USC Can’t Force Retirement-Plan Fee Claims Into Arbitration

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

The University of Southern California can’t make retirement plan participants take their claims about plan mismanagement to arbitration ( Munro v. Univ. of S. Cal. , C.D. Cal., No. 2:16-cv-06191, 3/23/17 ).

The participants’ ability to bring claims of fiduciary breach under the Employee Retirement Income Security Act is unaffected by their arbitration agreements with USC because those claims are, by their nature, plan claims and the plan didn’t consent to arbitrate, Judge Virginia A. Phillips of the U.S. District Court for the Central District of California held March 23.

Phillips’ decision is an early win for St. Louis-based Schlichter Bogard & Denton, the law firm that in 2016 filed 12 lawsuits challenging how prestigious universities, including Yale, Cornell, Vanderbilt, New York University, MIT and Columbia, managed their employees’ retirement plans.

The decision means participants may proceed with their claims in federal court instead of undergoing arbitration—an alternative dispute resolution method usually preferred by employers because of its confidentiality.

Arbitration of ERISA Claims

The ruling is significant because it involves a matter of first impression within the U.S. Court of Appeals for the Ninth Circuit over arbitration of ERISA claims. An arbitration agreement--signed by participants at the start of their employment but not signed by anyone with authority to bind an ERISA plan and not part of the plan documents--can’t require participants who file fiduciary breach claims on behalf of the plan to submit those claims to arbitration.

In ruling this way, Phillips relied on a number of cases that have held that a release and agreement not to sue doesn’t prevent a participant from suing for fiduciary breach on behalf of the plan. Just as participants suing on behalf of the plan can’t waive a plan’s right to pursue claims, a participant can’t waive a plan’s right to file its claims in court, Phillips said.

Without the plan’s consent, participants can’t sign arbitration agreements that prevent them from bringing claims of fiduciary breach on behalf of a plan, Phillips said.

Holding that arbitration agreements couldn’t affect participants’ fiduciary breach claims under ERISA is “closely aligned” with the goals of the statute, the judge held. If arbitration agreements controlled participants’ ERISA claims, fiduciaries could mitigate their ERISA obligations by requiring employees to sign such agreements—including provisions of confidentiality, expedited arbitration procedures, limited discovery and required splitting of arbitrators’ fees—as a condition of employment.

Gibson Dunn & Crutcher LLP represents USC.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Pension & Benefits Daily