On May 16, 2011, in an opinion authored by Justice Stephen Breyer, the U.S. Supreme Court ruled that a summary of material modifications (SMM) and a summary plan description (SPD) are not themselves plans under the Employee Retirement Income Security Act (ERISA) and thus cannot be enforced under ERISA §502(a)(1)(B), which, in part, allows plan participants and beneficiaries to bring lawsuits to enforce the “terms of the plan.”
The trial court found that the SPDs and the SMMs issued by CIGNA Corporation (related to the conversion of the company’s traditional pension plan to a cash balance retirement plan) were deficient under Title I of ERISA. Justice Breyer and five other Justices (Roberts, Kennedy, Ginsburg, Alito and Kagan) went on to hold that the equitable relief referenced in ERISA §502(a)(3) could provide relief to the plaintiffs based on violations of ERISA Title I arising from the SMMs and SPDs. (Justice Scalia filed an opinion, in which Justice Thomas joined, concurring in the judgment, but not concurring in the Court’s decision concerning equitable relief under ERISA §502(a)(3).)
Of significance the Breyer opinion noted that historically when confronted with a breach of fiduciary duty, courts of equity had the power to provide relief in the form of monetary compensation for a loss resulting from the trustee’s breach of duty and this relief was called a surcharge. The Breyer opinion then went on to find that an ERISA fiduciary can be surcharged under §502(a)(3) for violations of the notice provisions contained in Title I of ERISA if a plan participant or beneficiary shows only harm and causation, and not the more rigorous detrimental reliance. CIGNA Corp. v. Amara, No. 09-804, U.S. Supreme Court (May 16, 2011).
In 1998, CIGNA converted its traditional defined benefit pension plan to a cash balance retirement plan. In early November 1997, about a year before CIGNA’s CEO signed the plan documents for the new plan, CIGNA sent a special edition Signature Benefits Newsletter, entitled “Introducing Your New Retirement Program,” to all employees. In December 1997, CIGNA sent each participant a Retirement Program Information Kit, which included detailed information about the new plan (which CIGNA identified as a SMM). In October 1998 and again in September 1999, CIGNA issued and reissued the SPD for the new plan.
A class of current and former CIGNA employees who participated in CIGNA’s traditional defined benefit plan before January 1, 1998 and who participated in CIGNA’s cash balance plan since that time filed a class action suit against CIGNA. They argued that CIGNA failed to provide certain required notices and disclosures to its employees and that the plan descriptions that CIGNA did provide about the conversion and the cash balance plan did not meet the statutory standards under ERISA. CIGNA countered that even assuming that the notices and disclosures were statutorily defective, the workers are not entitled to relief because they have failed to demonstrate injury.
The trial court determined that CIGNA had violated §§102(a), 104(b), and 204(h) of ERISA and rejected CIGNA’s argument that the participants were not entitled to relief because they had failed to demonstrate injury. The court agreed with CIGNA that only employees whom CIGNA’s disclosure failures had harmed could obtain relief. But relying on ERISA §502(a)(1)(B), it held that each individual member of the class was not required to show individual injury. Instead, the trial court found that the evidence presented had raised a presumption of “likely harm” suffered by the members of the class, and that CIGNA had failed to rebut that presumption. It concluded that this unrebutted showing was sufficient to warrant class-applicable relief. As a result, the court reformed the terms of the new plan.
The Second Circuit Court of Appeals issued a brief summary order that affirmed the trial court’s holdings for “substantially the reasons stated” by the trial court in its opinions. The case eventually reached the U.S. Supreme Court.
The Court first vacated the judgment of the trial court because ERISA §502(a)(1)(B) did not support the relief ordered by the court. The Court also remanded the case to the trial court for it to consider the appropriate equitable relief under ERISA §502(a)(3) based on the principles set forth in the Breyer opinion. More specifically, the Supreme Court ruled that SMMs and SPDs were not themselves plans under ERISA and thus could not be enforced under §502(a)(1)(B). Though the trial court considered, but did not decide, whether ERISA §502(a)(3) provided the authority for the relief the court entered, the Court did consider the relief available under that section, which authorizes “appropriate equitable relief.”
First, the high court noted that in the days before the merger of courts of law and equity, the plaintiffs could have brought this case in a court of equity—not a court of law. The opinion stated that ERISA §502(a)(3) invokes the equitable powers of the trial court. Applying equitable principles, the Court determined the trial court had authority under §502(a)(3) of ERISA to reform CIGNA’s plan as written. Justice Breyer then set about trying to determine the appropriate legal standard in determining harm under §502(a)(3).
Looking to the law of equity, the opinion stated that “there is no general principle that ‘detrimental reliance’ must be proved before a remedy is decreed.” The Court stated that when a “court exercises its authority under §502(a)(3) to impose a remedy equivalent to estoppel, a showing of detrimental reliance must be made.” The Breyer opinion also noted that historically when confronted with a breach of fiduciary duty, courts of equity had the power to impose on a trustee a surcharge, which is monetary compensation paid to the beneficiary for losses resulting from the trustee’s breach of duty.
The Court found that an ERISA fiduciary can be surcharged under §502(a)(3) for violations of the notice provisions contained in Title I of ERISA. However, the Court concluded that an ERISA fiduciary can be surcharged under §502(a)(3) upon a showing of actual harm by a preponderance of the evidence and that “[i]nformation-related circumstances, violations, and injuries are potentially too various in nature to insist that harm must always meet that more rigorous ‘detrimental harm’ standard when equity imposed no such strict requirement.”
In summary, the Breyer opinion concluded that the relief provided under ERISA §502(a)(3) can include surcharge – money damages resulting from losses caused by the fiduciary’s breach and that participants/beneficiaries must only show harm and causation – not detrimental reliance – to have a surcharge imposed on a fiduciary who breaches its notice and disclosure obligations under Title I of ERISA.
According to a shareholder in Ogletree Deakins’ Greenville office, “It is significant that the Court found plan participants and beneficiaries cannot recover damages under §502(a)(1)(B) for an allegedly deficient or defective SPD/SMM. However, potentially even more significant under the opinion, is the conclusion that ‘other appropriate equitable relief’ under §502(a)(3) includes surcharge – essentially money damages for the losses caused by violations of the notice provisions in Title I of ERISA. This is a significant development in ERISA jurisprudence. In light of the Breyer opinion, plan fiduciaries must be cognizant of their notice obligations under Title I of ERISA and vigilant in meeting those obligations as they now may face claims for alleged losses arising from claimed failures related to those obligations.”