Fifth Circuit Holds Plan May Compel Arbitration of ERISA § 502(a)(2) Claim but Invalidates Representative-Action Waiver

In Parrott v. International Bancshares Corporation, et al., No. 25-50367, —F.4th—-, 2026 WL 364324 (5th Cir. Feb. 10, 2026), the Fifth Circuit addressed whether an ERISA plan can compel arbitration of a fiduciary-breach claim under § 502(a)(2) after unilaterally amending the plan to add an arbitration clause—and whether a representative-action waiver in that clause is enforceable.

The court held that (1) the plan validly consented to arbitration of the § 502(a)(2) claim, (2) the plaintiff’s individual claims were not subject to arbitration because he never personally consented, and (3) the clause’s prohibition on representative actions and limitation to individual relief violated the effective vindication doctrine. The court remanded the case for further proceedings on severability.

Background

Paul Parrott, a former participant in IBC’s defined contribution plan, brought suit under ERISA § 502(a)(2) and (a)(3), alleging fiduciary breaches that diminished his distribution. After Parrott had already received his distribution and left employment, the plan sponsor amended the plan to add a mandatory arbitration provision, made retroactive to January 1, 2024. The provision required arbitration of all covered claims, included a jury-trial waiver, and barred class, collective, or representative arbitrations, mandating that claims be pursued solely in an individual capacity. The district court denied the defendants’ motion to compel arbitration, finding a lack of consideration under Texas law. The Fifth Circuit reviewed the ruling de novo.

Plan Consent Controls § 502(a)(2) Claims

The central issue was whose consent mattered. The defendants argued that because a § 502(a)(2) claim seeks relief on behalf of the plan, the plan—not the individual participant—is the relevant contracting party for arbitration purposes.

The Fifth Circuit agreed. Section 502(a)(2), which incorporates § 409, authorizes suits to recover losses to the plan resulting from fiduciary breaches. Even when the alleged injury affects an individual account in a defined contribution plan, the claim is still brought in a representative capacity on behalf of the plan.

Relying on persuasive authority from other circuits, the court concluded that only the plan’s consent is necessary to compel arbitration of a § 502(a)(2) claim. The participant’s personal consent is not required for that representative claim.

The court further held that the plan validly consented. The governing documents granted the sponsor broad authority to amend the plan. Because ERISA plans must be administered according to their terms, and because the plan had expressly ceded amendment authority to the sponsor, the amendment adding the arbitration provision constituted valid plan consent—even though amendment is a settlor, not fiduciary, act.

Accordingly, the Fifth Circuit reversed the district court’s denial of arbitration as to the § 502(a)(2) claim.

Individual Claims Not Arbitrable

The outcome differed as to Parrott’s individual claims. The employer did not meaningfully argue that Parrott personally consented to arbitration, and the record showed that he did not.

Reaffirming that arbitration is a matter of consent, the court held that Parrott could not be compelled to arbitrate his individual claims absent his agreement. The district court’s denial of arbitration as to those claims was affirmed.

Representative-Action Waiver Violates Effective Vindication Doctrine

Although the plan could compel arbitration of the § 502(a)(2) claim, the Fifth Circuit held that the representative-action waiver and limitation to individual relief were unenforceable under the effective vindication doctrine.

The arbitration clause required that all claims be brought solely in an individual capacity and prohibited representative proceedings. But § 409(a) makes a breaching fiduciary liable to restore any losses to the plan and any profits derived from misuse of plan assets. Section 502(a)(2) authorizes participants to seek that relief on behalf of the plan.

The court reasoned that § 502(a)(2) suits are inherently representative actions. Preventing a participant from proceeding in a representative capacity—or limiting relief to individual damages—prospectively waives statutory remedies that ERISA expressly provides. That restriction violates the effective vindication doctrine, which bars arbitration provisions that operate as a waiver of federal statutory rights.

The Fifth Circuit aligned itself with multiple sister circuits that have invalidated similar representative-action waivers in ERISA arbitration clauses.

Severability Remanded

The plan included a severability clause, but its language created ambiguity as to whether the invalid representative-action and remedy limitations could be severed from the remainder of the arbitration provision.

Applying Texas contract law, the Fifth Circuit concluded that the provision was ambiguous and that its interpretation presented a fact issue. The court remanded for the district court to determine whether the unlawful provisions can be severed, leaving the remainder of the arbitration agreement intact.

Standard-of-Review Provision Partially Void

The arbitration clause also included a standard-of-review provision stating that arbitrators would apply the same standards of review that would apply in federal district court.

The Fifth Circuit held that, to the extent this provision attempted to impose a deferential standard of review on breach-of-fiduciary-duty claims, it would function as an unlawful exculpatory clause under ERISA § 410(a). A provision that lowers the applicable standard of review for fiduciary-breach claims effectively relieves fiduciaries of responsibility and is void as against public policy. The court therefore voided the provision to the extent it extended beyond denial-of-benefits claims.

The Holding

The Fifth Circuit reversed the denial of arbitration as to the § 502(a)(2) claim, affirmed as to Parrott’s individual claims, voided the standard-of-review provision to the extent it applied to fiduciary-breach claims, and remanded for further proceedings on severability.

The decision reflects a developing consensus: while ERISA fiduciary-breach claims may be subject to arbitration through valid plan consent, arbitration clauses cannot eliminate the representative character of § 502(a)(2) actions or restrict plan-wide remedies authorized by the statute.