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May 23, 2011
Supreme Court Rules ERISA Provision Did Not Authorize Relief

Last week, the U.S. Supreme Court ruled that Section 502(a)(1)(B) of the Employee Retirement Income Security Act (ERISA) does not authorize relief for misrepresentations made in a pension plan’s summary plan description (SPD). However, the Court noted that relief could be authorized under a different ERISA provision.

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In 1998, CIGNA changed its pension plan from providing a defined-benefit annuity that was determined by salary and length of service to providing a lump-sum cash payment determined on “the basis of a defined annual contribution from CIGNA as increased by compound interest.”

CIGNA told employees that the new plan would improve retirement benefits and guaranteed that retirees would receive comparable, if not better, retirement benefits under the new plan as under the previous plan. However, as it turned out, under the new plan, some employees received fewer benefits than they would have under the pre-1998 pension plan.

CIGNA employees filed a class action on behalf of 25,000 beneficiaries of the pension plan in federal court. The District Court ruled in favor of the employees, finding that the new plan violated various ERISA disclosure provisions.

The court granted relief by reforming CIGNA’s pension plan and requiring the employer to provide benefits in accordance with the reformed plan under Section 502(a)(1)(B) of ERISA which authorizes plan participants or beneficiaries “to recover benefits due to him under the terms of the plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.”

The court didn’t require individuals to prove they had suffered, but assumed a presumption of “likely harm” to class members. The Second Circuit Court of Appeals affirmed the decision, and CIGNA filed a petition with the U.S. Supreme Court.

Supreme Court Ruling
The Supreme Court vacated and remanded the case, CIGNA Corp. vs. Amara, finding that Section 502(a)(1)(B) did not authorize the relief granted by the lower court. The Court found that the ERISA provision only authorizes relief to enforce the terms of an existing plan but does not permit a court to rewrite a plan to conform to the representations made in an SPD.

However, the Court did note that relief would be authorized under a different section of ERISA, Section 502(a)(3), which allows a plan beneficiary “to obtain other appropriated equitable relief” for violations of ERISA.

On the issue of class members having to prove harm, the Court found that the ERISA provisions do not identify a standard, and the issue will depend on the kind of equitable relief sought, a decision that will be decided by a lower court. However, the Court did reject CIGNA’s argument that plan beneficiaries must always prove harm, but noted that the class members were required to prove some evidence of actual harm.

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