Plan fiduciaries and ERISA litigators got a few surprises in a recent United States Supreme Court decision on whether participants can be awarded benefits promised to them in plan communications, but not in the plan document.
The decision, CIGNA v. Amara, has been described as a victory for plan sponsors by defense counsel and as a win for participants by plaintiffs' counsel, but that may simply mean that while CIGNA won the battle when the lower court decision against it was overturned, careless fiduciaries (and even CIGNA) may have lost the war. The big issue was whether participants needed to show detrimental reliance on the communications that promised greater benefits than the plan, including that they had actually read the communications. The Supreme Court's answer was "not always".
See our Osler Update for more about the facts and legal theories of this case. For the plan fiduciary, though, the most significant development is that in the course of its decision, the Court gave us a primer on (i) the status of the summary plan description (SPD), the primary disclosure booklet participants receive under ERISA; and (ii) how to frame an ERISA suit to successfully recover promised benefits. The Court ruled that:
- Participants can't recover simply because their SPD is inconsistent with the plan text; i.e., the SPD doesn't automatically amend the plan. This means that the disclaimers typically used in SPDs saying that the terms of the plan govern if there is an inconsistency may be enforceable.
- Plaintiffs can't sue to recover benefits under the terms of the plan if they claim the SPD promised greater benefits. Rather, they need to sue for equitable relief to reform (rewrite) the plan to reflect the communications, equitable estoppel, or fiduciary surcharge, which is an award of monetary compensation for a loss caused by fiduciary breach. "Actual harm" may be all that participants are required to demonstrate, so recovery may be available for participants who haven't even relied on the SPD.
Fiduciaries trying to reduce their litigation risk in light of this decision should consider the following tips:
- Avoid using your required communications as plan marketing tools. If your goal is to make employees want to participate in the plan or to keep them from complaining about changes, you are likely to lose track of the legal requirements to disclose benefit limits and restrictions.
- Always review communications to make sure that they satisfy all applicable legal requirements.
- If participants are being told about elections they may make, give them enough information to make informed decisions, including any applicable fees that may apply.
- Consider “test driving” your communications by showing them to a test group of participants and then questioning them to determine how much they understand.
- Don’t rely solely on disclaimers, even if you include them in your documents. It is best practice to review the plan and the SPD to make sure that there are no conflicts.
Even if CIGNA v. Amara leads to increased litigation, as some predict, and a lawsuit is commenced, you and your plan will be in a better defensive position if these practices have been followed.