The U.S. Supreme Court this week issued a decision that closes the door on benefit claims based on the language of summary plan descriptions (SPDs) but opens up the possibility of a much less restrictive judicial approach to the type of equitable relief available under ERISA Section 502(a)(3).

In CIGNA Corp. v. Amara, issued on May 16, 2011, a unanimous Supreme Court held that a misleading or incomplete SPD cannot support a claim for benefits under ERISA Section 502(a)(1)(B); the terms of the actual plan control. The Court further held (Justice Sonia Sotomayor not participating) that Section 502(a)(1)(B) does not grant a court authority to reform  the terms of an ERISA plan and then enforce the reformed plan.  However, six of the justices joined in an opinion that suggests relief for SPD inaccuracies and other notice-type violations may be available as “appropriate equitable relief” under Section 502(a)(3).

The case arose from CIGNA’s conversion of its defined benefit pension plan to a cash balance plan in 1998. The trial court found that (i) CIGNA had failed to give the plan participants proper notice of the changes, in violation of the ERISA disclosure requirements; (ii) the evidence showed “likely harm” to members of the plaintiff class in the form of reduced benefits in the future; and (iii) this 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, adopting the trial court’s opinion.

The Supreme Court vacated and remanded, finding that Section 502(a)(1)(B) did not grant a court the right to reform the terms of a plan, remarking that “the statutory language speaks of 'enforc[ing]' the 'terms of the plan,' not of changing them.” The Court further held that the ERISA provision “requiring that participants and beneficiaries be advised of their rights and obligations ‘under the plan,’ suggests that the information about the plan provided by those disclosures is not itself part of the plan” and concluded “that the summary documents, important as they are, provide communication with beneficiaries about the plan, but that their statements do not themselves constitute the terms of the plan for purposes of Section 502(a)(1)(B).”

But the Court did not limit itself to this ruling. It went on to offer guidance to the trial court should it decide to consider on remand whether relief might be justified as “appropriate equitable relief” under Section 502(a)(3). The lengthy dicta suggests that the phrase “appropriate equitable relief” is not as limited as the Court’s 1993 decision in Mertens v. Hewitt Associates might suggest, particularly if the defendant is a trustee or fiduciary.

The Court described three types of relief against fiduciaries that were traditionally available in equity and, hence, 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 (a/k/a “surcharge”). The Court also suggests that detrimental reliance need not always be shown to entitle a beneficiary to such equitable relief, particularly in the case of reformation or surcharge.

If you have questions about this decision or how it might affect your operations, contact Brian M. Pinheiro, partner-in-charge of the Employee Benefits and Executive Compensation Group, at 215.864.8511 or pinheiro@ballardspahr.com.

 


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