AARP filed a brief supporting plaintiffs’ challenge where a company failed to give proper notice when converting the defined benefit plan to a cash balance plan. AARP argues that the federal statute requires that the plan amendment is ineffective until proper notice is given.
In 1998, CIGNA Corporation (“CIGNA”) converted its traditional defined benefit pension plan (“Part A”) to a cash balance plan (“Part B”) through a series of amendments. Enrollment in Part B resulted in substantial reductions in future benefit accruals for participants and generated “wear-away” periods during which the participants did not earn additional pension benefits. Some employees were grandfathered into Part A, but the nongrandfathered employees were transferred to Part B.
Plaintiffs consist of a class of nongrandfathered current and former employees of CIGNA who were transferred to Part B. They brought this case against CIGNA alleging numerous violations including that CIGNA failed to give the proper notice of the amendments to the pension plan as required by section 204(h) of the federal Employee Retirement Income Security Act (ERISA). This section requires plan administrators to give 15 days’ notice prior to the effective date of a plan amendment if the plan amendment will provide for a significant reduction in the rate of future benefit accruals.
Attorneys with AARP Foundation Litigation filed AARP’s friend-of-the-court brief, which argues that the plain language of section 204(h) renders the amendment ineffective. Participants’ benefits should instead be calculated under the old benefit formula. This is not the first time AARP has weighed in on this dispute. In 2011, the U.S. Supreme Court considered whether the district court had awarded relief under the wrong section of ERISA. The Court ruled that the employees could not be awarded relief as the district court had done, but another section of ERISA might be a basis for relief. The question of the applicability of that other section is what is at issue in the current case.
What’s at Stake
Cash balance conversions have the greatest impact on mid-career employees, that is, people between the ages of 45 to 55. In the majority of such conversions that have been litigated, the most successful claim has been the failure of the plan to provide notice that complies with 204(h) requirements allowing participants to receive benefits under the more favorable formula until proper notice is given. For some, the difference could be substantial and greatly improve their retirement security.
The United States Court of Appeals for the Second Circuit is considering Amara v. CIGNA.