Future of Arbitrating ERISA Complaints
By Mark Johnson, Ph.D., J.D.


The U.S. Court of Appeals for the Ninth Circuit issued a July 24th opinion in the case Munro vs. University of Southern California, Case No: 17-55550 (9th Cir. 2018)* concerning the scope of arbitration clauses in employment contracts and whether employees, as plan participants, could bring their employers, the plan sponsors, to court rather than be subjected to arbitration for breach of their fiduciary duty in operating retirement plans under the Employee Retirement Income Security Act (ERISA).


Employers routinely offer their employees employment contracts which contain arbitration clauses. Employers also offer retirement plans as part of the employment package to their employees. At that time of hiring, employers may not foresee what issues could occur down the road, and whether such issues will need to be worked out through arbitration or litigation.


Employers favor arbitration over litigation as a cost-effective strategy to resolve disputes with employees. Now, questions arise whether disputes concerning retirement plans fall under the arbitration clause that both the employer and employee agreed to in the employment contract. Considering the dispute arises from the relationship between employer and employee, it is reasonable to argue the arbitration clause governs such a dispute.


However, the United States Court of Appeals for the Ninth Circuit in Munro decided that the arbitration clause does not apply to the dispute in this case regarding the retirement plans because “the Plans” did not agree to the arbitration clause. Indeed, the only two parties that agreed to the arbitration clause in the employment contract were the employee and employer, who is merely a sponsor of the plan. Furthermore, the United States Court of Appeals stressed the case Munro was brought on behalf of the retirement plans rather than the plan participants.


Using the logic of the United States Court of Appeals for the Ninth Circuit, for a dispute involving an employer’s breach of fiduciary duties in sponsoring retirement plans, an arbitration clause needs to be binding on the retirement plan because such disputes make the retirement plan a party to the suit.


Because of this decision, sponsoring retirement plans for their employeescould become a growing concern if other circuits agree. Now, employers may begin distinguishing their roles as employer from their roles as plan sponsors, and the effects this has on the relationship between employer and employee concerning not just their employment contract but their options for dispute resolution.


When sponsoring retirement plans, employers must now consider the following issues:


• the role of retirement plansas a potential party to the dispute,independent from the plan participants role

• whether the dispute is subject to the employer and employee relationship

• the scope of the arbitration clause in the employment contract • whether the retirement plans themselves are subject to the employment contract

• how to subject “The Plan” to the arbitration clause in the employment contract

• how to subject “The Plan” to an arbitration clause independent of the employment contract


The future of the arbitration clause applying to ERISA complaints remains uncertain in similar cases after this recent decision by the United States Court of Appeals for the Ninth Circuit. Furthermore, whether employers as sponsors of retirement plans will incorporate an arbitration clause in retirement plans is a question that can only be answered in the future.


* Munro vs. University of Southern California, U.S. Court of Appeals, Case No: 17-55550 (9th Cir. 2018) Page 6. http://cdn.ca9.uscourts.gov/datastore/opinions/2018/07/24/17-55550.pdf


ABOUT THE AUTHOR. Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert, including matters relating to 401(k) litigation and plan administration. He is a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-0778 or www.erisa-benefits.com.


ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.


August, 2018



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