Smith v. I.A.T.S.E. Local 16 Pension Plan

Background

Kim Smith sued I.A.T.S.E. Local 16 Pension Plan on behalf of a proposed class, alleging violations of the Employee Retirement Income Security Act (ERISA). Smith had participated in the Plan since 1988, retired in 2010 after her pension benefits vested, and began receiving pension payments.

Before the challenged amendment, the Plan suspended post-retirement benefits when a participant returned to full-time “Covered Employment,” which the complaint described as union work for which an employer had to contribute to the Plan. An amendment effective August 1, 2017, created a broader category of “Prohibited Employment.” Under that definition, employment could trigger a suspension if it was in the industry, in a trade or craft in which the participant had previously worked, and in the Plan’s geographic area. The definition also included supervisory and self-employed work.

Smith alleged that in 2019 the Plan required her to report her 2018 work and later told her that the work was “Prohibited Employment.” The Plan asked for financial information to determine whether she exceeded the 480-hour limit. Smith alleged that the Plan intended to apply the amendment to participants who had retired before August 2017, including her, and that this retroactively expanded the conditions under which their benefits could be suspended.

Court’s analysis

The Plan moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts and a legally recognized basis for relief. The Plan argued that Smith had not exhausted the Plan’s internal administrative procedures, had not adequately stated a claim under ERISA sections 502(a)(1)(B) and 502(a)(3), had not adequately alleged an anti-cutback violation, and had not sufficiently pleaded entitlement to injunctive relief.

Exhaustion of administrative remedies. The court held that Smith did not have to exhaust the Plan’s internal procedures for either claim. Her section 502(a)(3) claim was based on an alleged violation of ERISA’s statutory anti-cutback rule, and statutory claims of that kind do not require exhaustion. Her section 502(a)(1)(B) claim sought clarification of her rights under the Plan. Although the Summary Plan Description appeared to require an administrative appeal, the Plan itself used permissive language. Because the two documents conflicted, the court held that the Plan’s terms controlled and did not require exhaustion.

Claim to clarify rights under section 502(a)(1)(B). The court found the complaint ambiguous about whether Smith sought payment of benefits, enforcement of Plan terms, or clarification of her rights. At the hearing, Smith clarified that she sought clarification of whether the 2017 amendment applied to her. The court held that her allegations were sufficient because the Plan’s communications suggested that it had attempted to apply the amendment to her, and the Plan did not expressly state that the amendment did not apply to people who retired before 2017. The court required Smith to amend her complaint to state that she was seeking clarification rather than enforcement or payment of benefits.

Anti-cutback claim under section 502(a)(3). ERISA’s anti-cutback rule generally prohibits a plan amendment from decreasing a participant’s accrued benefit. Relying on Supreme Court precedent, the court explained that adding a condition under which benefits may be suspended can itself reduce an accrued benefit; an actual suspension is not required. The court held that Smith adequately alleged that the 2017 amendment added broader post-retirement employment conditions and that those conditions could apply to her because the Plan did not clearly exclude pre-amendment retirees. The court therefore found that Smith adequately pleaded an alleged anti-cutback violation serving as the basis for her section 502(a)(3) claim.

Equitable remedies and reformation. The court held that Smith could plead alternative relief under sections 502(a)(1)(B) and 502(a)(3), as long as she did not obtain duplicative recovery. It also explained that “reformation”—an equitable remedy that can alter or correct the terms of a plan—is available under section 502(a)(3) but not section 502(a)(1)(B). Because Smith’s complaint did not expressly seek reformation, the court granted the Plan’s motion to the extent the complaint failed to adequately allege that remedy. The court granted Smith leave to amend because it was not clear that amendment would be futile.

Injunctive relief. Smith clarified at oral argument that she sought an injunction only in the form of Plan reformation. The court treated that request as part of the section 502(a)(3) claim and required Smith to amend her complaint to adequately plead entitlement to reformation.

Disposition

The court granted in part and denied in part the Plan’s motion to dismiss. It required Smith to file an amended complaint addressing the identified deficiencies by December 11, 2019. The opinion did not decide whether the amendment ultimately violated ERISA or whether Smith or the proposed class was entitled to the requested relief.