A Good Defense Against Lawsuits

By adding a trio of defensive provisions to retirement plan documents, advisers might reduce plan sponsor clients’ exposure to participant claims brought under the Employee Retirement Income Security Act, according to industry experts.

Many retirement plans include a basic provision whereby participants, before they can bring suit, must first exhaust the plan’s claims procedure. Beyond this, plan advisers should consider suggesting that their clients add limitation periods, implement mandatory arbitration clauses, and include class action waivers and venue provisions; each of these three defensive measures reduces exposure to lawsuits, says Michael Weddell, director, retirement, at Willis Towers Watson.

“At least the first two should be considered,” Weddell says. “Whenever Willis Towers Watson does a voluntary compliance review, we’ll say, ‘If your plan doesn’t already have these provisions, think about adding them, and think about making sure they’re prominently displayed in the SPD [summary plan document], as well.’”

For plan sponsors, being able to include the defensive clauses in plan documents is an opportunity—“and they’re not all taking advantage of it,” Weddell says.

“It is tremendously good news for employers, and it’s underutilized,” he continues. “It’s an area where the courts have been much more employer-friendly than employers realize. Employers can write the provisions into their plan document.” These set the ground rules if a dispute arises between the participants and the employer, he notes.

Adopting the provisions gives a plan sponsor added control, one benefit of which can be money saved, says Matthew Renaud, a partner in law firm Jenner & Block. They may be used to “reduce the cost of administering the plan, because the plan sponsor is in more control of the pace and cadence of when litigation arises and where it arises,” he says.

When weighing the pros and cons of including each defensive measure, advisers may want sponsor clients to choose among the three, says Joseph Torres, a partner in Jenner & Block.

“Historically, there wasn’t much movement from plan sponsors to try to take on issues such as: ‘Where am I going to be sued?’ Or, ‘Can I require arbitration?’” Torres says. “There’s now a movement among plans to think about whether they in particular should include these types of provisions, and I don’t think this is a one-size-fits-all proposition.”

According to Weddell, “[To add] only the mandatory arbitration clause is debatable.” He says Willis Towers Watson advises sponsor clients that consider going that route to work with in-house or retained legal counsel to ensure the clause is written properly.