Supreme Court Sends ERISA Case Back to Lower Court for Second Look

Yesterday, May 16, 2011, the U.S. Supreme Court held that a district court must take another look at a case that will determine whether approximately 25,000 employees are entitled to have their pension benefits recalculated under the Employee Retirement Income Security Act (ERISA). Although the Supreme Court indicated that the employees may be eligible for such relief, it noted that the district court had relied on the wrong provision when it fashioned its remedies plan.

Under ERISA, employers must provide certain notices before reducing medical or retirement benefits. However, when CIGNA changed its pension plan from a traditional defined benefit plan to a cash balance plan, Janice Amara, along with other plan participants, brought a class action lawsuit alleging that CIGNA did not comply with ERISA’s notice and summary plan description (SPD) requirements. More specifically, the participants alleged that the SPD and other disclosures were inconsistent with the plan itself.

The district court ruled in favor of Amara, holding that CIGNA violated ERISA by failing to provide the proper notice and disclosure and that the participants had shown “likely harm.” The court also set out a remedies plan, and the Second U.S. Circuit Court of Appeals affirmed the district court’s decision.

In CIGNA Corp. v. Amara, the Supreme Court agreed to decide whether the district court correctly applied the “likely harm” standard in determining whether CIGNA’s ERISA violations harmed the employees in such a way that entitled them to relief. The Court first determined that ERISA Section 502(a)(1)(B) did not authorize the district court’s reformation of CIGNA’s plan. However, the Court noted that Section 502(a)(3) authorizes “appropriate equitable relief” for ERISA violations and that the relevant standard of harm will depend on the equitable theory the district court uses to provide relief. Thus, the Supreme Court sent the case back to the district court to “revisit its determination of an appropriate remedy for the violations of ERISA it identified.”

So what does this mean for employers? We asked David Godofsky, a Washington, D.C.,  attorney with Alston & Bird LLP who contributes to our benefits newsletter — Benefits Compliance Advisor — for his input. According to Godofsky, “Amara answers some questions but opens significant new questions. It clarifies that an SPD is not a part of the plan document, and plan participants cannot recover increased benefits merely because the SPD’s terms differ from the plan. However, it provides for a remedy in the event that the SPD or some other plan communication is flawed and causes the participant actual harm.”

He also noted: “It is not clear what the measure of that actual harm would be. If it is nothing more than frustrated expectations, then that has not traditionally been considered harm. It may be that the measure of harm is so individualized that each participant will have to testify and present evidence of the amount of ‘harm,’ which must be proved by a preponderance of the evidence.”