Arbitration Clause
(ERISA Retirement Plan)

Summary

This arbitration clause for a retirement plan subject to the Employee Retirement Income Security Act (ERISA) establishes a mandatory arbitration process to resolve plan-related claims (after exhausting the internal claims review procedure, if applicable). This template contains practical guidance, drafting notes, and alternate clauses. This template contains detailed provisions regarding the applicable rules of arbitration for a plan participant, beneficiary, or other interested party who is seeking to resolve a dispute under the plan. Among other terms, these clauses address the applicable arbitration rules, the number and selection of arbitrators, the assertion of all claims on a participant-by-participant basis (i.e., no group, class, or representative arbitration), the location and administration of an arbitration, arbitration award requirements, how fees and expenses are allocated, confidentially, and arbitrator independence. Courts have widely accepted that Congress did not intend to exempt statutory ERISA claims from the Federal Arbitration Act (FAA), notwithstanding the jurisdictional language in ERISA § 502(e) (29 U.S.C. § 1132(e)). Thus, even mandatory arbitration provisions are generally permissible and enforceable so long as they are consistent with the FAA and the law of contracts. See Dorman v. Charles Schwab Corp., 934 F.3d 1107, 1109 (9th Cir. 2019), Kramer v. Smith Barney, 80 F.3d 1080, 1996 U.S. App. LEXIS 8861 (5th Cir. 1996), Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, 7 F.3d 1110 (3d Cir. 1993), Bird v. Shearson Lehman/American Exp., Inc., 926 F.2d 116 (2nd Cir. 1991), Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, 847 F.2d 475 (8th Cir. 1988). In a 2021 decision, however, the Seventh Circuit upheld a district court's invalidation of an ERISA plan arbitration clause under the FAA's effective vindication exception in a fiduciary breach case because the specific language of the plan only allowed a claimant to seek relief in an individual capacity, which precluded remedies sought by the plaintiff which are guaranteed under ERISA that necessarily have the effect of providing relief to others (e.g., potential removal of the plan trustee). Smith v. Bd. of Dirs. of Triad Mfg., Inc., 2021 U.S. App. LEXIS 27312 (7th Cir. 2021). The district court in that case also invalidated the provision due to its implementation without sufficient notice to, or acknowledgement by, the plan participants, issues not addressed by the appeals court. See Smith v. GreatBanc Trust Co., 2020 U.S. Dist. LEXIS 151992 (N.D. Ill. 2020). See Drafting Note to Section . Sponsors and administrators of plans that have arbitration provisions should ensure that participants are provided adequate notice of its existence and effect of the arbitration terms since they are material terms of the plan. The terms should be highlighted in the summary plan description as well as other relevant communications (e.g., the plan's claims policy documents). In addition, the ERISA rights model language in the plan SPD stating a participant's right to sue in federal court should be modified to reflect the effect of the plan's arbitration procedure. It is also a best practice to obtain a signed acknowledgement from participants that they have read and understood the terms of the plan, including the arbitration provisions, particularly where there are class action waiver provisions. Where applicable, this may be done together with a broader acknowledgment of applicable class action waivers that may be required to be executed as a term of employment. For a listing of key content regarding arbitration in ERISA employee pension benefit plans, see Arbitration of ERISA Retirement Plan Disputes Resource Kit. For further discussion on related topics, see Arbitration of ERISA Retirement Plan Disputes. For more information on arbitration clauses, see Arbitration Clauses Resource Kit. For more information on the different types of alternative dispute resolution (ADR) processes and procedures available to attorneys to resolve a legal dispute, see ADR Processes and Procedures (U.S.).