Although AARP argued that the federal statute requires that a plan amendment is ineffective until proper notice is given, the court affirmed the district court's order of reformation of CIGNA's pension plan based on CIGNA’s intentional misrepresentations.
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 non-grandfathered employees were transferred to Part B.
Plaintiffs consist of a class of non-grandfathered 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.
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. AARP filed a friend-of-the-court brief supporting plaintiffs’ challenge where a company failed to give proper notice when converting the defined benefit plan to a cash balance plan.
On remand, the district court ordered equitable reformation of the plan as appropriate equitable relief under ERISA. The district court stated that the plan should preserve all of the benefits earned under the pre-amended plan, up to the date of the amendment to reflect the representations plan fiduciaries made about the benefits.
The U.S. Court of Appeals Second Circuit affirmed the district court's order of reformation of CIGNA's pension plan based on CIGNA’s intentional misrepresentations. The Second Circuit also affirmed the district court's award of the sum of benefits earned under the original plan plus benefits under the amended plan, despite the participant's contention that the proper remedy would have been reinstatement of the plan prior to the cash balance conversion.
What’s at Stake
By broadly interpreting ERISA’s term “equitable relief,” the courts have provided participants with a means to remedy breaches of fiduciary duty and other inequitable conduct of fiduciaries.
Amara v. CIGNA was decided by the United States Court of Appeals for the Second Circuit.