The Ninth Circuit Court of Appeals recently issued a decision holding that employees who received a summary plan description (SPD) that did not accurately explain their retirement plan benefits were not entitled to equitable relief under ERISA. Skinner v. Northrop Grumman Ret. Plan B (9th Cir. Cal. 2012). The Skinner decision was based on the Supreme Court's decision in Cigna Corp. v. Amara, 131 S.Ct. 1866 (2011). In the Cigna decision, discussed in the June 2011 Employee Benefits Update, the U.S. Supreme Court held that the terms of an SPD cannot be enforced as the terms of the plan and that recovery in connection with an inaccurate SPD can only be based on equitable remedies.
In Skinner, Northrop Grumman Corp. consolidated a number of pension plans following acquisitions into a single cash balance plan. The plaintiffs in the case argued that the terms of an SPD pertaining to an annuity equivalent offset were misleading. Based on Cigna, the plaintiffs sought to obtain equitable relief under ERISA section 502(a)(3). Three possible equitable remedies exist under ERISA section 502(a)(3): estoppel, reformation and surcharge. The plaintiffs did not present evidence of reliance on the inaccurate SPD so were prohibited from making an estoppel claim. With regard to reformation, the Court determined that under both trust and contract law, reformation is proper only in cases of mistake and fraud. In this case, the Court determined that neither a mistake in drafting the plan provision in question nor fraud in providing the incorrect SPD occurred. Under the surcharge claim, the Court initially held that the plan sponsor did not have a fiduciary duty to enforce the terms of the SPD rather than the plan document. The Court then held that the plan sponsor may have breached its fiduciary duty to provide participants with an accurate SPD, but even so, no remedy was available to the plaintiffs. The plan sponsor was not unjustly enriched by the mistaken SPD, and the plaintiffs did not experience any damage due to the SPD because the harm of being deprived of a statutory right to an accurate SPD was not compensable harm.
REINHART COMMENT: The Skinner decision appears to be the first appellate court decision exploring the elements necessary in an equitable claim with regard to an inaccurate SPD following the Supreme Court's decision in Cigna. This decision and others will aid plans and plan sponsors in determining the long-term effects of the Cigna decision.