In deciding CIGNA Corp. v. Amara, No. 09-804 (May 16, 2011), the U.S. Supreme Court expounded on two of ERISA’s major remedial provisions —Sections 502(a)(1)(B) and 502(a)(3). The Court’s holding that Section 502(a)(1)(B) does not provide a remedy for violation of ERISA’s disclosure requirements clarifies the scope of that provision. By contrast, the Court’s discussion of ERISA Section 502(a)(3) creates substantial uncertainty regarding the remedies potentially available under that provision. The opinion is available here.
CIGNA arose from the following facts. In November 1997, an employer that maintained a defined benefit plan with a traditional benefit formula announced that the plan would be changed to a cash balance pension plan effective January 1, 1998. In late 1998, the employer provided plan participants with a summary of the plan as amended to include the cash balance features. Participants sued the employer and the plan, challenging the changes to the plan and alleging (among other things) that the employer’s disclosures regarding the plan amendments failed to comply with ERISA requirements.
District Court Decision
The district court certified a class of plan participants and ruled that the disclosures to participants regarding the plan changes violated ERISA Section 204(h) and Sections 102(a) and 104(b). In this regard, Section 204(h) requires that participants be provided with advance notice of any significant reduction in the rate of future benefit accrual under a defined benefit plan. Sections 102(a) and 104(b) require that participants be provided with summary plan descriptions and summaries of material plan changes that are sufficiently accurate and comprehensive to apprise participants of their benefit rights and obligations. The district court concluded that the employer’s communications to participants violated these statutory disclosure requirements because they were materially incomplete and misled participants.
In fashioning a remedy to address these violations, the district court relied exclusively on Section 502(a)(1)(B), which authorizes participants to sue to “recover benefits due . . . under the terms of the plan.” First, the court ordered that the plan’s terms be “reformed” to provide enhanced benefits which the court believed was consistent with the communications provided to participants. Second, the court permitted participants to recover benefits under the terms of the “reformed” plan language. In this regard, the court did not require each member of the plaintiff class to demonstrate that he or she had been harmed individually by the disclosure violations – for example, by showing that he or she had detrimentally relied on the disclosures. Instead, the court held that class-wide relief was appropriate because the evidence had raised a presumption of “likely harm” to participants and the employer had failed to rebut that presumption. After the district court’s holding was affirmed by the court of appeals, the Supreme Court granted certiorari to decide whether “likely harm” is the applicable standard under ERISA in determining whether participants are entitled to benefits based on inconsistencies between the plan document and communications regarding plan changes.
Supreme Court Decision
In a majority opinion authored by Justice Breyer, the Supreme Court held that the district court erred in relying on Section 502(a)(1)(B) to “reform” the terms of the plan to conform with communications provided to participants regarding the plan changes. The Court observed that Section 502(a)(1)(B) provides authority to enforce the terms of the plan, not to change those terms. Significantly, the Court rejected the argument that certain statutorily-required plan disclosures (e.g., a summary plan description) should be considered part of the “plan” for purposes of Section 502(a)(1(B). The Supreme Court’s holding that Section 502(a)(1)(B) does not provide a remedy for plan disclosure violations clarifies the scope of the remedy available under that provision and resolves an issue that lower courts had treated inconsistently.
By contrast, the Supreme Court’s discussion of ERISA Section 502(a)(3) raises uncertainties regarding the scope of remedies available under that provision. Section 502(a)(3) authorizes courts to grant “appropriate equitable relief” to redress violations of ERISA. The Supreme Court in CIGNA indicated that, on remand, the district court could consider whether Section 502(a)(3) may authorize equitable relief for members of the plaintiff class based on the disclosure violations the district court had found. The Supreme Court identified three possible remedies from the law of equity that the district court could consider – estoppel, reformation and surcharge – and stated that the level of harm a participant would have to show to recover will vary based on the equitable remedy employed.
For example, the Court discussed equitable estoppel, which would require a showing by a participant that he or she detrimentally relied on an inaccurate communication regarding benefits. The Court noted that detrimental reliance was not required for other equitable remedies that might be available under Section 502(a)(3), such as “reformation” – which has been used in the law of equity to reform contracts to reflect the mutual understanding of contracting parties to prevent fraud. The Court also observed that detrimental reliance would not be required if the applicable equitable remedy were “surcharge,” under which a breaching fiduciary may be required to make a participant whole.1 The Court stated, however, that in each case the participant would have to show actual harm and causation.
While the Court’s general discussion seems to suggest a relatively expansive view of remedies available under Section 502(a)(3), it is uncertain at this time what effect this discussion will have on lower courts addressing the scope of that provision in future cases. The concurrence in CIGNA (authored by Justice Scalia and joined by Justice Thomas) asserts that the entire discussion is “blatant dictum,” as the question of available remedies under Section 502(a)(3) was neither presented nor briefed in CIGNA. The majority opinion itself notes that it does not address any “other perquisites for relief” under Section 502(a)(3), beyond the harm a participant must show to be entitled to recover benefits based on inaccurate plan communications. Further, the majority opinion does not purport to determine whether the general principles it discusses are applicable even to the CIGNA case on remand. Nevertheless, it is likely that plaintiffs lawyers and the Department of Labor (“DOL”) will point to the CIGNA decision in arguing in favor of broad equitable remedies under Section 502(a)(3); indeed, the DOL has already used the decision as a basis to argue in an amicus brief to the Fourth Circuit that surcharge is an available remedy against a life insurance company. McCravy v. Metropolitan Life Insurance Company, Nos. 10-1074, 10-1131 (May 31, 2011, 4th Cir.).
1 In this regard, the majority’s discussion distinguished prior Supreme Court cases which had indicated that Section 502(a)(3) generally does not provide for a monetary, make-whole remedy, see, e.g., Mertens v. Hewitt Associates, 508 U.S. 248 (1993), stating that those prior cases (unlike CIGNA) had not involved defendants who were “analogous to a trustee.”