Plan sponsors may consider adding three different types of defensive provisions to their retirement plans to help cut down on the number of participants filing claims alleging violations of the Employee Retirement Income Security Act (ERISA). These defensive provisions can include claims procedure requirements, plan limitation periods, mandatory arbitration clauses, and class action waiver and venue provisions. All these provisions can help plan sponsors control any litigation that ultimately occurs.
Requirements to Follow Claims Procedures
Many retirement plans already contain a standard provision requiring plan participants to exhaust their administrative remedies before filing lawsuits. While the exact procedures and remedies may vary from one plan to the next, these provisions require plan participants to follow the claims procedures outlined in their plans before filing lawsuits against their plan sponsors. This type of provision may allow plan participants and sponsors to resolve their disputes before participants hire lawyers or initiate litigation.
Plan Limitations Periods
Limitations periods can dictate how long a plan participant has to file a claim and where a plan participant can file a claim. Statute of limitations periods that restrict time are particularly advantageous for plan sponsors, as they can substantially limit potential damages. In addition, restrictions on the forum in which plan participants can file a lawsuit may restrict their remedies or limit them to a less plaintiff-friendly forum. As a result, these provisions can decrease lawsuits, as well.
Mandatory Arbitration Clauses
Mandatory arbitration clauses are helpful to limit the potential for litigation. These provisions also often require arbitration to occur in a particular forum, which may not be overly convenient for plan participants.
However, binding arbitration clauses may be most beneficial for plan sponsors whose plan participants are accustomed to arbitration as a means of dispute resolution. Otherwise, there can be initial litigation over whether a mandatory arbitration clause is legally enforceable, defeating the purpose of avoiding or decreasing the likelihood of litigation.
Class Action Waiver and Venue Provisions
Class action waivers require plan participants to pursue individual claims under ERISA instead of relying on a class action lawsuit, which may be more cost-efficient for many participants. Individual plan participants who have to fund litigation may be less likely to pursue their claims under ERISA if barred from participating in a class action lawsuit.
Likewise, venue restrictions may deter some plaintiffs’ attorneys from pursuing ERISA claims against plans sponsors if restricted to less friendly forums.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
Hall Benefits Law, LLC
