CIGNA Corp. v. Amara – Half and Half: The Supreme Court’s Limited View of the Power of the SPD, Yet Expansive View of Potential Equitable Remedies
This week, the US Supreme Court decided the long-awaited case of CIGNA Corp. v. Amara, ___ S. Ct. ___, 2011 WL 1832824 (May 16, 2011), which had presented a number of issues under the Employee Retirement Income Security Act (ERISA) with respect to CIGNA’s conversion of its traditional pension plan to a cash balance pension plan. In this monumental decision, the Court declared that employees may not depend on the Summary Plan Descriptions (SPDs) provided by their employers to contain legally binding plan terms that will support a claim for benefits under ERISA § 502(a)(1). The Court also held that § 502(a)(1) does not permit reformation of a plan. While the Court espoused this very limited view of viable benefits claims and remedies under § 502(a)(1), the majority went on in dicta to take a surprisingly expansive view of claims and remedies available under § 502(a)(3). Call it half a win for the plaintiffs’ bar, and half a win for the defense bar.
The case arose when CIGNA converted its employee pension plan to a new “cash balance” type of pension plan. Rather than receiving an annuity based on salary and length of service, retiring employees under the new cash balance plan would instead receive a lump sum upon termination of employment, made up of employer contributions plus interest. Plaintiff employees filed a class action, challenging the conversion and the sufficiency of the notice that was provided to employees under ERISA. Plaintiffs alleged that the notice was inadequate and misleading, as it did not properly illustrate some of the negative effects of the changes on plan participants and beneficiaries.
The US District Court for the District of Connecticut held that the company’s disclosures violated ERISA, and that CIGNA intentionally misled its employees about the impact of the plan changes. In fashioning a remedy, the court determined that ERISA § 502(a)(1) authorized the court to reform the new plan and direct the company to pay benefits at levels dictated by the newly reformed terms. The US Court of Appeals for the Second Circuit affirmed. The Supreme Court vacated the Second Circuit’s affirmance and remanded to the lower court.
In its opinion, the Court first addressed the issue of whether reformation of a plan document could be accomplished under § 502(a)(1), and held that it cannot. Section 502(a)(1) allows a participant or beneficiary to sue to “recover benefits due to him under the terms of his plan” and to “enforce his rights under the terms of the plan.” It does not speak of “changing” plan terms. Plan reformation, the Court therefore held, is not a remedy available under § 502(a)(1).
In response to the Solicitor General’s argument that the plan terms enforceable under § 502(a)(1) included disclosures in the SPD, the Court held that an SPD does not supply plan terms. The Court discussed the differences between the role of plan sponsor and that of plan fiduciary, pointing out that “ERISA carefully distinguishes these roles.” While the plan sponsor (typically the employer) creates the plan and defines the benefits available under the plan – and does so free from fiduciary obligations – the plan fiduciary is responsible for providing an SPD. The SPD is intended to be the plain English explanation to the average employee as to what the benefits are. SPDs, “important as they are, provide communication with beneficiaries about the plan, but . . . do not themselves constitute the terms of the plan for purposes of § 502(a)(1)(B).” Accordingly, employees may not rely on SPDs in filing claims for benefits with Plan administrators. This holding is seemingly at odds with prior case law in which Circuit Courts of Appeal have enforced provisions of SPDs even in the face of conflicting plan language. Even estoppel and detrimental reliance claims based on representations in an SPD would now seem to be in danger given the Court’s holding.
As Justice Antonin Scalia’s concurring opinion indicates, the Court could have stopped after its decisions respecting § 502(a)(1) claims. It could have then remanded the case for a determination as to whether another provision of ERISA would provide the relief sought by the plaintiffs, since § 502(a)(1) did not. But the Court went further. In a bounty of unabashed dicta, the Court went on to examine whether relief might be provided by § 502(a)(3), the provision that allows “other appropriate equitable relief” to redress plan violations or enforce plan provisions. Notably, the District Court had expressly admitted that it was not addressing whether the relief it awarded was available under § 502(a)(3) given its § 502(a)(1) holding, and also because the Supreme Court had “issued several opinions . . . that have severely curtailed the kinds of relief that are available under § 502(a)(3).” Additionally, according to Justice Scalia, the parties did not even brief many of the issues relating to available remedies under § 502(a)(3) on certiorari to the Court.
Nevertheless, the Supreme Court’s majority opinion, written by Justice Stephen Breyer, discussed in great detail the scope of relief available under § 502(a)(3). Calling the District Court’s concern about the Court’s prior decisions limiting § 502(a)(3) relief “misplaced,” the Court took a more expansive view than most practitioners might ever have imagined. Perhaps most striking about this portion of the opinion was the Court’s ready willingness to allow for monetary compensation as a form of equitable relief.
Specifically, the Court stated that the relief awarded by the District Court resembled three traditional equitable remedies that could potentially be ordered under § 502(a)(3). First, the power to reform contracts was traditionally equitable. Second, “the District Court’s remedy essentially held CIGNA to what it had promised, namely, that the new plan would not take from its employees benefits they had already accrued,” a remedy resembling the equitable remedy of estoppel. Third, the fiduciaries could be required to provide monetary relief to injured beneficiaries under the equitable theory of “surcharge.” The Court noted that it will be up to the District Court on remand to determine precisely what equitable remedy it will award, if any.
Despite the fact that this portion of the decision was purely dicta, “binding upon neither us nor the District Court,” as Justice Scalia wrote, plaintiff employees will undoubtedly rely heavily on the Court’s broad language interpreting § 502(a)(3) in future cases. The days of equitable monetary relief are surely dawning.
Should you have any questions, please contact Caroline Turner English, Alison Lima Andersen or a member of Arent Fox’s ERISA Group or the Arent Fox attorney who handles your matters. Thank you.