While case law regarding the enforceability of arbitration provisions in ERISA retirement plans has been mixed, since the Ninth Circuit’s 2019 decision enforcing a 401(k) plan’s arbitration provision, some employers have given increased consideration to adding arbitration provisions to their retirement plans based on that decision and the proliferation of class action ERISA lawsuits. However, following the Ninth Circuit’s recent decision in Pover v. Capital Group Companies, Inc., employers may want to think twice before adding an arbitration provision to their retirement plans, especially those based in the Ninth and Tenth Circuit’s jurisdiction (which cover the Western part of the country).
In its recent decision, the Ninth Circuit rejected enforcement of a 401(k) plan’s arbitration provision in a lawsuit brought by a plan participant alleging that the 401(k) plan’s fiduciaries breached numerous ERISA fiduciary duties by offering five proprietary funds managed by a subsidiary that allegedly charged excessive fees and have underperformed. The Ninth Circuit’s ruling focused on the 401(k) plan’s specific arbitration provision, which precluded a claimant from obtaining plan-wide relief, rather than ERISA arbitration provisions generally. The Ninth Circuit’s decision did not address whether another arbitration provision that permitted plan-wide relief could be permissible.
While seemingly at odds with its 2019 decision, which had already been called into question, this ruling is consistent with rulings from the Second, Third, Sixth, Seventh, Tenth and Eleventh Circuits. Those rulings have also relied on the effective vindication doctrine when declining to enforce retirement plan arbitration provisions that force plan participants to give up their statutory rights, such as the right to seek plan-wide relief.
For employers based in the Ninth Circuit’s jurisdiction, the court’s recent ruling changes the calculation for whether to insert an arbitration provision in their plans as a participant lawsuit challenging the arbitration provision is now likely to be filed within the courts’ jurisdiction. Even without a broad rejection of ERISA arbitration provisions, the Ninth Circuit’s decision is likely to at least make district courts within the Ninth Circuit pause when considering such a provision. While the Ninth Circuit’s decision and other similar decisions in other Circuits leave the unanswered question of whether a narrower retirement plan arbitration provision could be permissible, as a practical matter, a significantly narrower arbitration provision may be unable to accomplish an employer’s goals of shifting potential ERISA litigation to arbitration or limiting potential exposure for fiduciary breach claims.
