- Supreme Court Ends SPD-Based Benefit Claims, But Expands Potential Lawsuits For ERISA Plaintiffs
- July 12, 2011 | Authors: Wilhelm L. Gruszecki; Kari Knight Stevens
- Law Firm: Blank Rome LLP - Philadelphia Office
Recently, the U.S. Supreme Court in CIGNA Corp. v. Amara, issued an opinion which effectively ends benefit claims based on language found in a summary plan description (SPDs), but expands the types of equitable relief that may be available to plaintiff's under ERISA Section 502(a)(3).
Amara centered on the plan communications following CIGNA's conversion of its defined benefit pension plan to a cash balance plan. The trial court found that (i) CIGNA had failed to give the plan participants proper notice of changes to their benefits as a result of the conversion, in violation of the ERISA disclosure requirements; (ii) there was "likely harm" to plaintiffs; and (iii) Cigna's failure properly to communicate the benefit changes justified a reformation of the plan by the court and enforcement of the plan as reformed under Section 502(a)(1)(B). The Second Circuit affirmed.
The Supreme Court reversed, finding that a claim for benefits under ERISA Section 502(a)(1)(B) may not be made based on inaccurate or misleading statements found in an SPD. The Court held that the terms of the actual plan document, and not summaries about plan terms, must form the basis for a claim for benefits.
Nevertheless, the Court found that fiduciaries may not be completely insulated from liability where communications about the plan are flawed. The Court remanded the case to the District Court to determine, whether, as an alternate remedy, the plan participants in Amara may receive a remedy under Section 502(a)(3) which permits "appropriate equitable relief". The Court discussed three types of relief that should be available under Section 502(a)(3): (1) reformation of contract to remedy fraud or mistake, (2) estoppel to remedy fraudulent misrepresentation, and (3) compensation for a loss resulting from a fiduciary's breach or to prevent a fiduciary's unjust enrichment (i.e., a "surcharge"). The Court suggested that a plaintiff need not always show detrimental reliance on flawed plan communications in order to obtain such equitable relief.
Comment: The full impact of Amara will unfold over time. In the meantime, employers and plan fiduciaries should take certain practical steps to avoid fiduciary liability for improper plan communications, including:
- Being candid with participants about plan changes that may result in a reduction of benefits or modified benefits.Z
- Keeping SPDs simple and straightforward and avoiding the temptation to use the SPD as a way to restate the plan.
- Reviewing current SPDs and other plan documentation to determine if there are any errors which could result in participant claims.
- Considering which individuals make communications about the plan and determining if any adjustments should be made. Employers should regularly reexamine internal procedures to ensure that individuals are not inadvertently acting in a fiduciary capacity.