The U.S. Supreme Court's recently-released opinion in CIGNA Corp. v. Amara contains significant developments that affect employers sponsoring employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), such as retirement plans and health and welfare plans.
Background on the CIGNA Case
In 1998, CIGNA converted its traditional pension plan into a cash balance plan. In connection with this change, CIGNA provided communications to plan participants describing the new plan. Plan participants sued CIGNA, claiming that it violated ERISA's disclosure requirements by misrepresenting the new plan's benefits in the participant communications. Specifically, the participants claimed that CIGNA failed to sufficiently explain the changes to their benefits, particularly because the new plan provided them with less generous retirement benefits. The District Court found that the participant communications that CIGNA provided were inaccurate, misleading, and violated ERISA's disclosure requirements.
The Supreme Court's Decision in the CIGNA Case
The most noteworthy aspects of the Supreme Court's decision in the CIGNA case are as follows:
- The plan sponsor (e.g., the employer) creates the plan's basic terms and conditions and adopts the written plan document containing such terms and conditions in its settlor capacity-not in a fiduciary capacity subject to ERISA. The plan administrator administers the plan in accordance with its written terms and communicates the plan's terms to participants and beneficiaries through plan communications (such as a summary plan description ("SPD")). The plan administrator, in performing these duties, is acting in a fiduciary capacity and is subject to ERISA's fiduciary provisions. As such, inaccurate or misleading communications by the plan administrator in performing these duties could be found to violate ERISA's fiduciary requirements.
- Summary documents-such as the SPD and summary of material modifications ("SMM")-provide communications to participants and beneficiaries about the plan, but their statements do not themselves constitute the terms of the plan. That is, statements in an SPD or other plan communication cannot be enforced as plan terms under ERISA.
- ERISA Section 502(a)(1)(B), which allows plan participants and beneficiaries to sue for benefits due under the terms of a plan, does not authorize a court to rewrite the terms of a plan. Therefore, the District Court in the CIGNA case was not authorized to rewrite the plan's terms to conform them to the language in the participant communications (i.e., to provide more generous retirement benefits).
- ERISA Section 502(a)(3), which allows plan participants to "obtain other appropriate equitable relief" to remedy violations of ERISA, authorizes a variety of equitable relief in the case of ERISA violations, such as reformation, estoppel, and surcharge.
The Supreme Court did not decide whether equitable relief was appropriate in the CIGNA case. Instead, the Supreme Court remanded the case to the District Court to revisit its determination of an appropriate remedy for the ERISA violations that it had found.
Significance of the Supreme Court's Decision in the CIGNA Case
The CIGNA case is beneficial to employers because the Supreme Court found that plan participants cannot bring suit under ERISA Section 502(a)(1)(B) for misleading or inaccurate ERISA plan communications and the language in summary plan communications cannot be treated as the terms of the official written plan document.
However, due to the Supreme Court's acknowledgement in the CIGNA case regarding the equitable relief available in the case of ERISA violations, plan administrators should carefully review their SPDs and other participant communications to ensure that the plan's terms are described clearly and correctly.