In Cigna Corporation v. Amara (5/16/11), the Supreme Court was asked to review whether reformation of a plan is permitted under ERISA §502(a).
In this case, the defendant, CIGNA Corporation ("CIGNA"), converted its defined benefit pension plan to a cash balance plan. Under the defined benefit plan, a retiring employee would receive a pension benefit in the form of an annuity, which was calculated on the basis of his preretirement salary and length of service. Under the cash balance plan, in general, a retiring employee would receive a lump sum benefit, which was calculated on the basis of a beginning account balance, plus a defined annual contribution from CIGNA as increased by compound interest. The participant's beginning account balance was the actuarial equivalent of his accrued benefit under the defined benefit plan. The plaintiffs, representing approximately 25,000 participants and other beneficiaries of the plan, challenged the conversion. They claimed, in part, that CIGNA had failed to give them proper notice of the conversion, particularly because the cash balance plan in certain respects provided them with less generous benefits, in violation of ERISA( primarily the notice and disclosure requirements of ERISA §§102(a), 104(b) and 204(h)).
The District Court agreed that the disclosures made by CIGNA violated its obligations under ERISA. In determining relief, the District Court found that CIGNA's notice failures had caused the employees "likely harm." The District Court then reformed the new plan and ordered CIGNA to pay benefits accordingly. It found legal authority for doing so in ERISA §502(a)(1)(B) (authorizing a plan "participant or beneficiary" to bring a civil action to "recover benefits due to him under the terms of his plan"). The defendants appealed this decision to the Second Circuit Court of Appeals, which affirmed the District Court's decision. The defendants then appealed to the Supreme Court. The issue for the Supreme Court: Did the District Court apply the correct legal standard, namely, a "likely harm" standard, in determining that CIGNA's notice violations caused its employees sufficient injury to warrant legal relief.
On this issue, the Supreme Court said that it must first consider whether ERISA §502(a)(1)(B) even authorizes the relief the District Court provided-namely, plan reformation. The Supreme Court concluded that §502(a)(1)(B) does not authorize such relief. Nothing in that Section allows a court to reform or otherwise alter a plan. However, ERISA §502(a)(3) offers helpful relief in this case and thus provides the basis for reformation or at least a similar remedy.
The Supreme Court said that, specifically, § 502(a)(3) authorizes "appropriate equitable relief " to address violations of ERISA or the terms of the plan. This relief encompasses those categories of relief that were typically available in equity, such as affirmative and negative injunctions, mandamus, and restitution. It will be up to the District Court to fashion the specific appropriate remedy in this case, using the following principles. The relevant standard of harm for determining the appropriate equitable relief will depend on the equitable theory by which the District Court provides relief. There is no general requirement that "detrimental reliance" be proven to obtain this relief. If this requirement arises, it is because the specific remedy being contemplated imposes that requirement. For example, when a court exercises authority under §502(a)(3) to impose a remedy equivalent to estoppel, a showing of detrimental reliance must be made. However, detrimental reliance is not required for: (1) reformation where a fraudulent suppression, omission, or insertion materially affected the substance of a contract or (2) a "surcharge", that is, monetary relief to compensate a participant for a loss resulting from a breach of fiduciary duty or to prevent a fiduciary's unjust enrichment. A surcharge can be imposed only upon a showing of actual harm, which may arise from detrimental reliance or from the loss of a right protected by ERISA. Thus, to obtain relief by surcharge for violations of ERISA §§102(a) and 104(b), a plan participant must show that the violation caused injury, but need show only actual harm and causation, not detrimental reliance.
After providing this guidance on how to fashion appropriate equitable relief under ERISA §502(a)(3), the Supreme Court vacated the District Court's decision and remanded the case back to the District Court.