The Supreme Court recently ruled in CIGNA Corp. v. Amara that misleading summaries and descriptions cannot be used to reform the terms of an ERISA benefit plan, and provide a basis for recovery under ERISA Section 502(a)(1)(B). However, the Court suggested that the communications may be used as a basis for recovery under ERISA Section 502(a)(3), which authorizes “appropriate equitable relief” for violations of ERISA.
In 1998, CIGNA Corporation changed the nature of its basic pension plan for employees. Previously, the plan provided a retiring employee with a defined benefit in the form of an annuity calculated on the basis of pre-retirement salary and length of service. The new plan provided most retiring employees with a (lump sum) cash balance calculated on the basis of a defined annual contribution from CIGNA, as increased by compound interest. Because many employees had already earned at least some old-plan benefits, the new plan translated the participants previously accrued benefits into an opening amount in the employee’s cash balance account.
The plan descriptions provided to participants described how the new benefit was calculated, but did not compare the new benefit to the old benefit. CIGNA did send the employees a newsletter that said the new plan would “significantly enhance” its “retirement program,” would produce “an overall improvement in retirement benefits,” and would provide “the same benefit security” with “steadier benefit growth.” CIGNA also told its employees that they would “see the growth in [their] total retirement benefits from CIGNA every year,” that its initial deposit “represent[ed] the full value of the benefit [they] earned for service before 1998,” and that “[o]ne advantage the company will not get from the retirement program changes is cost savings.”
The plaintiffs, acting on behalf of approximately 25,000 beneficiaries of the CIGNA Pension Plan, challenged CIGNA’s adoption of the new plan. They claimed that CIGNA had failed to give them a proper explanation of the changes to their benefits, particularly because the new plan — in certain respects — provided them with less generous benefits.
The District Court agreed that the disclosures made by CIGNA violated its obligations under ERISA. In determining relief, the Court found that CIGNA’s notice failures had caused the employees “likely harm.” The Court then reformed the new plan and ordered CIGNA to pay benefits accordingly. It found legal authority for doing so in ERISA Section 502(a)(1)(B) (authorizing a plan “participant or beneficiary” to bring a “civil action” to “recover benefits due to him under the terms of his plan”). The Second Circuit affirmed.
The Supreme Court’s Decision
The Supreme Court concluded that the District Court erred when it concluded that plaintiffs could recover plan benefits under Section 502(a)(1)(B) of ERISA based upon the terms of the reformed plan. Then, in what Justice Scalia referred to as “blatant dictum,” the Supreme Court suggested that the plan participants may be able to recover for any harm caused by the misleading or incorrect information under ERISA Section 502(a)(3), which authorizes “appropriate equitable relief” for violations of ERISA. The Supreme Court further suggested the equitable principles that the District Court might apply on remand, and noted that there is no general principle that “detrimental reliance” must be proved before a remedy is decreed.
It is difficult to determine how the Supreme Court’s “blatant dictum” will be interpreted by future courts, but it may open the door to equitable claims by participants asserting that they were harmed or misled by an employer’s misleading communications.
Q&B Key: The basis for the participants’ claim in the CIGNA case is that the information provided by the company was incorrect or misleading. Plan sponsors and plan administrators should review employee benefit communications carefully to make sure that the descriptions are accurate and that they do not mislead plan participants. Plans sponsors should also be aware that generic statements regarding benefits may potentially be used in a claim for appropriate equitable relief.