Williams Mullen Alert: Supreme Court Expands the Scope of Equitable Relief for Retirement Plan Plaintiffs

BY: MARK S. THOMAS AND ROBERT W. SHAW

The Supreme Court has issued a significant decision that may broadly expand the scope of equitable remedies for ERISA retirement plan plaintiffs. In CIGNA Corp. v. Amara, No. 09-804 (May 16, 2011), the Court set aside the trial court's decision for the plaintiffs but remanded the case with a directive to consider equitable remedies under a broad interpretation of ERISA § 502(a)(3)'s authorization of "other appropriate equitable relief".

The CIGNA case began in 1998, with a change in the nature of CIGNA's retirement plan. CIGNA ended a traditional defined benefit plan and replaced it with a cash balance plan in which participants had individual retirement accounts. CIGNA sent all defined benefit plan participants a notice announcing the change effective in 1998, and stated that all benefits earned under the old plan would be translated into already-earned benefits in the new plan accounts, to which CIGNA would then make annual deposits. About a year later CIGNA issued more details, issuing written summaries providing that participants would earn the greater of what they would have earned under the old plan or what they would earn by CIGNA's annual contributions to their new plan accounts. CIGNA assured them that their new accounts would grow.

The trial court found that, in fact, CIGNA misled the participants with incomplete or false explanations. The new plan eliminated an early retirement option available under the old plan, and the initial deposits in the new plan accounts did not represent the full value of previously earned benefits. Moreover, if interest rates did not increase, the new plan simply shifted the risk of lower retirement benefits from CIGNA to the participants.

The plaintiff-participants filed a class action against CIGNA, seeking the benefits that they claimed CIGNA promised in its explanations of the new plan. The trial court recognized that the new plan document itself did not provide for those benefits, but found that CIGNA misled the participants in the summary explanations issued for the new plan. In short, CIGNA did not give proper notice of the changes. Considering the participants' claim for benefits under ERISA § 502(a)(1)(B), the trial court decided that the participants had suffered "likely harm" from CIGNA's faulty disclosures, and (1) ordered the reformation of the plan document to conform to the benefits CIGNA had promised, and (2) ordered the plan administrator to enforce this reformed plan. The Second Circuit Court of Appeals affirmed, adopting the trial court's reasoning.

The Supreme Court disagreed with the trial court's reasoning and vacated its order, but remanded the case with instructions that provide the plaintiffs with the potential for a substantial victory and may greatly expand the boundaries of remedies under ERISA § 502(a)(3)'s authorization of "other appropriate equitable relief".

The Supreme Court's decision was not without some comfort for plan defendants.  The Court rejected the notion that the trial court could reform the plan document and enforce the re-written plan under ERISA § 502(a)(1)(B). The Court also held that the summary documents CIGNA issued did not constitute parts of the plan itself, and could not be enforced as such.

However, the great weight of the Court's opinion favored the plan participants. Surveying the remedies historically allowed in equity courts, the Court found that ERISA's authority to grant equitable remedies allowed the trial court to reform the plan document in order to prevent fraud, and to award compensation to participants who had been injured by a breach of fiduciary duty or unjust enrichment of the ERISA fiduciary. This compensation could be awarded in the form of a "surcharge," to remedy the fiduciary's breach of trust. Equity also allowed the trial court to use its injunction powers to order the plan administrator to enforce the reformed plan. All of these remedies were available under ERISA § 502(a)(3).

Further, in determining whether the plaintiffs were entitled to such equitable relief, the Court rejected CIGNA's argument that they had to prove "detrimental reliance" on CIGNA's misleading or false statements. The Court held that it would be enough if the plaintiffs showed that CIGNA's fiduciary violations caused them to suffer actual harm.

The Court's opinion was joined by concurring opinions that accepted the Court's final judgment but rejected as "blatant dicta" its holdings regarding possible equitable remedies. This may foster heated arguments in the lower federal courts as to whether CIGNA has truly opened the door to equitable remedies that include re-writing plan documents and awarding money judgments for faulty or misleading fiduciary statements. Nonetheless, CIGNA has set the stage for trial courts to apply ERISA § 502(a)(3) more aggressively, especially where plan fiduciaries are accused of over-statements, omissions or false statements to plan participants regarding the terms of plans and plan benefits. Therefore, plan fiduciaries will need to issue summaries and other announcements with greater care.