What equitable remedies are available to plan participants?

As you probably know, CIGNA v. Amara, 131 S.Ct. 1866, 1878-80 (2011) contains dicta that can be viewed as expanding the range of “equitable relief” available to ERISA plan participants under Section 502(a)(3). This relief may include estoppel, reformation and surcharge.

But what proof is needed for plan participants to win equitable relief?  We get some insights in a new case.

Is proof of a statutory violation (inaccurate Summary Plan Description (SPD)) enough to establish harm? NO.

Here’s the recent case of Skinner v Northrop Grumman Retirement Plan B [PDF], 673 F.3d 1162 (9th Cir. March 16, 2012)(Inaccurate SPD: insufficient evidence to establish equitable relief of reformation or surcharge).

FACTS: Northrop Grumman Corp. acquired Litton and other companies and transitioned retirement plans with those companies into a cash balance plan. Northrop informed ERISA plan participants of these changes before the effective date in 2003 by a Summary Plan Description (SPD). In May 2003 Northrop sent all participants a notice of plan amendments. Northrop also conducted meetings explaining the changes. In 2005 the company provided a Summary of Material Modifications that explained changes.

Plaintiffs Skinner and Stratton claimed pension benefits had been calculated incorrectly and made administrative claims, which were denied. They sued, claiming the circulated documents were inconsistent and failed to give proper notice of certain changes. They eventually made claims for equitable remedies under Section 502(a)(3) including estoppel, reformation and surcharge.

NINTH CIRCUIT HELD:

  1. Reformation Requires Reliance and Fraud or Mistake. Plaintiffs argued the plan documents should be reformed to match the terms of the 2003 SPD. The Court held that reformation is appropriate only in cases of fraud or mistake. The Court found there was no evidence that: (a) the Plan participants were intentionally and materially misled, or that (b) plaintiffs actually relied on purportedly misleading information. Op. at 1166.
  2. Surcharge Requires Unjust Enrichment or Proof of Harm to Participants. Plaintiffs sought monetary relief in the form of equitable surcharge, contending Northrop breached fiduciary duties by failing to enforce the terms of the 2003 SPD, rather than the plan document. The Court rejected this theory, citing CIGNA v. Amara, 131 S.Ct. 1866 (2011), and held that the SPD is merely a summary of plan terms and does not contain the actual terms of the plan. The Court found no evidence of harm as a result of an inaccurate SPD. “Harm” does not occur simply because one has been deprived of the statutory right to an accurate SPD. Op. at 1167.

KEY TAKE AWAYS:

  1. Plan documents should be complete and consistent.
  2. Skinner can be used to argue that for equitable relief, notwithstanding Amara, claimants must establish detrimental reliance for equitable remedies of reformation or surcharge.