By Cyril Tuohy
A federal appeals court has affirmed the venue selection provisions in the Employee Retirement Income Security Act (ERISA), allowing retirement-plan administrators to limit where their plan's beneficiaries can sue for redress.
The ruling, in the case of Roger L. Smith v. Aegon Companies Pension Plan, restricts beneficiaries' access to federal courts and makes it harder for beneficiaries seeking to pursue a claim for benefits, according to the dissenting opinion of one of the judges on the three-judge panel.
In the majority opinion, however, U.S. Circuit Judge Alice M. Batchelder of the U.S. Court of Appeals for the 6th Circuit in Cincinnati ruled that, given the “discretion available to plan administrators” under ERISA, “The Aegon Pension Plan’s venue selection clause is presumptively valid and enforceable.”
U.S. Circuit Judge Eugene Siler concurred in the majority decision, which would be of interest to retirement plan advisors serving as consultants or outside counsel in plan litigation involving venue selection clauses.
ERISA grants “large leeway” to employers in the design of pension plans, including the venue selection amendment made by Aegon Companies Pension Plan to its plan in 2007, according to the ruling.
The plaintiff in the case, Roger L. Smith, retired in March 2000. His pension from his former employer, Commonwealth General Corp., a life insurer, was paying him $2,189.51 per month — $1,122.97 in nonqualified benefits and $1,066.54 under the qualified plan.
In 2007, the Aegon board of directors amended the retirement plan, stating that beneficiaries could only bring suit in connection with the plan in federal court in Cedar Rapids, Iowa — more than 500 miles from Smith’s home.
Four years later, in August 2011, Aegon Companies Pension Plan informed Smith that he had been overpaid by $1,122.97 a month for 11 years, and that Smith's monthly payments would be reduced and eliminated entirely until the global insurer had recouped the entirety of the “overpayment,” a sum of $153,283.25, court documents indicate.
After exhausting his administrative remedies, Smith sued Commonwealth General for breach of contract in an Iowa state court.
The case was moved to the U.S. District Court for the Western District of Kentucky, a federal court with jurisdiction over ERISA.
The case against Commonwealth General was dismissed after the court found that the Voluntary Employee Retention & Retirement Program administered by Aegon was regulated by ERISA and that Smith was suing to recover under the ERISA plan.
Smith then filed suit against Aegon Companies Pension Plan in the U.S. District Court for the Western District of Kentucky, where the case was once again dismissed based on the plan’s venue selection clause, which led to Smith’s appeal and the Cincinnati court's ruling.
In 1991, the U.S. Supreme Court recognized the validity of forum selection clauses in Carnival Cruise Lines v. Shute, “even when those clauses were not the product of an arms-length transaction,” the appeals court said.
Citing Coomer v. Bethesda Hospital, retirement plan administrators and employers “are generally free under ERISA, for any reason at any time, to adopt, modify or terminate welfare plans. This rule applies equally to pension benefit plans,” the court found.
But in a three-page dissenting opinion, U.S. Circuit Judge Eric L. Clay found Aegon Companies’ venue selection clause “inconsistent with the purpose, policy and text of ERISA, and [it] contravenes the ‘strong public policy’ declared by ERISA; therefore, the clause should be deemed unenforceable.”
“The statutory text and legislative history of ERISA clearly demonstrate that Congress desires open access to several venues for beneficiaries seeking to enforce their rights,” Clay wrote in his dissent. Such a clause, therefore, discourages claimants who are sick, disabled or of modest means, and who “are the least likely to have the financial or other wherewithal to litigate in a distant venue,” he wrote.
Furthermore, he wrote, such a restrictive clause “also undermines the very purpose of ERISA and contravenes the stronger public policy evinced by the statute,” Clay wrote.
The federal appeals panel also dismissed a friend-of-the-court brief filed by the U.S. Department of Labor (DOL), which argued that venue selection clauses are incompatible with ERISA. Smith's attorneys had asked the court to defer to the DOL’s position.
Invoking deference in this case is invalid because the DOL’s interpretation of ERISA “was not made with the force of law,” the court found, and because “the Secretary [of Labor] is no more expert than this Court is in determining whether a statute proscribes venue selection.”
Even if the DOL were more expert, its analysis of ERISA “does not constitute a body of experience and informed judgment to which courts should defer,” the appeals panel ruled.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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