their disclosure documents.
  • Have employees sign acknowledgments when they receive an education seminar on their plan performance, holdings, and alternative investment options.

Very very few plan sponsors or advisors deliberately mislead employees or make risky investments. But everyone makes mistakes. Proving that an employee read and understands an investment summary, portfolio composition, etc. will help start that 3-year statute of limitations. So, if the advisor makes a mistake, they can protect the plan sponsor from the most severe punishment – litigation.

This ruling will not change anytime soon

This ruling was not split along ideological lines but, in fact, unanimous. So, future court appointments will not change this ruling.


Here are some next steps for advisors:

  1. Identify if your current disclosure practices place you in the 3 or 6-year Statute of Limitations.
  2. Reach out to your plan sponsor clients about what you will do to keep them safe from litigation.
  3. Ask yourself: How can I work with employers to educate the employees of their plan details and prove that they read and understand the disclosures?


I hope that this post inspires you to contact plan sponsors about how their disclosure policies put them at risk of lawsuits. You can read more about this SCOTUS ruling at their blog or at Fischer Phillips’ website.

RiXtrema provides financial planning, risk assessment, and compliance software for financial professionals. If you want to learn more about any of our products or how to become prepared for Reg-BI, then contact our Client Success Team at or visit our website to request a call from a representative.


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