Arbitration Clause for ERISA Retirement Plan
(Summary Plan Description)

Summary

Use this summary plan description (SPD) provision in a retirement plan subject to the Employee Retirement Income Security Act (ERISA) to disclose that any disputes remaining unresolved by the plan's internal claim procedures are subject to mandatory arbitration. This template includes practical guidance, drafting notes, and an optional clause. This template contains a general description of mandatory arbitration rules set forth in a hypothetical plan at a relatively low level of detail typical for an SPD. Arbitration provisions can vary widely in their details, so it is important to tailor the SPD's description as needed so that it is an accurate and concise overview of the relevant provisions. Under ERISA, SPDs are required to be written in a manner so that the average plan participant can understand them but also sufficiently accurate and comprehensive to reasonably apprise participants of their rights and obligations under the plan. ERISA § 102(a) (29 U.S.C. § 1022(a)); 29 C.F.R. § 2520.102-2. Sponsors and administrators of plans that have arbitration provisions should consider taking further steps to ensure that participants are adequately apprised of the arbitration terms. In addition to SPD disclosure, the terms should be highlighted in other relevant communications, particularly in the plan's claim procedures documents. Note also that the ERISA rights model language in the SPD stating a participant's right to sue in federal court should be modified to reflect the effect of the plan's arbitration provision. 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. 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). For a listing of key content regarding arbitration in ERISA pension benefit plans, see Arbitration of ERISA Retirement Plan Disputes Resource Kit. For a listing of key content regarding summary plan descriptions, see Summary Plan Description Resource Kit. For further discussion on ERISA arbitration, see Arbitration of ERISA Retirement Plan Disputes. For annotated sample plan language, see Arbitration Clause (ERISA Retirement Plan). For information on SPDs, see Summary Plan Description Rules for ERISA Benefit Plans.