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Fiduciary Breach Claims Poised for Procedural Change

Fiduciary breach claims consume a tremendous amount of resources.  Can mandatory arbitration between retirement plan sponsors and participants stem the tsunami of fiduciary breach litigation?  The answer is, “Maybe.”  The jury is still out since this is a developing area of law.  Time will tell if courts will reach a verdict on mandatory arbitration of fiduciary breach claims.

Carol Buckmann, Founder and Partner, ERISA and Employee Benefits at New York-based law firm Cohen & Buckmann, recently penned an article on the topic.  Under ERISA, participants can sue retirement plan fiduciaries who breach their fiduciary duties.  However, according to Ms. Buckmann, courts have held that plan sponsors can put contractual restrictions on a participants’ ability to exercise their ERISA rights.  Such as – shortening the time-period participants have to bring claims.  Or enforcing provisions whereby participants must bring suit in a specific geographic region – such as where the plan is administered.  These have even been upheld by the Supreme Court.

Mandatory arbitration of fiduciary breach claims is the latest area of debate in the courts.  ERISA is silent on arbitration, however, the Federal Arbitration Act encourages dispute arbitration.  According to Ms. Buckmann, “Two relatively recent Supreme Court decisions upheld arbitration clauses in the employment context, although the Supreme Court has not specifically addressed the permissibility of mandatory arbitration under ERISA.  In the meantime, federal courts are grappling with these issues in inconsistent decisions.”  Separately, appeals courts have issued inconsistent rulings on mandatory arbitration of fiduciary breach claims.

What are the implications for retirement plans, sponsors and committees?  According to Ms. Buckmann:

Plan fiduciaries may have to deal with conflicting interpretations of the same provisions in different arbitrations, without the possibility of Supreme Court resolution of the conflicts, which could greatly complicate plan administration and operations.  In addition, as the Supreme Court dissenters pointed out, arbitration is intended to be a dispute resolution alternative agreed to by parties with equal bargaining power.  Situations in which participants may lose their jobs if they do not agree to arbitrate ERISA and other disputes seem far removed from the classic arbitration scenario. And how would a plan participant refuse to consent to a plan arbitration clause?

On the other hand, mandatory arbitration and class action waivers could serve to rein in the ERISA lawsuits currently flooding the courts. While some of these lawsuits have targeted questionable practices, many excessive fee lawsuits seem to have been filed through cookie cutter complaints that contain little more than conclusory allegations that the fiduciaries should have selected different investments than they did. These lawsuits tie up fiduciaries’ and judges’ time, and may discourage competent people from serving on plan committees. Plaintiffs’ counsel have received generous fee awards in ERISA class actions, and the prospect of handling individual arbitrations may make these cases less financially attractive to them.


For plan sponsors who wish to consider arbitration – although it may not always be preferable to litigation due to limited appeal rights and the potential expense and time involved – Ms. Buckmann offers the following suggestions:

  • Require all employees to sign an arbitration agreement that specifically refers to ERISA fiduciary breach claims and contains a clear class action waiver;
  • Adopt a plan provision requiring individual arbitration of disputes;
  • Include a provision in the Summary Plan Description stating that all fiduciary breach claims must be arbitrated on an individual basis; and
  • Reference the arbitration clause in communications regarding the dispute, including any decisions on claims and appeals of claim denials that are filed.

Again, plan sponsors should keep in mind that mandatory arbitration of fiduciary breach claims is still an evolving area of the law.  Existing cases do not necessarily set a precedent for future decisions.  Keep an eye on the Supreme Court for further guidance regarding the conflicting appellate court decisions that have occurred to date.

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk

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