Court Rewrites Plan to Increase Benefits

by King & Spalding
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Authors, Eleanor Banister, Atlanta, +1 404 572 2755, 4930, ebanister@kslaw.com and Emily Meyer, New York, +1 212 556 2312, emeyer@kslaw.com. 

The Supreme Court’s 2011 CIGNA v. Amara decision suggested that an employer’s pension plan could be rewritten to remedy the employer’s failure to fulfill its disclosure obligations under the Employee Retirement Income Security Act of 1974 (“ERISA”). (An article summarizing the Supreme Court’s decision can be found here.) In the most recent chapter of the CIGNA v. Amara litigation saga, the U.S. District Court for the District of Connecticut did just that, holding that the plan beneficiaries suing CIGNA are entitled to increased benefits on the basis of a “reformation” (i.e., rewriting) of CIGNA’s pension plan.¹

Previous CIGNA v. Amara Decisions

After CIGNA converted a traditional defined benefit plan to a cash balance plan, a class of plan beneficiaries sued CIGNA claiming various ERISA violations in the manner in which the conversion was communicated to them. In 2008, the U.S. District Court for the District of Connecticut found that the summary plan description (“SPD”) and other communications provided by CIGNA failed to explain that, as a result of the plan’s conversion, the plaintiffs could have experienced a “wear-away” period during which their benefits were not growing or could have lost some of the value of their early retirement benefits by choosing a lump sum distribution rather than an annuity. The court then found that ERISA permitted it to remedy the disclosure violation by rewriting the plan’s terms. The court ordered CIGNA to provide the members of the plaintiff class with all of their benefits under the original defined benefit plan (“Part A”) in annuity form plus their benefits under the post-conversion cash balance plan (“Part B”) in either lump sum or annuity form (known as “A+B relief”).

The district court’s ruling was affirmed by the Second Circuit but overturned by the Supreme Court on the grounds that the remedy ordered by the district court (rewriting the plan’s terms) was not available under the section of ERISA upon which the district court had relied, § 502(a)(1)(B). After finding that the only remedy available under that section of ERISA is enforcement of a plan’s terms, the Supreme Court held that the district court had erred in relying on that particular provision of ERISA to rewrite the CIGNA plan and provide A+B relief to participants. However, in remanding the case to the district court to determine whether an appropriate remedy was available, the majority declared that A+B relief “closely resembles” three traditional equitable remedies—reformation (rewriting the plan), equitable estoppel and surcharge—available under another section of ERISA, § 502(a)(3).

In his concurrence, Justice Scalia asserted that the majority’s discussion of the relief available under this alternative section of ERISA may not be relied upon as precedent and does not address whether reformation, estoppel and surcharge are available remedies in the case.

CIGNA v. Amara Returns to the District Court

In December 2012, the district court reconsidered the remedies question in light of the Supreme Court’s opinion. Unsurprisingly, the district court declared that it agreed with the Supreme Court that reformation, surcharge and estoppel are each available remedies under ERISA § 502(a)(3). The district court then found that the facts of the case established a basis for the reformation of the CIGNA plan and that reforming the plan in accordance with the parties’ intent (as reflected in certain participant communications) entitled the plaintiffs to A+B relief. (The court found that the plaintiffs were also entitled to A+B relief on the basis of surcharge, but declined to rule on whether a remedy based on surcharge could be ordered on a classwide basis.)

On the basis of the alternative section of ERISA (ERISA § 502(a)(3) instead of ERISA § 502(a)(1)(B)), the court once again ordered CIGNA to pay A+B relief to all class members. The court stayed the relief order to allow CIGNA to pursue an appeal in the Second Circuit.

Given the statement in the Supreme Court’s majority opinion that ERISA § 502(a)(3) authorizes forms of relief similar to those originally entered by the district court, the district court’s holding on remand was predictable.

Availability of Equitable Remedies Under ERISA

The Ninth and Fourth Circuits have addressed equitable remedies under ERISA following the Supreme Court’s decision in CIGNA v. Amara. In Skinner v. Northrop Grumman Retirement Plan B, another case involving ambiguities in a SPD, the Ninth Circuit found that two participants in the Northrop Grumman plan could not obtain the equitable remedies of reformation or surcharge. Reformation was unavailable because the participants had not presented evidence that the plan terms failed to reflect the drafter’s true intent or resulted from fraud, duress or undue influence, and surcharge was unavailable because there was no evidence that Northrop Grumman benefited from or caused a harm by its breach of duty. In McCravy v. Metropolitan Life Insurance Co., the Fourth Circuit held that the dependent life insurance benefit the plaintiff would have received had MetLife not denied her claim was an available remedy under theories of surcharge or estoppel. (The lower court had limited the plaintiff’s recovery to a premium refund.) Although they reached opposite conclusions, both courts acknowledged that ERISA § 502(a)(3) authorizes remedies based on reformation, surcharge and estoppel.

CIGNA v. Amara clearly widened the scope of relief thought to be available under ERISA. The extent to which courts will rewrite plans or award monetary relief under these equitable remedies for fiduciary breaches is uncertain, however. Confusion in the lower courts may be expected until the issue returns to the Supreme Court. In the meantime, employers should carefully review all plan communications, especially SPDs, to verify that they are consistent with the related plan. King & Spalding would be happy to help you perform this review.

¹Janice C. Amara, et al. v. CIGNA Corp. and CIGNA Pension Plan, 2012 WL 6649587 (D. Conn. Dec. 20, 2012).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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