In CIGNA Corp. v. Amara, the United States Supreme Court vacated a federal district court’s decision that had ordered CIGNA Corp. to reform its cash balance pension plan to remedy the company’s violations of its ERISA notice obligations. In so ruling, the Court had cause to interpret two frequently litigated sections of ERISA – Sections 502(a)(1)(B) and Section 502(a)(3).
By way of background, in February 2008, the U.S. District Court for the District of Connecticut ruled that CIGNA violated ERISA’s notice and disclosure requirements when it issued SPDs and summaries of material modifications that did not explain that participants’ benefits would be subject to “wear away.” In June 2008, the District Court issued a decision addressing the remedies available to the participants for CIGNA’s violation of the notice and disclosure requirements of ERISA. The District Court specifically said that the remedies would fall under ERISA Section 502(a)(1)(B), and the court shied away from determining whether the remedies would qualify as equitable remedies under Section 502(a)(3). The district court said the participants were “likely harmed” by the SPDs’ failure to mention that benefits would be subject to “wear away” and rejected CIGNA’s contention that the participants needed to show they detrimentally relied on the SPDs. In October 2009, the U.S. Court of Appeals for the Second Circuit affirmed the lower court’s decision without giving an explanation for its rationale. CIGNA then filed a petition for Supreme Court review, urging the high court to adopt a detrimental reliance standard. The Supreme Court granted review of the case and heard oral arguments last November.
Once the case reached the Supreme Court, CIGNA argued that the only remedy available to the participants for a deficient SPD would be under the equitable remedies provision of ERISA Section 502(a)(3). Thus, CIGNA argued that the District Court’s remedies decision should be vacated because it was premised on ERISA Section 502(a)(1)(B). The Supreme Court accepted this argument and ruled that it was an error for the District Court to base its remedies on Section 502(a)(1)(B). According to the Court, although Section 502(a)(1)(B) allows courts to enforce the “terms of the plan,” nothing in Section 502(a)(1)(B) grants district courts the power to change plan terms. Interpreting Section 502(a)(1)(B), the unanimous Court held that the District Court erred when it issued remedies under this provision of ERISA. According to the Court, Section 502(a)(1)(B) cannot be used to enforce the terms of summary plan descriptions, as SPDs do not qualify as “plan terms.”
The Court’s decision did not stop there, a fact that has created a fair amount of controversy in the legal community. The Court went on to find that while Section 502(a)(1)(B) did not authorize the relief issued by the District Court, ERISA Section 502(a)(3)’s equitable remedies provision conceivably could provide a source of relief. Cigna had argued that, in order for the participants to obtain relief under Section 502(a)(3) for SPD disclosure violations, they had to demonstrate detrimental reliance. The Supreme Court rejected this argument – sort of – stating that ERISA sets out no particular standard for determining whether participants have been harmed by a faulty SPD. According to the Court, although courts of equity traditionally required a plaintiff to prove detrimental reliance when they brought estoppel claims, equity courts did not insist upon a showing of detrimental reliance in other cases that would be analogous to the participants’ case against CIGNA. The Court went on to state that other types of equitable remedies, such as surcharge, only required a showing of actual harm. “[A]ctual harm may sometimes consist of detrimental reliance, but it might also come from the loss of a right protected by ERISA or its trust-law antecedents. In the present case, it is not difficult to imagine how the failure to provide proper summary information, in violation of the statute, injured employees even if they did not themselves act in reliance on summary documents—which they might not themselves have seen—for they may have thought fellow employees, or informal workplace discussion, would have let them know if, say, plan charges would likely prove harmful. We doubt that Congress would have wanted to bar those employees from relief.” The Court said that for the plan participants to obtain relief for CIGNA’s violations of ERISA’s SPD disclosure requirements, they would need to show that they were actually harmed by the violation, but they would not need to prove detrimental reliance.
Justices Scalia and Thomas joined in the Court’s decision, stating they agreed with the court that Section 502(a)(1)(B) does not authorize relief for misrepresentations in SPDs. But the two justices said the Court should have gone no further than to find that Section 502(a)(1)(B) provided no remedy. “Nothing else needs to be said to dispose of this case. The District Court based the relief it awarded upon ERISA §502(a)(1)(B), and that provision alone,” Scalia wrote. Scalia asserted that it was not the Court’s usual practice to decide issues that a lower court did not decide. Here, the District Court did not decide whether remedies would be available under Section 502(a)(3) and thus the Supreme Court should not have delved into that issue. Scalia said the Supreme Court had “guessed” that the District Court would have issued remedies under both Section 502(a)(1)(B) and 502(a)(3) had the District Court not been hesitant about the availability of equitable remedies under Section 502(a)(3). “This speculation upon speculation hardly renders our discussion of §502(a)(3) relevant to the decision below; it is utterly irrelevant.” Scalia also said that the Court’s discussion of the Section 502(a)(3) remedies was “purely dicta” and would not be binding on the Supreme Court in future cases, or on the District Court on remand. “The District Court need not read any of it—and, indeed, if it takes our suggestions to heart, we may very well reverse.”