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Supreme Court Says SPD Terms Not Enforceable as Plan Terms – But Leaves Door Open for Other Remedies
The Supreme Court in CIGNA Corp. v. Amara held that plan terms cannot be reformed under Section 502(a)(1)(B) of ERISA based on a misleading summary plan description (SPD). Despite this narrow ruling, six justices further stated that reformation may be an appropriate equitable remedy under Section 502(a)(3) of ERISA.
In 1998, CIGNA replaced its defined benefit plan with a cash balance plan. The district court found that the cash balance plan was less favorable than the defined benefit plan in many respects and that CIGNA failed to provide accurate and complete information to participants about these changes. Consequently, the district court ordered the plan to be reformed so that, upon retirement, employees would receive the benefits under the old plan plus the benefits under the new plan, rather than the greater of the two benefits. The district court found its authority to provide this relief under Section 502(a)(1)(B) of ERISA, which states that a civil action may be brought by a plan participant to recover benefits due to him under the terms of the plan. The Second Circuit Court of Appeals affirmed the judgment of the district court in all respects.
On appeal, the Court held that Section 502(a)(1)(B) of ERISA gives a court the power to enforce the terms of the plan, not the power to change the terms of the plan. In doing so, the Court rejected the position of the Solicitor General that the terms of the SPD constitute terms of the plan.
The “Blatant Dictum”
In what Justices Thomas and Scalia describe as “blatant dictum,” the Court further suggested that, while Section 502(a)(1)(B) does not give courts the power to reform the terms of a plan, reformation and other types of equitable relief, such as estoppel and surcharge, may be available as “appropriate equitable relief” under Section 502(a)(3) of ERISA. While the Court did not decide whether any, and if so, which remedy was appropriate in this case (that decision is left to the district court upon remand), the Court did provide guidance regarding the required level of harm for equitable theories that could be applicable under these facts:
- if the equitable remedy is reformation, a showing of detrimental reliance is not necessary;
- if the equitable remedy is equivalent to estoppel, a showing of detrimental reliance must be established; and
- if the equitable remedy is surcharge, there must be a showing of actual harm.
Both employers and participants will find parts of this opinion appealing. On one hand, the Court ruled that the terms of the SPD are not terms of the plan itself, negating various lower court opinions. Nonetheless, participants (and the ERISA plaintiffs’ bar) will likely see this case as a victory, as the dicta suggests that a broad range of equitable relief may be available under ERISA without necessarily establishing detrimental reliance.
With this additional relief available and the vast number of communications made by employers, we imagine that litigation regarding discrepancies between plan terms and participant communications will only increase. As such, employers should carefully review existing SPDs and other participant communications to ensure consistency with the terms of the plan document.
For more information, please feel free to contact any lawyer in the Employee Benefits Group. You may also view the alert in the PDF linked below.