The "Defensive" 401(k) Plan

• Published date: 23 October 2021
• Subject Matter: Employment and HR, Retirement, Superannuation & Pensions, Employee Rights/ Labour Relations
• Law Firm: Jenner & Block
• Author: Katherine M. Funderburg, Matthew Renaud, Joseph J. Torres and Jenna A. Bressel

No good deed goes unpunished. Those of us working with 401(k) plans are familiar with this sentiment. An employee benefit plan, as the name implies, is supposed to benefit employees. Yet benefit plans - particularly 401(k) plans - can be sources of aggravation for many. In addition to the threat of lawsuits, employers must also grapple with the difficulty of crafting lengthy, complex plans using language that is legally precise yet understandable to the average plan administrator.

While ERISA litigation has proliferated in recent years, with the Supreme Court issuing four ERISA decisions in 2020 alone,¹ the Court under the leadership of Chief Justice John Roberts has pointed plan sponsors toward a way to help control plan disputes. The Roberts Court's ERISA jurisprudence has re-awakened the idea that one of ERISA's key tenets is that a plan's written terms matter. In other words, if plan sponsors want to reduce their exposure to litigation, one way to do so is by adding certain plan terms that mitigate risk.

This column identifies some ways in which plan sponsors can amend plan language to manage and/or mitigate exposure to claims for benefits and other ERISA claims.

Add a Limitations Period for Lawsuits or Arbitration Requests

Benefit claims limitations period

Plan sponsors should consider including a provision limiting the time period during which a plan participant can bring a claim for benefits.² Because ERISA does not provide a statute of limitations (except for fiduciary breach claims),³ federal courts generally apply the most analogous state-law limitations period.⁴ This borrowed limitations period principally applies to denial of benefit claims brought under 29 U.S.C. ' 1132(a)(1)(B). This variance in state laws means that participants in the same plan may be subject to wildly varying limitations periods depending on where they bring their federal claim. In some instances, this means, for example, that a claim could be brought up to 10 years after the dispute giving rise to the lawsuit occurred. These differences across a plan population do not promote the certainty and uniformity that should be among the touchstones of prudent plan administration.⁵

However, there are steps a plan can take to promote a more uniform dispute resolution process. For example, a court will likely enforce a different limitations period that is contained in plan documents, as long as the contractual limitations period is not unreasonably short or otherwise foreclosed by a...