CIGNA Corp. v. Amara

July 15, 2011, 10:16 AM

On May 16, 2011, the U.S. Supreme Court issued an important decision with implications for sponsors of employee benefit plans: CIGNA Corp. v. Amara. The opinion in this case clarifies the consequences that occur when a plans Summary Plan Description (SPD) conflicts with the terms of the underlying plan document by promising more generous benefits than are available under the plan.

This case arose out of the 1998 conversion of CIGNAs pension plan to a cash balance formula. Various features of the new plan meant that some employees received fewer benefits than they would have received under the pre-1998 defined-benefit system. CIGNA did not adequately describe these features in its revised SPD, which instead indicated that the revised formula provided an overall improvement in retirement benefits and guaranteed that retiring employees would receive at least as much as benefits to which they were entitled prior to the date of amendment.

When CIGNA employees discovered that the plan benefits were in some cases less than the amount indicated by the SPD, they filed suit under ERISA 502(a)(1)(B), which allows participants to recover benefits owed under the terms of a plan. The district court granted their claim and, as a remedy, order CIGNA to reform its plan to provide the benefits promised in the SPD. The district court did not require the plan beneficiaries to show that they had each suffered individual injuries as a result of the changes in the plan; rather the evidence created a presumption of likely harm to the plan beneficiaries, which CIGNA had failed to rebut. The Court of Appeals for the Second Circuit summarily affirmed the district courts decision.

On appeal, the Supreme Court vacated the decisions below and remanded the case to the district court on the ground that the ERISA 502(a)(1)(B) did not authorize the court to reform the plan. The Court explained that 502(a)(1)(B) only authorizes relief to enforce the terms of an existing plan; it does not permit a court to rewrite a plan to conform to the representations made in an SPD. The Court rejected the argument that the terms of the SPD are themselves part of the plan which the SPD is intended to summarize. Therefore, the Court concluded that statements in a SPD are merely communications about the plan and do not constitute the terms of the plan for purposes of 502(a)(1)(B).

The Court continued on to explain that relief would be authorized by 502(a)(3), which allows a plan beneficiary to obtain other appropriate equitable relief for violations of ERISA. The Court also rejected CIGNAs argument that plan beneficiaries must always show detrimental reliance to obtain relief based on statements contained in an SPD, but it also emphasized that the plan beneficiaries were required to make some showing of actual harm.

The primary implication of this decision for plan sponsors is that conflicts between the terms of the plan and the SPD can form a valid basis for recovery by plan participants, forcing the employer to honor promises made in the SPD even if those benefits are not authorized under the terms of the plan. Further, the courts determination that the participants were not required to show that they detrimentally relied on the SPD in order to recover under ERISA 502(a)(3) make it that much easier for plaintiffs to recover, removing a defense that employers had previously relied upon.

The lesson? Always double check the SPD to make sure it matches the terms of the plan. --Shad C. Fagerland