Forum selection clauses are appearing with increasing frequency in ERISA benefit plan documents. Their purpose is clear and important: to centralize participant litigation in the judicial district where the plan is administered. Many, but not all, courts have found these provisions enforceable, depending on the surrounding facts. But one recent decision, Smith v. AEGON Cos. Pension Plan, confirms that it is never too late for sponsors to think about amending their plans to include a forum selection clause, since the clause may be applied broadly, even to persons who retired before the date of the amendment. 

Background

The plaintiff in Smith retired and commenced receiving benefits effective March 1, 2000. Years later, the plan discovered that the plaintiff had been overpaid and contacted him to inform him that his benefits would be reduced to the correct amount once the plan had recovered the overpayment. The plaintiff filed suit against the pension plan in the United States District Court for the Western District of Kentucky, claiming that the decision to deny him the higher pension was arbitrary and capricious. In response, the plan moved to dismiss the complaint for improper venue, claiming that the plan’s forum selection clause required that any litigation involving the plan be brought in Iowa, where the plan was administered. The plaintiff opposed the motion, contending that the clause did not control because it was added in 2007, after he had already retired.   

Forum Selection Clause Controls 

The district court agreed with the plan and granted its motion to dismiss. The court identified the factors to be evaluated in determining whether a forum selection clause is enforceable, namely “(1) whether the clause was obtained by fraud, duress, or other unconscionable means; (2) whether the designated forum would ineffectively or unfairly handle the suit; and (3) whether the designated forum would be so seriously inconvenient such that requiring the plaintiff to bring the suit there would be unjust.” 

The plaintiff did not argue that the clause was induced by fraud or that the inconvenience to him of a transfer would be unjust or unreasonable.¹ Instead, he claimed that the clause was inapplicable because it was added to the plan after he retired. The court rejected his position, noting that ERISA pension plans may be amended at any time, provided the amendment does not cut-back an accrued benefit, which the plan defined to mean the value of an employee’s monthly pension. The forum selection clause, the court concluded, had no impact on the plaintiff’s benefit amount. Moreover, the amendment to include the forum selection clause was valid under the plan’s amendment clause and, as such, the court explained, it was enforceable under ERISA’s “plan document rule,” requiring that fiduciaries administer ERISA plans as written.  

As the third basis for its decision, the court explained that the forum selection clause, which required that suits be brought where the plan was administered (Iowa), was compatible with, rather than contrary to, ERISA’s venue provision, which allows a claim to be brought “in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found.” 

Lessons Learned

In today’s age, where employers have an increasingly national presence, forum selection clauses serve an important purpose. Many courts are in agreement that enforcing these clauses furthers a number of compelling ERISA policies. They defray the costs of plan administration by reducing litigation expenses, thereby incentivizing employers to sponsor more plans for their employees. They also further ERISA’s goal of creating a uniform administrative scheme for employee benefits plans, since decisions relating to a given plan are more likely to be consistent if they originate from the same judicial district. 

When drafting their employee benefit plans, employers/plan sponsors may wish to consult with their counsel about adding a forum selection clause, as well as other clauses that serve to contain the costs of benefit claim litigation (e.g., contractual statute of limitations). Cases like Smith suggest that it is never too late to think about including these important protections.

¹ The court noted that it had “previously reviewed the forum selection clause of the AEGON Plan and found it enforceable and reasonable.”

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