September 2021

Mandatory Class Action Waivers and Arbitration Provisions: Too Good to Be True?

Class action litigation pursuant to ERISA continues to increase. In an article for 401(k) Advisor, benefits and executive compensation partners Richard Pearl and Heather Abrigo discuss how mandatory arbitration provisions and/or class-action waiver provisions can afford participants the right to have their disputes adjudicated and can dissuade opportunistic class actions.

First, the authors outline requirements of mandatory arbitration and class-action waiver provisions. They emphasize that such provisions require thoughtful consideration before being added to plan documents or employment agreements.

Pearl and Abrigo also explain that several federal district and appellate courts have recognized limits on the enforceability of arbitration provisions as applied to ERISA claims, highlighting the Federal Arbitration Act, the ERISA 502(a)(2) claim and the decisions in three related cases.

In conclusion, the authors note that more court decisions will address the enforceability of arbitration provisions and class action waivers. Further, as the enforceability of these provisions continues to be adjudicated, they recommend that plans consider the benefits and potential detriments to such provisions, the potential limitations on enforceability, and the role such provisions can play in a sound dispute-resolution process for an ERISA retirement plan.

The full article is available for 401(k) Advisor subscribers.

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