Supreme Court Rules on Misleading ERISA Plan Communications

In CIGNA Corporation v. Amara, an ERISA case affecting participant communications, the US Supreme Court ruled that a plan sponsor will not be held liable for misrepresentations in its plan’s summary plan description (SPD) when it conflicts with the terms of its plan document.

Background

In 1998, CIGNA converted its traditional defined benefit plan into a cash balance plan.  A case was filed in 2001 by current and    former employees of CIGNA alleging their employer provided incomplete and misleading information (including the SPD) concerning the benefits of the new plan.

The district court ruled in favor of the plaintiffs, concluding that CIGNA’s communications were inaccurate, intentionally misleading and violated ERISA. The district court then invoked ERISA §502(a)(1)(B)* to reform the plan and pay benefits to the affected parties. An appeals court confirmed the district court’s ruling.

  • ERISA §502(a)(1)(B) states that a participant or beneficiary in a plan may bring a civil action “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’s Decision

The Supreme Court’s opinion overturned that of the lower courts. It ruled §502(a)(1)(B) did not authorize the lower courts to provide relief to the plaintiffs for the inaccurate information in this case. However, the Court’s opinion did discuss that these violations may give rise to claims for other relief under a related statute – ERISA §502(a)(3).

In addition, the Court found the following:

  • The plan sponsor creates the plan’s terms and establishes a written plan document in its settlor capacity – not as fiduciary subject to ERISA. The plan is administered in accordance with these written terms and communicated to the participants and beneficiaries through plan communications such as the SPD. The plan administrators are fiduciaries and are subject to ERISA.
  • Summary documents provide communications to participants about the plan, but their statements do not constitute the terms of the plan. They cannot be enforced as plan terms under ERISA.
  • ERISA Section 502(a)(1)(B) does not authorize a court to rewrite the terms of a plan.

The case was remanded to the district court to provide equitable relief [under§502(a)(3)], where appropriate.

The verdict appears to overturn the standard imposed by many lower courts in that, if a SPD contained more favorable language to participants over the plan document, then the SPD would automatically prevail.  This ruling is the first time the Supreme Court has identified that compensatory relief is available under ERISA §502(a)(3). As a result, many practitioners believe that this will lead to a significant increase in claims of this nature.

The CIGNA case is advantageous to employers because it found that plan participants cannot bring suit under ERISA §502(a)(1)(B) for misleading or inaccurate plan communications.  The language in a SPD cannot be treated as the terms of the official written plan document. However, due to the Supreme Court’s acknowledgement that other relief may be available in the case of ERISA violations such as these, plan administrators should carefully review their SPDs and other participant communications to ensure that the plan’s terms are described accurately.

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