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Since the dawn of ERISA, courts have struggled with the issue of the remedies available in the event of a conflict between the terms of a plan document and the information provided in a summary plan description or other communication to employees. Some courts have awarded the employee a more generous benefit described in the SPD without the employee being required to show either reliance on the SPD or a showing of actual harm. Other courts have required a showing of actual harm from reading the SPD and acting (or not acting) on the information disclosed therein. In May 2011, the U.S. Supreme Court in CIGNA Corp. v. Amara both clarified and muddied the issue. FACTS The case arose from the conversion by CIGNA of its retirement plan from a traditional defined benefit plan to a cash balance plan. The cash balance plan was established with an opening account balance described as being the equivalent of the amount accrued under the defined benefit plan. Additional fixed contributions were to be made annually thereafter for each participant based on age and service together with an interest credit. Participants were to receive the greater of the benefit under the new cash balance plan (including the opening balance) or the accrued benefit under the defined benefit plan immediately prior to the conversion. CIGNA provided summaries and an SPD stating that the new plan would provide an “overall improvement” in retirement benefits, that the opening account balance would represent the “full value” of the previously accrued benefit and that CIGNA would not save money from the conversion. Employees pursued a class action to challenge the conversion on the basis of false and misleading communications. The plaintiffs alleged that the opening account balance did not represent the full value of the opening account as it did not reflect an early retirement subsidy under the prior plan. Also, as many participants would not accrue additional benefits under the cash balance plan for several years due to a wear-away factor, they would not experience an overall improvement. In addition, CIGNA would actually save $10 million as a result of the conversion, although CIGNA later stated that it would spend the $10 million on other benefit plans. DISTRICT COURT DECISION The U.S. District Court for the District of Connecticut found that CIGNA’s materials were in fact false and misleading and adopted many of the plaintiffs’ arguments that ERISA’s notice and disclosure rules were breached. The District Court presumed that the plaintiffs had suffered “likely harm” and that CIGNA failed to provide evidence to rebut the presumption. The District Court rejected CIGNA’s contention that the participants needed to show that they detrimentally relied on the SPDs. The remedy ordered by the District Court was to judicially “reform” the plan to conform to the description in CIGNA’s communications. The District Court directed that the plan provide to participants their frozen pre-conversion benefits plus the benefits earned under the cash balance feature after the conversion. For authority, the District Court relief on ERISA §502(a)(1)(B) which gives a plan participant the right to “recover benefits due to him under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” The District Court discussed whether a remedy could be provided under ERISA §502(a)(3), which allows a participant to obtain “other appropriate equitable relief,” but determined that prior Supreme Court rulings had restricted recovery under that section to forms of relief that were typically provided in courts of equity which would preclude compensatory relief. The 2nd U.S. Circuit Court of Appeals summarily affirmed. THE VICTORY FOR THE EMPLOYER The Supreme Court unanimously (Justice Sonia Sotomayor not participating) held that errors in an SPD cannot be enforced under ERISA §502(a)(1)(B) as a contractual claim for benefits. The Court rejected the argument that the terms of the SPD are part of the plan itself. The Court distinguished the roles of the SPD and the plan stating that the SPD is intended to contain communications “about the plan” and does not “constitute terms of the plan.” The Court expressed concern that enforcement of the terms of the SPD would lead plan administrators to “sacrifice simplicity and comprehensibility in order to describe plan terms in the language of lawyers.” The Court also held that ERISA §502(a)(1)(B) does not authorize a court to “reform” the terms of a benefit plan and also ruled that “likely harm” on a class-wide basis is insufficient to support relief. THE VICTORY FOR PLAINTIFFS Justice Stephen Breyer, writing for the Court, did not stop there, however. The opinion goes on to discuss whether the remedies sought by plaintiffs might be permissible under ERISA §502(a)(3) as appropriate equitable relief. The Court stated that reformation of the language of an ERISA plan could be an appropriate remedy under §502(a)(3) as reformation of a contract was a traditional equity remedy, often to prevent fraud. The Court also mentioned equitable estoppel as a possible remedy. More significantly, the Court stated that an order requiring the payment of money, the equitable remedy of a “surcharge” against a trustee, may also be appropriate under ERISA §502(a)(3). The Court then addressed the required showing of harm to support relief. The Court noted that a showing of detrimental reliance was typically not required in equitable proceedings for reformation or surcharge. The Court stated that although plaintiffs would need to show actual harm and causation, a showing of actual reliance on the SPD need not be shown. The Court vacated the District Court’s opinion and remanded the case for further consideration of whether equitable remedies would be appropriate. Justices Antonin Scalia and ClarenceThomas issued a concurring opinion stating that it was unnecessary to address whether §502(a)(3) would provide remedies to the plan participants and referred to the majority’s discussion of ERISA §502(a)(3) as “blatant dictum.” The Supreme Court opinion will provide the ERISA plaintiffs bar with potential approaches to recoveries under ERISA §502(a)(3) that many courts have previously closed. It will be some time before the consequences are determined.?? Edward P. Smith is a partner in the corporate practice at Chadbourne & Parke. He is reachable at 212-408-5371 and [email protected].

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