The Supreme Court’s recent decision in CIGNA Corp. v. Amara, No. 09-804, 563 U.S. ____ (2011) has important implications for plan sponsors and those involved in benefit plan administration. In Amara, the Supreme Court held that ERISA does not grant the ability to a court to “reform” a plan to change plan terms to match those in a summary plan description (SPD), and that claims for benefits by plan participants under ERISA cannot be based on incorrect information in SPDs. The Court clearly held that the formal plan document, not the SPD or other informal benefits communications, controls the provision of benefits under the plan. If the Court had ended its analysis there, the decision would be an outright victory for plan sponsors.

However, the Court opened the door to potential equitable relief for plan participants, further holding that a district court may evaluate what equitable remedies might apply (including monetary relief awarded against plan fiduciaries) to compensate plaintiffs who suffer loss as a result of relying on incorrect information in an SPD (including associated benefits communications). Notwithstanding this holding, the Court did place obstacles to equitable relief by clarifying that the relevant standard of harm that plaintiffs will need to satisfy to receive equitable relief is actual harm, as opposed to the “likely harm” standard relied on by the lower court in this case.

Although, on balance, the Supreme Court’s decision may slightly favor plan sponsors, this decision may function best as a lesson to plan sponsors on how to avoid disputes. The defendant in this case, CIGNA, amended the plan in question in this case in 1998, and the parties have been disputing the case in court for a decade. To save time and expense, plan sponsors will want to review any conflicts between plan documents and SPDs to preclude disputes such as those that arose in Amara.

Holding and Background

In a unanimous 8-0 decision, the Supreme Court vacated and remanded Amara to the district court for further consideration. The facts in Amara concern CIGNA’s 1998 conversion of its traditional defined benefit plan to a cash balance plan. Participants in the plan filed a class action based on misleading language in an SPD that provided assurances that the new plan would “significantly enhance” and provide an “overall improvement” in retirement benefits. The district court determined that the conversion to the cash balance plan violated ERISA Sections 102 and 204(h) because the SPD and associated communications intentionally misrepresented plan terms. The district court found that because participants had shown “likely harm,” and CIGNA had failed to establish harmless error, the plan should be reformed to provide for the benefits that had been communicated, and the higher benefits paid out. The Second Circuit summarily affirmed the district court’s holdings. The Supreme Court agreed to decide whether the district court correctly applied a “likely harm” standard of review.

Supreme Court Decision

The Court unanimously vacated the Second Circuit judgment, and made the following significant holdings:

  • ERISA Section 502(a)(1)(B) (the statutory language on which a participant may bring a claim for benefits) does not provide relief to plan participants who seek to enforce the language of misleading language in an SPD that is inconsistent with terms in a main plan document. ERISA Section 502(a)(1)(B) did not give the district court authority to reform CIGNA’s plan. Section 502(a)(1)(B) speaks to enforcing a plan’s terms, not changing them, and the district court was not enforcing the SPD because statements in the SPD “do not themselves constitute the terms of the plan for purposes of §502(a)(1)(B)”;
  • A district court could award monetary relief on remand under ERISA Section 502(a)(3), which allows a participant, beneficiary, or fiduciary “to obtain other appropriate equitable relief” to redress violations of ERISA “or the [plan's]terms” as “appropriate equitable relief.”
  • The relevant standard of harm will depend on the equitable theory by which the district court provides relief, which it will do on remand. Potential equitable theories include estoppel, reformation, and surcharge (an equitable remedy akin to damages). If the remedy is surcharge, there must be a showing of actual harm.

What Does this Mean for Plan Sponsors?

The Supreme Court was clearly concerned in this case about the behavior of CIGNA and its decision appears to significantly expand the power and substance of the equitable remedies available under Section 502(a)(3) of ERISA. The Court has made clear that providing incorrect or misleading information in an SPD could expose plan fiduciaries to adverse consequences, including monetary awards against them. Interestingly, the Court did not distinguish between formal SPDs and informal benefits communications, or newsletters, distributed by the plan sponsor to plan participants. Therefore, to avoid disputes such as those that arose in Amara, plan sponsors should carefully review all SPDs and all associated benefits communications to plan participants, even if informal, to ensure that they do not provide incorrect or misleading information, and are consistent with all terms in the establishing plan document. Plan sponsors should further establish an administrative process for ensuring that benefits communications are consistent with the plan document before such communications are issued.