For better or for worse, we live in a country where liability issues seem to lie around every corner and it’s no different in regards to fiduciary liability. The United States has taken several preemptive legal steps in the protection of American workers’ retirement assets throughout the last several decades. The resulting worker protection laws place a large burden of responsibility on the shoulders of retirement plan fiduciaries. The price you pay for a breach in fiduciary duty, even if you always have good intentions, can come in the form of civil penalties and fees.

How To Limit Fiduciary Liability

The better you understand the history and legal circumstances surrounding fiduciary duty and liability, the better you will be able to limit legal action against you. In order to understand how to do this, we need to:

  • Review important aspects of ERISA law that affect plan fiduciaries
  • Learn the legal definitions for constructive vs. actual knowledge
  • Learn about ERISA actual knowledge statute of limitations
  • Discover how past court rulings affect you as a plan fiduciary
  • Learn how to limit your fiduciary liability with an actual knowledge report and how to best meet minimum standards of actual knowledge among plan participants

ERISA Establishes The Minimum Fiduciary Duties

The Employee Retirement Income Security Act of 1974 (ERISA) was enacted with the purpose of establishing a broad set of rules that investment fiduciaries were obligated to follow. One of the driving forces for the enactment of ERISA was a growing concern that employee pensions were being misused.

ERISA set the groundwork for protecting American workers’ retirement assets and assigned the oversight of establishment, control, and management of retirement funds to three government bodies:

  • The Department of Labor (DOL) was granted primary oversight of regulations to be imposed on retirement plan fiduciaries
  • The Internal Revenue Service (IRS) was charged with the responsibility to establish rules regarding plan participation and set a minimum standard for the funding and vesting of these plans
  • The government created the Pension Benefit Guaranty Corp. (PBGC) was tasked with providing insurance of the benefits that plan fiduciaries claimed to grant

Who Qualifies As A plan fiduciary?

ERISA’s regulations are far-reaching and are not limited to just a single individual person. A plan fiduciary can be:

  • An employer or covered service provider
  • All of the members of a group or committee that manages a retirement plan
  • Human Resource workers, accountants, and investment advisors involved in the plan operations
  • Employees of a company hired by a principal employer for the purpose of managing that employer’s retirement plan

Really anyone that is involved in the actual establishment, controlling, advising, or managing of nearly any aspect of a retirement plan is obligated to meet fiduciary standards.

Plan fiduciaries have often been the target of court proceedings in which the plaintiffs claim that a breach of fiduciary duty occurred. One of the most common sources of disagreement has revolved around the level of knowledge held by plan participants.

What is important for you to be aware of is how courts look at knowledge, specifically constructive knowledge versus actual knowledge. Keep in mind, however, that even different courts do not fully agree on how to establish actual knowledge, even though it is a key point of reference in determining if a fiduciary breach occurred.

Constructive Knowledge vs Actual Knowledge

Constructive knowledge

  • Knowledge a person ought to have
  • Something that a person is reasonably expected to know

Examples of constructive knowledge:

  • If a company has reason to believe that its product contains a substance that could harm a pregnant woman, they have the obligation to make a warning about the substance. They have constructive knowledge of the danger posed.
  • Your 401(k) plan participant accesses a plan summary report

Actual knowledge

Actual knowledge can be somewhat frustrating to understand and difficult to determine the exact moment knowledge moves from constructive to actual. Even courts have different interpretations of what constitutes actual knowledge:

  • Actually knowing something
    • Which occurs after you discover, learn, send, or receive something and understand that the “something” constitutes a breach (in the case of fiduciaries)
    • Courts have said that this lies somewhere between constructive knowledge and of a reasonable person and actual legal knowledge that only a lawyer or other expert would know



ERISA’s Statute Of Limitations:

ERISA statute of limitations establishes that “absent fraud or concealment, an ERISA breach of fiduciary duty claim must be brought before the earlier of:

  1. within 6 years after
    1. the date of the last action which constituted a part of the breach or violation, or
  2. 3 years after the earliest date on which the plaintiff had actual knowledge of the breach or violation”

The fact that courts have ruled differently on what exactly constitutes constructive vs. actual knowledge can make it very difficult to know when the statute of limitations is triggered and when a suit can be brought against a fiduciary. This point is evident in three court rulings regarding actual knowledge in claims against plan fiduciaries:

At the core of Sulyuma v. Intel was the dispute of what is considered actual knowledge, and what knowledge legally triggers ERISA’s statute of limitations. The case represents a great example of the importance that you, to the best of your abilities, ensure that plan participants obtain actual knowledge.

Sulyuma v. Intel Summary:

Your fiduciary responsibility as a plan sponsor can be managed using an Actual Knowledge Report.
Your fiduciary responsibility as a plan sponsor can be managed using an Actual Knowledge Report.
  • Sulyuma was a worker at Intel and participated in Intel’s retirement plans
  • At the time of the establishment of Intel’s retirement plans, there were no alternative investments available
  • Intel sought to reduce risk by diversifying investments by adding alternative investments.
  • However, the diversification of investments came with increased fees and had poorer performance as compared to other equity investments of the same period
  • In 2010 Intel divulged these new investment decisions to employees. Sulyuma’s funds were moved into these alternative investments
  • In 2015 Sulyuma sued Intel claiming an ERISA fiduciary breach
    • Sulyuma claimed he did not actually know his investments had been placed into alternative funds even though he did access some of Intel’s notification documents and that, according to court documents, this fact was clearly stated in the notices
  • Intel filed for dismal claiming that the suit was time-barred based on the statute of limitation standards
  • The district court stated that the suit was, in fact, time-barred due to the plaintiff having had gained actual knowledge of Intel’s investment strategies and at the time of the suit, the 3-year statute of limitations had passed
  • The 9th Circuit court reversed the district court’s ruling alleging:
    • That awareness of Intel’s investment activities did not constitute actual knowledge of a possible fiduciary breach, but rather represented a constructive knowledge of Intel’s investment options
  • Intel filed a writ in March of 2019 for the Supreme Court to review the decision of the 9th court


Expert lawyers commenting on the Sulyuma case suggest that fiduciaries require actual knowledge from plan participants. The best ways to allow plan participants to obtain actual knowledge are:

  1. Disclose an actual knowledge report
  2. Require that plan participants acknowledge, in writing, that each participant has
    1. Received the minimum ERISA plan details
    2. Read and understood the provided materials

The next step then is to ensure that you provide the correct information to plan participants. Understand though, that this still does not eliminate all fiduciary responsibility. Some lawyers state that ERISA never intended for plan participants to be the ones ultimately “monitoring [their plans for] potential mistakes, imprudence or disloyalty.”

Actual Knowledge Report

Despite the ongoing question of actual knowledge in the court system, providing an actual knowledge report could reduce your liability. You shouldn’t have to dig too deep to find the necessary information since the Covered Service Provider (CSP) is required by law to provide you with the necessary information that you, as a plan fiduciary, need to satisfy you ERISA  fiduciary obligations and make the best decisions in the representation of the plan’s participants.

ERISA law and the DOL allow plan fiduciaries a “pass-through,” meaning that you can use the investment-related information that the CSP provided to you, and pass it through to your plan participants. Generally, disclosing documents are given to plan participants and beneficiaries when hired. Some documents must be sent quarterly, while others are sent annually.

At a minimum, the documents that you must disclose to plan participants and beneficiaries will include:

  • Fee disclosure
  • Summary Plan Description (SPD)
  • Investment alternatives for participant-directed plans
  • Performance & analysis of the offered plan
  • Summary of Material Modification (SMM)
    • If making any changes to the SPD
  • Individual Benefit Statement (IBS)
    • Account balance and vested status
  • Summary Annual Report (SAR)
    • Summarizes the overall state of the plan
  • Blackout notifications
    • If applicable, informs of when any transactions will be temporarily prohibited from occurring, such as in transferring bookkeeping services
  • Automatic enrollment notice, if applicable
    • Inform participant of deferral percentage, their right to change the percentage, the right to not participate, and the investment type in which their money will be invested upon automatic enrollment


Fee disclosure:

  • The service provider’s compensation model
  • Who pays the fees? The CSP, the employer, the employee, or a combination?
  • Fees charged directly against a participant’s or beneficiary’s investment
    • Commissions, sales loads, sales charges
    • Deferred sales charges, redemption fees
    • Surrender charges, exchange fees, account fees
  • An expense ratio (the investments yearly operating costs)
  • Total annual operating expenses
  • The fee structure for any alternative investments, if offered
  • Must also include a paragraph stating, “fees and expenses are only one of several factors that participants and beneficiaries should consider when making investment decisions” & “the cumulative effect of fees and expenses can substantially reduce the growth” of retirement account

NOTE: It’s not always the most appropriate to have the lowest 401k fees! The fees should be commensurate with the plan and participant needs and services that are provided to them!

The SPD will include the following:

General plan information required per IRS regulations:

  • Name and type of plan
  • Eligibility for plan participation and benefits offered
  • Notification of plan insurance, such as fidelity bonded or covered by termination insurance from the Pension Benefit Guaranty Corporation
  • How contributions to the plan will be made
  • Plan termination protocol
  • Procedures regarding claims for benefits and remedies for disputing denied claims

Administrative expenses

  • Participants and any beneficiaries must be given an explanation as to the costs associated with plan administration such as:
    • Legal and accounting fees
  • Annual operating costs are explained in the general plan description

Individual expenses, which are fees derived from

  • Taking out a loan against plan’s funds
  • Investment advice;
  • front or back-end loads or sales charges; redemption fees;
  • Investment management fees


Investment options

You are required to inform plan participants and beneficiaries of:

  • The investment vehicles that will be used under the plan.
  • State the available investment alternatives, if applicable
  • Investment type (i.e., identify the investment such as a money market fund, balanced fund, large-cap stock fund, employer stock fund, etc.)


Performance data and benchmarks

You must provide information on the performance of selected and alternative investments, especially if the returns are not fixed. This is crucial information to disclose if your plan allows for participant-directed investments.

Necessary information includes:

  • The 1-, 5- and 10-year performance data of the fund and comparable alternatives
  • Benchmarks for each investment and the alternative investments
  • The fiduciary is allowed to blend the returns of more than one broad-based index and offer the blended returns to the participant, provided that:
    • The blended returns reflect the actual equity/fixed income balance of the investment alternative that is offered.
    • For example: If an investment alternative fund had a 70:30 balance, then the blended returns used as a comparative benchmark must also represent a 70:30 mix. Failing to provide a blended return of a comparative fund mix would be qualified as misleading according to the DOL
  • The DOL requires that comparative information include graphs in order to facilitate the plan participant’s decision making


Keep in mind that the above list is not exhaustive. You should receive help in proper plan disclosure from your covered service provider. For an exhaustive list, you can also reference the IRS, DOL, and Federal Register web pages.

Timing of the report

I prefer to run actual knowledge reports at the beginning of each calendar year for the prior year. That way all the requisite information is available! Also, make sure prior to year-end make sure you get your plan administration done. Here are 4 ways to simplify your year-end plan administration


Being a plan fiduciary carries with it the rewards of helping yourself and your employees save for retirement. However, it also bears the legal burden of fiduciary responsibility.

Federal Law mandates that fiduciaries meet a minimum standard in retirement plan management. Legal action has been filed against plan fiduciaries for not properly and fully disclosing retirement plan activities, even when the fiduciary thought they were acting in good faith. Despite confusion regarding the different levels of knowledge, you can limit your fiduciary liabilities with an actual knowledge report and by being proactive in requiring plan participants to acknowledge the receipt, review, and understanding of all necessary disclosure material.

Remember that I am here to help you have the best 401k experience possible and to make sure that you are not exposed to unnecessary liabilities. Please contact me with any questions and I will be happy to help.  




Actual knowledge

Actual knowledge Brown v. Owens

Constructive knowledge

ERISA Fiduciary Breach

6th Circuit Court interpretation of actual knowledge

National Law Review of ERISA Statute of Limitations

Sulyuma vs. Intel summary: Justicia Law

Expert lawyers commenting on the Sulyuma vs. Intel case:

McDermott, Will, And Emory

Plan Sponsor

Actual knowledge report information


Federal Registrar


Pension Benefit