In CIGNA Corp. vs. Amara, 131 S.Ct. 1866 (U.S. 2011), the U.S. Supreme Court addressed the issue of whether pension plan participants were entitled to equitable relief under the Employee Income Security Retirement Act of 1974 (“ERISA”) as a result of misleading benefit summaries. The Supreme Court held that because the benefit summaries were not part of the plan’s terms, the participants could not obtain relief under Section 502(a)(1)(B) of ERISA, which provides for enforcement of plan terms. However, the Supreme Court left unresolved whether equitable relief might be available for such misrepresentations under another section of ERISA, Section 502(a)(3).
CIGNA Corporation (“CIGNA”) sponsored the CIGNA Pension Plan (the “Pension Plan”), a defined benefit pension plan in which Janice C. Amara and other CIGNA employees (the “Plaintiffs”) participated. Prior to January 1, 1998, the Pension Plan provided a final average pay formula benefit based on each participant’s average salary and years of service. In November 1997, CIGNA froze benefit accruals under the Pension Plan, and sometime in 1998, CIGNA converted the Pension Plan to a cash balance formula, effective January 1, 1998. As part of the conversion, CIGNA made an initial credit to each participant’s account supposedly equal to the present value of the participant’s accrued benefit under the Pension Plan as of December 31, 1997. Thereafter, CIGNA would make annual pay credits to each participant’s account based on the participant’s age, length of service, and other factors. Each account would also be credited with interest credits. At retirement, each participant would receive the value of the individual account balance as a lump sum or an equivalent annuity.
CIGNA communicated the Pension Plan conversion to participants in a variety of ways in 1997 and 1998, ranging from company newsletters to summary plan descriptions (together, the “Summaries”). In 2001, the Plaintiffs filed a suit against CIGNA and the Pension Plan claiming that CIGNA had failed to adequately disclose the changes made in connection with the Pension Plan’s conversion to a cash balance plan, as required by ERISA. For example:
- The Summaries stated that the initial credit made to each participant’s cash balance account would “represent the full value of the benefit” the participant would have received under the old Pension Plan as of January 1, 1998, even though the conversion did not account for the subsidized early retirement benefit most participants had under the old Pension Plan.
- The Summaries stated that participants would “see the growth in [their] total retirement benefits from CIGNA every year,” but in fact, the changes made by the conversion could have entitled participants to a smaller benefit under the cash balance formula than he or she would have received under the old Pension Plan, so participants might see no “growth” in the total retirement benefit for several years after the conversion.
In 2008, the U.S. District Court for the District of Connecticut held that CIGNA had not satisfied the disclosure requirements of ERISA and that the Plaintiffs were “likely harm[ed]” as a result. The District Court then reformed the Pension Plan to provide participants with the sum of the benefit they would have been entitled to receive under the old Pension Plan as of January 1, 1998, plus the benefits they were to earn under the cash balance formula from 1998 onward. The District Court relied on ERISA Section 502(a)(1)(B) to justify the reformation. ERISA Section 502(a)(1)(B) gives a plan participant the right to “recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” On appeal, the Second Circuit affirmed the District Court’s holding.
CIGNA appealed to the Supreme Court, which granted certiorari to review the issue of whether the District Court had applied the correct standard (“likely harm”) in holding that the participants had experienced sufficient injury to warrant relief under ERISA.
The Supreme Court’s Holding
In the majority opinion (written by Justice Breyer, joined by Justices Roberts, Kennedy, Ginsburg, Alito and Kagan), the Supreme Court held that the remedy available under ERISA Section 502(a)(1)(B) is limited to “enforcement” of a plan’s terms, and that plan summaries are not the same as plan terms. The Supreme Court gave a number of reasons why plan summaries do not establish the terms of a plan, including the fact that it would frustrate the purpose of providing a summary. The Supreme Court noted that benefit summaries should provide a clear and simple summary of the plan’s terms, and that if those summaries were the same as plan terms, plan administrators might have to “sacrifice simplicity and comprehensibility in order to describe plan terms in the language of lawyers.” The concurring opinion (written by Justice Scalia, with Justice Thomas joining) agreed with only this part of the holding.
The majority of the Supreme Court went on to conclude that relief might instead be available under ERISA Section 502(a)(3), which allows participants to obtain “other appropriate equitable relief.” The majority opinion mentioned three traditional equitable remedies that might be available to the Plaintiffs under ERISA Section 502(a)(3), depending on whether the Plaintiffs met the standard of harm required by the various remedies: reformation of the plan, estoppel and surcharge. The Supreme Court remanded the case to the District Court to determine whether an appropriate equitable remedy is available to the Plaintiffs under ERISA Section 502(a)(3).
Implications for Employers
The Supreme Court’s majority opinion seems to contradict itself. On the one hand, the Supreme Court clearly stated that benefit summaries are not part of a plan’s terms, and therefore relief is not available under ERISA Section 502(a)(1)(B). On the other hand, the majority opinion clearly suggests that relief might be available for misrepresentations of the plan’s underlying terms in a benefit summary under ERISA Section 502(a)(3). As a result, in order to avoid misrepresentation in a benefit summary, an administrator may be forced to provide more detail in summarizing the terms of the plan, which may “defeat the fundamental purpose of” the benefit summary. The majority of the Supreme Court, as well as the District Court and the Second Circuit, were clearly concerned about plan administrators providing misleading or inaccurate information to plan participants. Accordingly, plan administrators should continue to be vigilant in providing complete and accurate summaries of plan terms.