In November of 1997 the insurance giant, CIGNA, sent to its employees a newsletter announcing that during the following year it would implement changes to the nature of the company’s pension plan. The existing pension plan provided a retiring employee with a “defined benefit” in the form of an annuity purchased by the company that would pay out a monthly benefit to the retired employee for life. The size of the annuity purchased would depend upon the pre-retirement salary of the employee, along with his or her length of service with the company. Under the new plan the defined benefit of the annuity would be eliminated, and in its place would be put a lump-sum cash payment, calculated on the basis of the company’s annual contributions to an individual retirement account established by the company for each eligible employee, which would earn compound interest calculated upon the interest return on five-year treasury bills plus 0.25 percent, with annual interest on the account being guaranteed at no less than 4.5 percent but no more than 9 percent. The amount of the company’s annual contribution to the individual retirement accounts would vary between 3 percent and 8.5 percent of the eligible employees’ annual salary based upon age, length of service as well as other variables.
Many employees of the company asked for additional details about the new plan, including a side-by-side comparison of the projected returns under the old plan and the new plan, but the company refused, with internal documents revealing that the company specifically did not want to provide its employees with “before and after summaries of the pension plan changes.”
Instead, the employer provided its employees with assurances that the new plan would “significantly enhance” the company’s retirement program, would produce “an overall improvement in . . . retirement benefits,” and would provide “the same benefit security” as the old plan, with “steadier benefit growth.”
The company also told its employees that they would see growth in their total retirement benefits every year, that the company’s initial deposit into the employees’ individual retirement plan represented the full value of the benefits that each employee had accrued under the old plan, and that the transition to the new plan would not result in any cost-savings for the company itself.
In fact, however, it was determined that the conversion to the new plan would save the company $10 million annually, and that the new plan also left a significant number of the employees worse off than under the old plan in the following ways: First, under the old plan, many of the company’s employees had the right to retire early, beginning at age 55, with only slightly reduced pension benefits. The new plan eliminated that right. Second, the new plan incorporated a life insurance policy, rather than a lifetime annuity as under the old plan, the purchase of which adjusted downward the company’s initial deposit into the employees’ individual accounts, thereby trading as much as one-tenth of their previously-earned benefits for a life insurance policy which they may not have wanted in the first place.
Third, the new plan shifted from the employer to its employees the risk falling interest rates, meaning that the lump-sum payment to the employees’ individual retirement accounts could earn less money each year after retirement if interest rates steadily fell, and that even before retirement, falling interest rates would mean that the individual retirement accounts of the employees would grow more slowly, leaving the employees with less money on which to retire.
A group of approximately 25,000 beneficiaries of the new plan filed a federal class action against the company challenging its adoption of the new plan, because it provided them with less benefits, and because the information provided to them by the company concerning the new plan was both incomplete and misleading.
The class alleged that the company had violated its obligations under ERISA by amending the terms of the company’s pension plan in a way that significantly reduced future benefits accrued without first providing the affected employees with either a written notice providing the text of the new plan, or a summary of its likely impact upon them. The class also alleged that the plan administrator failed to provide the plan participants with summaries of the material modifications to the pension plan, written in a manner calculated to be understood by the average plan participant, and which was sufficiently accurate and comprehensive in scope as to reasonably apprise the participants of their rights and obligations under the plan, as ERISA requires.
The federal district court determined that the company’s description of the new plan to its employees not only was incomplete and inaccurate, but that the employer had actually and intentionally misled its employees as to the features and operation of the new plan.
In fashioning a remedy for the class members, the district court focused on Section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), which allows a plan participant to file a civil action to recover benefits due to him or her under the terms of the plan. The district court determined that this section of ERISA gave the court equitable authority to reform, or rewrite, the terms of the pension plan and to enforce its reformed features. The court also considered Section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), under which a plan participant may file a civil action to enjoin any act or practice which violates any of the terms of the plan, or to obtain other appropriate equitable relief to redress any violation of the plan, or to enforce its terms. The district court believed that Section 502(a)(3) of ERISA also provided it with legal authority to reform the plan, but chose to rely on Section 502(a)(1)(B) to grant relief in the form of reformation, partly because of its opinion that the Supreme Court had issued several decisions that had “severely curtailed”, according to the district court’s interpretation of those cases, “the kinds of relief that are available under Section 502(a)(3),” ERISA’s equitable remedies provision. Amara v CIGNA Corp., 559 F. Supp.2d 192 (D. Conn. 2008)
The parties cross-appealed the district court’s judgment, and the Court of Appeals for the Second Circuit issued a summary order affirming the district court’s judgment, characterizing its decision as “well-reasoned and scholarly.” See 348 Fed. Appx. 627 (2009). The Supreme Court granted certiorari to consider the question of whether “likely harm” to the class members was sufficient to entitle them to recover benefits based upon the employer’s faulty disclosure, or if actual harm to the participants was required for such relief.
The Supreme Court focused first on the question of whether the district court had the authority to impose the remedy that it had fashioned, which was essentially a reformation of the pension plan, along with an order that the plan be enforced as reformed. As mentioned, the district court had used Section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), as its authority for the reformation remedy that it imposed. This section allows a plan participant or beneficiary to recover benefits due to him or her under the terms of the plan, or to obtain enforcement of its provisions. As the Supreme Court noted, however, Section 502(a)(1)(B) of ERISA provides a remedy to enforce the terms of the plan, as written, but not to judicially alter the terms of the plan. Because the district court lacked authority to reform the pension plan by using a provision of ERISA that primarily allows the award of money damages, or the enforcement of the plan as written, the Supreme Court vacated the district court’s judgment and remanded the case for further proceedings consistent with its opinion.
This result may only constitute a pyrrhic victory for the employer, however, since the Supreme Court also discussed the possibility of other forms of relief for the class members under ERISA’s equitable remedies provision, Section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), which allows a plan participant, beneficiary or fiduciary to enjoin any act or practice that violates either ERISA itself or the terms of the plan, or to obtain appropriate equitable relief to redress such violations. Potential forms of equitable relief include reformation, estoppel or an injunction requiring the plan administrator to pay already-retired beneficiaries the moneys owed to them by their employer under their pension plan.
Whether the district court would find it appropriate to impose such equitable remedies upon remand of the case is something that the Supreme Court said is yet to be seen, but the fashioning of an appropriate equitable remedy for the aggrieved class members was declared to be a determination for the district court or the Court of Appeals to make in the first instance
CIGNA Corp. v. Amara, ______U.S._______, 131 S. Ct. 1866, 179 L.Ed.2d 843 (2011).