What happens when a plan participant seeks benefits that he or she claims are set forth in a summary plan description (“SPD”) but are found nowhere in the plan itself?  On one level, the Supreme Court in Cigna Corp v. Amara answered this question decisively:  SPDs and other written disclosures about the plan do not constitute terms of the plan and cannot modify the plan’s terms.  Accordingly, participants cannot claim under ERISA Section 502(a)(1)(B) that they are entitled to benefits under the plan based on statements that appear only in the SPD.

However, the Supreme Court also stated that a participant could obtain “appropriate equitable relief” under ERISA Section 502(a)(3) for statutory disclosure violations.  The Supreme Court identified three possible equitable remedies:  reformation, estoppel, and surcharge.  Although the Supreme Court made clear that the traditional requirements in equity for obtaining any such relief must be satisfied, it left to the district court the task of determining when such remedies are appropriate.

Employers anxiously awaited the decisions on remand in Amara, which would determine the scope of any equitable relief for the inaccurate disclosures in the SPD.  The district court found on remand that the employer had intentionally misrepresented the effect on participants’ benefits when it converted a traditional pension plan to a cash balance plan, and that the employer’s conduct constituted fraud.  In these circumstances, the district court concluded, class-wide reformation of the CIGNA plan was an appropriate equitable remedy.  The reformed plan provided all participants with the benefits they reasonably believed they would receive, based on the disclosures in the SPD.

The Second Circuit recently released its opinion affirming the district court’s decision on remand.  For plan sponsors and administrators, this decision offers several takeaways:

1.  Fraudulent statements in statutory disclosures can support reformation of plan documents.   

This decision confirms that if communications to a broad array of participants, such as in an SPD, include intentionally misleading statements about changes to plan benefits, the misstatements can result in reformation of the plan for all participants.  In Amara, the Second Circuit held that reformation was appropriate because the plan participants established by clear and convincing evidence (i) that the employer committed fraud and (ii) that the fraud reasonably caused plaintiffs to be mistaken about the terms of the pension plan.

The Second Circuit cited several instances where the employer materially misrepresented the terms of CIGNA’s new pension plan and actively prevented employees from learning the truth about the plan.  For example, an SPD describing the new plan informed employees that “your benefit will grow steadily throughout your career,” while at the same time CIGNA concealed the possibility of “wear away” (a period of time when a participant does not accrue additional benefits) under the new plan.

The Second Circuit held that the employer’s uniform misrepresentations about the plan amendment and efforts to conceal the amendment’s effect supported the conclusion that all participants were uniformly mistaken about the terms of the plan and thus entitled to class-wide reformation.

2.  The extent of misstatements sufficient to give rise to reformation remains an open question.

The Second Circuit acknowledged, in dicta, that participants are not entitled to reformation any time a plan communication contains an error.  The factual findings of fraud made it unnecessary for the Second Circuit to identify the exact circumstances in which a misstatement is sufficiently significant to support a reformation claim.

As noted above, the district court had found several instances where CIGNA misled participants and prevented them from obtaining information about the material differences between the old and new benefit formulas.  Plan sponsors and administrators responding to future class complaints seeking reformation might successfully confine the Amara decision to its facts, and might establish that reformation is available only where there are similar evidentiary findings of intentional misrepresentation or of self-dealing.

3.  Clearly and accurately disclosing negative effects of a plan change is the surest means to avoid a reformation claim.

The Second Circuit’s Amara decision reinforces the need accurately to describe changes in plan terms that might result in a reduction in the benefits that a participant might reasonably expect a plan to provide.  We expect that this decision will encourage participants to continue to file lawsuits seeking equitable relief based on the Supreme Court’s decision in Amara.  The best way to protect against such claims is accurately to disclose negative as well as positive effects of changes to plan terms.

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Photo of Jason Levy Jason Levy

Jason Levy helps clients navigate complex issues related to employee benefits and executive compensation, including compliance with the Internal Revenue Code and ERISA. Jason utilizes his deep knowledge in the ERISA space and his background as a former litigator to craft advice that is…

Jason Levy helps clients navigate complex issues related to employee benefits and executive compensation, including compliance with the Internal Revenue Code and ERISA. Jason utilizes his deep knowledge in the ERISA space and his background as a former litigator to craft advice that is both practical and strategic. His practice includes:

  • counseling on design, establishment, administration, and maintenance of qualified defined contribution and defined benefit retirement plans;
  • designing, drafting, and amending a wide range of executive compensation arrangements, including nonqualified deferred compensation plans, equity incentive plans, and change in control bonus plans;
  • representing employment, human resources, and benefit interests in mergers and acquisitions;
  • advising clients on multiemployer plan operations and risk management, including withdrawal liability and plan funding issues; and
  • providing benefits expertise in legislative initiatives.