The American Retirement Association is strongly opposed to legislation moving through Congress that would prohibit arbitration of claims and discretionary clauses in all ERISA covered retirement plans.
“On behalf of the over 30,000 members of the American Retirement Association (ARA), we hereby express our opposition to the Employee and Retiree Access to Justice Act of 2022,” the ARA states in a May 17 letter to the chairman and ranking member of the House Education and Labor Committee.
Many retirement plans include provisions requiring employees and plan participants to arbitrate any disagreements they may have with the employer or plan fiduciaries before they could take a dispute to court to seek resolution.
The ARA argues, among other things, that the bill (H.R. 7740) will increase costs for a small business to operate a retirement plan and will lead to more frivolous lawsuits against plan sponsors. “This change will simply result in more retirement plan administrative costs and litigation that will benefit the plaintiffs’ bar but not everyday working Americans who are saving for a secure retirement. This legislation only offers more deterrents to maintaining retirement plans and should be opposed,” the ARA says.
Part of the urgency in opposing the legislation is that the text of the bill was folded into a larger measure—see title VII of the Mental Health Matters Act (H.R. 7780)—which was approved on a party-line vote of 26-18 by the House Education and Labor Committee during a May 17 markup session. The legislation is now cleared for consideration by the House of Representatives.
H.R. 7740 was introduced May 12 in the House by Rep. Mark DeSaulnier (D-CA), chairman of the House Subcommittee on Health, Employment, Labor and Pensions. Companion legislation (S. 4219) was introduced in the Senate by Sen. Tina Smith (D-MN). In a release, the lawmakers explain that their bill seeks “to ensure that individuals have meaningful recourse when they are denied retirement and health benefits, including mental health and substance use disorder treatment, under an employer-sponsored plan.”
According to a committee summary, the legislation would deem pre-dispute forced arbitration clauses, class action waivers and representation waivers unenforceable for ERISA section 502 claims and common law claims relating to a plan or benefits under a plan, when brought by or on behalf of a plan participant or beneficiary.
It also would deem post-dispute forced arbitration clauses, class action waivers and representation waivers unenforceable unless certain conditions are met, including that “a participant or beneficiary understands the agreement and has a fair opportunity to consider it without the threat of retaliation for failure to agree.” In this case, the legislation specifies that certain notice and consent requirements must be met and that there be a 45-day waiting period.
Moreover, plan provisions which give discretionary authority in benefit determinations or plan interpretation (or would otherwise deny de novo review of benefit denial claims) would be deemed unenforceable with respect to single-employer plans. The bill also would prohibit discretionary clauses in single-employer plans.
The legislation would also prohibit plan sponsors from including mandatory, forced arbitration clauses, class action waivers and representation waivers in ERISA-covered employee benefit plans. The summary explains that the legislation would prohibit pre-dispute forced arbitration clauses as a condition to participate in the plan. Post-dispute forced arbitration clauses, class action waivers and representation waivers would also be prohibited unless “appropriate protections” are provided to participants and beneficiaries.
Any dispute concerning whether an arbitration clause is enforceable would be determined by a court, rather than an arbitrator, regardless of whether any contractual provision purports to delegate such determinations to the arbitrator.
Finally, the legislation would apply to disputes that arise after the date of enactment, even if an existing agreement is in place. It also would give plans an additional year beyond the current plan year to update plan documents, provided the plan administrators otherwise conduct themselves in accordance with the bill’s provisions starting on the date of enactment.
Collectively bargained multiemployer plans maintained by labor unions and more than one contributing employer are exempted from the legislation’s prohibition, the ARA observes in the letter. Rep. Diana Harshbarger (R-TN) offered an amendment that sought to include plans maintained by labor unions, but it was defeated on a party-line vote.