How to Mitigate Actual Knowledge Risks

Even if employers furnish plan benefit disclosures, they still can find themselves at
risk for a claim of fiduciary breach under ERISA.

Lawsuits claiming a breach of an ERISA fiduciary duty generally must be brought within three years of when the plaintiff first has “actual knowledge” of the information underlying the claim.... In Intel Corp. Investment Policy Committee v. Sulyma, the Supreme Court unanimously ruled that “actual knowledge” means just that: even if a plaintiff is furnished with disclosures that includes that information, he or she does not have “actual knowledge” if he or she has not read or does not recall reading them. This holding means that the time employees can bring fiduciary breach lawsuits under ERISA could extend more than three years beyond the time they were provided with the informational documents, if they successfully argue that they did not read them.

The increased risk to fiduciaries of claims based on employees’ lack of actual knowledge is exemplified by Soulek v. Costco Wholesale Corporation, a federal class action recently filed in Eastern District of Wisconsin. In that case, the plaintiff alleged that he “had no knowledge of the defendants’ process for selecting investments and monitoring them to ensure they remained prudent,” nor did he have knowledge of how the fees charged to and paid by the plan participants compared to any other funds.

This presents employers and other ERISA fiduciaries with a dilemma. Even if they have furnished required disclosures, what do they need to do to reduce the risk of lawsuits based on claims that the disclosures were never read?

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How to Mitigate Actual Knowledge Risks in 4 steps

When these components are combined and presented in an organized manner employers can mitigate
their risks, assist administrators in fulfilling their duties and help employees make informed decisions.

Step 1


Employers should develop and follow an effective participant disclosure improvement process. Such a process can help employers manage regulatory compliance requirements and safeguard themselves against administrative missteps and omissions.

Employers that document the process they use to carry out their fiduciary responsibilities can prove they executed their duties properly ( PROCESS SOURCE ).

A typical process consists of four phases, plan – do – check – act. To improve participant disclosures a planning – documenting – implementing – and evaluation process is best.

Step 2

Offer Participants Disclosure Education

Based on the Universal Design for Learning ( UDL SOURCE ) guidelines, employer should include a series of “how to” materials with fact sheets and FAQs to engage participants and encourage learning. In addition, software programs can also help participants set long-term goals and plan effective strategies for reaching those goals. Financial calculators and interactive graphs and charts

While compliance with the Security and Exchange Commission (SEC) standards is not mandated by Department of Labor (DOL) regulations, the SEC’s recommendations for investors and investment disclosure requirements can provide participants with the contextual information needed to help them make informed decisions ( SEC SOURCE ). SEC-based materials and tools can address the “why, what, and how” of learning – essential elements in UDL

DOL regulations mandate that pension plans offering participantdirected investment accounts disclose sufficient information to plan participants to enable them to make informed investment decisions. While the DOL does not explain what constitutes “sufficient information,” the SEC clearly states what information it believes investors need to make informed decisions.

Offering disclosure education based on UDL guidelines with SEC-based materials provides participants a framework to make informed decisions.

Step 3

Provide Disclosure Supplements

DOL regulations require disclosed information to be written in a manner the averageparticipant can understand. Most pension plan and investment disclosures are complex and filled with legal and investment jargon. As a result, most disclosures are not realistically written in a manner that the average participant can easily understand. This can lead to misunderstandings and dissatisfaction, and possible litigation. Disclosure supplements can deliver to participants plan and investment information in a clear, concise and compliant manner.

A well-designed supplement will highlight the key plan and investment disclosure points while taking participant learning preferences into account with diagrams, charts, graphs, and similar methods in:

  • Podcasts or other recordings.
  • Bullet points.
  • Videos.

Participants who don’t understand disclosed information cannot make informed decisions. Providing disclosure supplements can help them make the best decisions for themselves and their families.

Step 4

Implement a Disclosure Improvement Platform

Implementing a disclosure improvement process without a process-based platform may be challenging. Participants need a wide variety of information. Data organization and participant tracking is essential for evaluating and improving outcomes. In addition, storing participant meta-data is a requirement. Federal Rules of Civil Procedure Rule 37(e) ( FEDERAL RULE SOURCE ) authorizes a federal court to impose sanctions in a federal lawsuit for a party’s failure to preserve electronicallystored information that could bear on issues in the lawsuit. Employers can easily overlook this rule when changing providers or during mergers or acquisitions.

To avoid or reduce the risk of sanctions, employers need a process-based platform that feeds participant metadata storage directly onto a cloud or server. According to Merriam-Webster, metadata is “data that provides information about other data.” Examples of metadata include the time participants spent watching or reading additional and supplemental disclosure information before moving to the next screen.

While creating a participant disclosure improvement program has obvious benefits, most employers are not equipped to develop an effective program. Moreover, employer investment providers may not have a process for delivering a program that can mitigate actual knowledge risks. As ERISA claims can quickly drain resources from a business’s core activities, selecting the right benefit disclosure education provider is essential.

Employers are free to use the resources below and can reach Douglas Lutkus at with any questions.



By following the Department of Labors recommendations employers can mitigate actual knowledge...


A Universal Design for Learning (UDL) framework can engage and educate participants...


Visual learners prefer information in diagrams, charts, graphs, and other similar methods....


Federal Rules of Civil Procedure Rule 37(e) authorizes a federal court to...

About the author

Douglas Lutkus is the founder of White Hat LLC, a niche participant disclosure improvement company that helps employers mitigate actual knowledge risks, and author of the Participant Pension Disclosure Improvement Process and a contributing author of Participant Health and Welfare Disclosure Improvement Process.