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Amara v. CIGNA Corp.: A Case About Employee Benefits

Will 26,000 plaintiffs have to prove harm individually?

Some 26,000 current and former employees of CIGNA sued the company on the grounds that they hadn't been given an accurate description of their benefits plan, as the Employee Retirement Income Security Act requires. In Amara v. CIGNA Corp., the Court will decide whether the plaintiffs must prove individually that they were actually harmed by misleading statements from the company or merely show “likely harm” to the entire class of employees.

This 2001 class-action case grows out of CIGNA's conversion, beginning in 1998, from a traditional retirement plan to a “cash balance” plan. Traditional 401(k) plans pay retirees an annual benefit for life largely determined by their length of service and salary, with funds kept in a separate account for each participant. Cash-balance plans, on the other hand, begin with a hypothetical “opening balance” — hypothetical because it isn’t backed by funds in a segregated account — that over time accrues benefits.

Older employees often are the losers in conversions from traditional retirement plans to cash balance plans because their accumulation of benefits may be effectively frozen until the benefits under the new plan exceed the benefits under the old. This zero-growth period, commonly known as “wear away,” can last years, as was the case with some CIGNA employees.

Although CIGNA promised the employees that their benefits under the new cash-balance plan would be “comparable” or “larger” to their benefits under the 401(k) plan, that assertion, at least for many employees, turned out to be untrue.

What’s at stake. The current and former CIGNA employees aren’t the only ones likely to be affected by the Supreme Court’s decision in the case. One of every three older Americans receives income from a private or government pension plan, according to the Pension Rights Center.

Where AARP stands. In its friend-of-the-court brief, AARP argues that CIGNA’s approach “would thwart recoveries [of pension benefits] by everyone except the extraordinary few.”

How the Court Ruled

The Court’s decision in this case, handed down on May 16, was something of a mixed bag for both sides.

In its opinion, written by Justice Stephen Breyer, the Court held that the standard route for claiming benefits under ERISA does not protect employees when a company’s description of a benefits plan contains inaccuracies or misrepresentations, as was alleged in this case. Such a summary, the court basically found, is not part of the plan itself. Score one for CIGNA.

But the Court went on to explain that the employees might well be able to pursue monetary damages under a catch-all section of ERISA that allows beneficiaries “to obtain other appropriate equitable relief” for breaches of fiduciary duty or other violations of the law. It remanded the case to the appeals court for a possible determination on this issue. Score one for the employees. 

In taking this unexpected approach to the case, the Court mostly sidestepped the main question originally presented: Whether the plaintiffs could recover damages based solely on a showing of “likely harm.” It rejected CIGNA’s argument that the employees should have to prove, on a one-by-one basis, that they actually relied on — and were consequently harmed by — the company’s misleading statements. At the same time, though, the Court emphasized that the employees would have to show some kind of actual harm.

Next: Are states immune from suits filed by their own agencies?

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