Sponsors and administrators of employee benefit plans have long wrestled with how to reconcile a summary plan description (SPD) that is materially inconsistent with the plan it describes. Most plan administrators would prefer to ignore the SPD’s inconsistencies in favor of the plan’s express terms. Courts, however, have often been much less forgiving to plan administrators and plan sponsors who distribute incomplete or incorrect SPDs. Over the years, many lower federal courts have resolved this dilemma in favor of participants by enforcing the terms of the SPD rather than the plan, but the U.S. Supreme Court had not spoken. The Court broke its silence on May 16 inCIGNA Corp. v. Amara, No. 09-804 (U.S. May 16, 2011), holding that courts cannot enforce the terms of the SPD over those of the formal plan document in a suit for benefits. But, in a major departure from past decisions, the Court signaled in expansive dicta that plan participants and beneficiaries may be able to recover monetary relief under ERISA section 502(a)(3) to redress violations of ERISA’s disclosure requirements.

The Facts of the Case

CIGNA converted a traditional defined benefit plan into a cash benefit plan, and in the process, distributed participant communications (including SPDs) about the change and its effects on participants’ benefits. The lower court concluded that these communications were intentionally false and misleading. The SPD and other communications incorrectly claimed that participants’ benefits under the new cash balance plan would be more valuable than the benefits they had earned under the traditional defined benefit plan. Participants sued for plan benefits under ERISA section 502(a)(1)(B) calculated according to the SPD disclosures instead of what the plan said. The lower court:

  • Ruled that the participants were entitled to recover the benefits described in the false and misleading SPD and other communications
  • Reformed the CIGNA plan so that its terms awarded benefits that were consistent with the inaccurate communications
  • Enjoined the CIGNA plan to pay benefits under the terms of the plan as reformed
  • Allowed participants to recover as a class without requiring a showing of individual harm caused by the false and misleading communications, concluding instead that the participants as a class had suffered "likely harm" as a result of the defective disclosures

The lower court declined to award the participants any relief under ERISA section 502(a)(3), which authorizes "appropriate equitable relief" to redress violations of ERISA, for two reasons. First, the lower court concluded that such relief under ERISA section 502(a)(3) was not necessary because the court had granted the requested relief under ERISA section 502(a)(1)(B). Secondly, the lower court noted that prior Supreme Court cases, such as Mertens v. Hewitt Assoc., had severely limited the scope of relief that is available under ERISA section 502(a)(3) to forms of relief that were typically available to a court sitting in equity.

The Supreme Court’s Ruling

The U.S. Supreme Court responded by unanimously reversing the lower court. It held that a participant could not bring a contractual claim for benefits premised solely on terms of a SPD that were inconsistent with the terms of the underlying plan. Nothing in ERISA’s jurisdictional statute allowing claims for benefits authorized the lower court to match the plan’s terms to those in the SPDs. Furthermore, the Court ruled that a statutorily required SPD cannot be enforced as if its terms were plan terms. The Court observed that SPDs are intended to provide participants with a clear and concise summary of the terms of the plan. Enforcement of the terms of SPDs would lead plan administrators to "sacrifice simplicity and comprehensibility in order to describe plan terms in the language of lawyers."

Six members of the Court then decided the case should be remanded to allow the lower court to consider whether the relief the lower court had fashioned under ERISA section 502(a)(1)(B) was allowed as equitable remedies under ERISA section 502(a)(3). The Court went on to provide, in rather expansive dicta, several suggestions about how the relief the lower court had fashioned under ERISA section 502(a)(1)(B) might fall within the scope of permissible equitable relief available under ERISA section 502(a)(3), including equitable relief that could provide for monetary payments. Finally, the Court concluded that while some forms of equitable relief (such as "equitable estoppel") might require individualized showings of fraud or detrimental reliance, others (such as "surcharge" or "plan reformation") might require only a showing of "actual harm."

New Forms of Equitable Relief?

The Court thought it best to include in this opinion a discussion of general "equitable principles" to guide the lower court’s choice of appropriate equitable relief. Those equitable principles led the Court to mention three remedies that might be substituted for the disallowed relief the lower court ordered in this case.

First was "reformation" of CIGNA’s plan, which the Court described as "a traditional power of an equity court . . . used to prevent fraud." Second was "equitable estoppel," a remedy which the Court went on to note requires individualized showings of detrimental reliance as a precursor to recovery. Third was "surcharge," a monetary remedy against a trustee the Court called "exclusively equitable."

The apparent endorsement of the surcharge remedy is likely to garner the most attention. Surcharge is a form of monetary remedy in equity that ERISA plaintiffs and some regulators have been seeking since the Mertens decision was issued in 1993. Premising it on the maxim of equity which states that "[e]quity suffers not a right to be without a remedy," the Court said in a case (like this one) where the defendant was analogous to a trustee, the surcharge remedy "extended to a breach of trust committed by a fiduciary encompassing any violation of duty imposed on that fiduciary." The Department of Labor has been campaigning assiduously for allowing this remedy as an equitable remedy under ERISA section 502(a)(3) and has already commented that the "landmark decision" in this case recognizes the remedy of surcharge under ERISA.

Justice Scalia (joined by Justice Thomas) concurred in the judgment of the Court but described the discussion of "equitable principles" as "purely dicta, binding upon neither us nor the District Court."

Lessons Learned

Mostly, the lessons of CIGNA v. Amara will be learned over upcoming years. At present, we can glean this immediate guidance:

  1. SPDs will not take the place of actual plan documents in a lawsuit claiming benefits based on misleading terms in the SPDs.
  2. The SPD’s fundamental objective is clear, simple communication, and if it were legally binding, it could sacrifice that simplicity and comprehensibility to the language of lawyers.
  3. Misleading SPDs invite the court to find a way to compensate misled participants and beneficiaries. SPDs must be accurate.
  4. An employer that wears both the hat of a plan sponsor and the hat of a plan administrator wears two distinctly separate, permitted hats, only one of which can be worn at a time.
  5. Mertens and its progeny will not prohibit all forms of monetary relief under ERISA section 502(a)(3). The number of lawsuits claiming some form of equitable surcharge against a plan’s fiduciaries due to misleading communications is going to grow significantly and enthusiastically, but we do not expect the remedy to prevail proportionately.
  6. Class actions based on equitable estoppel are going to become fewer, but ones based on plan reformation and surcharge have become more certain and easier.