The Supreme Court has issued a decision in CIGNA Corp. v. Amara, (pdf) holding unanimously that section 502(a)(1)(B) of the Employee Retirement Income Security Act (the section allowing a participant to sue for benefits under an ERISA plan) did not permit the district court to rewrite the terms of the benefit plan to reflect employee expectations arising from a summary plan description (SPD) because the SPD is not the “plan.” The Court also reasoned that because the plan can be amended only by the employer acting as settlor, and the SPD must be written and distributed by the plan administrator, it would be anomalous for the plan administrator to be able to modify the terms of the plan by erroneously describing its terms, even if – as in the instant case – the employer is also the plan administrator. Six of the Justices found, however, that another section (502(a)(3)) of ERISA might allow the lower court to reform the company’s pension plan provisions or to provide the requested benefits in the form of damages, and sent the case back for reconsideration. The two concurring Justices agreed with the remand but would not have expanded on the potential recovery that might be available under section 502(a)(3).

This class action was brought after the company converted its defined benefit pension plan into a cash balance plan. The District Court found that the Company’s notice and its SPD contained material misrepresentations, resulting in inconsistencies between the notice and the SPD on the one hand, and the actual plan document on the other hand. The lower court deemed the plan to be rewritten to provide for a benefit equal to the prior plan benefit plus the post-conversion cash balance benefit, rather than the greater of the prior plan benefit or the opening account balance plus future cash balance credits. The Supreme Court held that section 502(a)(1)(b) did not authorize the lower court to revise the terms of the plan to reflect an erroneous notice and summary plan description , and returned the case for reconsideration under the plaintiffs’ alternative remedy sought under section 502(a)(3), which authorizes appropriate equitable relief.

In ordering this case back to the lower court for reconsideration, the Court provided guidance on how to handle various issues presented. The district court had declined to address whether relief would be available to the plan participants under the “appropriate equitable relief” provision of section 502(a)(3) of ERISA, on the basis that the Supreme Court’s prior decisions had so narrowed the scope of appropriate equitable relief that it was unlikely that full relief would be available for the perceived harm caused by the inadequate notices and SPD. The majority stated that because courts of equity could reform a trust document to correct fraud or mutual mistake, could surcharge a fiduciary for certain breaches, and could award benefits on the basis of equitable estoppel, the district court could explore all three of these approaches in order to fashion an appropriate form of relief. Indeed, in apparent response to the frequent complaint of the Plaintiffs’ bar that the Supreme Court’s prior cases result in a wrong without a remedy, the majority provided the following quote: “Indeed, a maxim of equity states that ‘[e]quity suffers not a right to be without a remedy.’ R. Francis, Maxims of Equity 29 (1st Am. ed. 1823).” (p. 18).

The majority also addressed the issue that had been the initial basis for bringing the case before the Supreme Court – whether the district court had properly held that a showing of “probable harm” was sufficient to afford class-wide relief without an individual showing of detrimental reliance. If the remedy is provided in the form of equitable estoppel, the Court affirmed that detrimental reliance is required. But a surcharge or reformation might not require detrimental reliance, but only “actual harm” and the Supreme Court suggested in dicta that in some cases an employee might not be required to read an SPD in order to bring a claim based on misrepresentations contained in the SPD. However, two judges in a concurring opinion pointed out that the District Court and the Second Circuit could follow that advice and later be reversed by the Supreme Court because that suggestion is mere dicta because that issue was not accepted by the Supreme Court for review.

For employers, the opinion has both good and bad features. It is good that an erroneous notice or SPD can no longer be written into the terms of the plan itself. It is also good that the Court clarified that detrimental reliance is required for an estoppel-based remedy. But the road map provided by the majority opinion has opened the door to allow district courts considerable flexibility in addressing perceived injustices arising from errors in communication, well beyond the limits thought to be applicable based on earlier Supreme Court precedents.

For more information on this case and practical considerations for employers, see Littler’s ASAP: U.S. Supreme Court Rules on Available ERISA Remedies for Misrepresentations About Benefit Plan Changes by Margaret Clemens.

Photo credit: Kirby Hamilton