Enforceability Of Venue Selection Clauses In US Pension Plans

Keywords: pension plans, ERISA, venue selection clauses

Benefits plan sponsors often include venue selection clauses in their plans, requiring claimants to file suit in a particular jurisdiction. They do this in an effort to mitigate the risk that claims for employees' benefits owed under ERISA plans will devolve into costly lawsuits filed in a variety of venues across the country. The enforceability of such clauses, however, has been disputed by plan participants on the basis that they are inconsistent with ERISA's liberal venue provisions and its stated policy of providing "ready access to the Federal courts."1

While some district courts have agreed with plan participants, the Sixth Circuit's recent 2-1 decision in Smith v. Aegon Companies Pension Plan,2 lends strong support for the prevailing view among the district courts that venue selection clauses are enforceable.

In Smith v. Aegon, after Aegon reduced Smith's monthly pension benefit to recoup alleged overpayments, Smith filed suit in the US District Court for the Western District of Kentucky to have those benefits reinstated. Aegon immediately moved to dismiss Smith's case pursuant to Rule 12(b)(6). Specifically, Aegon argued that Smith could not pursue his claim in the Western District of Kentucky because his pension plan included a "Restriction on Venue" clause, which provided that "[a] participant or beneficiary shall only bring an action in connection with the Plan in Federal District Court in Cedar Rapids, Iowa." The Western District of Kentucky agreed with Aegon and dismissed Smith's complaint without prejudice. Rather than re-file in the Northern District of Iowa as required by under the plan, Smith appealed to the Sixth Circuit.

On appeal, the Sixth Circuit identified two distinct, but related, questions governing the enforceability of the pension plan's venue selection clause: (i) whether the clause was enforceable as a matter of contract law and (ii) whether the clause was consistent with ERISA. The Sixth Circuit answered both questions affirmatively.

With respect to the first questionwhether the venue selection clause was enforceable as a matter of contract lawthe Sixth Circuit held that under Supreme Court precedent the clause was "presumptively valid and enforceable." Relying on its decision in Wong v. PartyGaming, Ltd.,3 the Sixth Circuit held that in order to overcome this presumption, Smith was required to demonstrate that the clause was: (i) obtained by fraud...