Connecticut Employment Lawyer & Attorney : Daniel Schwartz : Stamford, Hartford New Haven, CT

Lawyers representing the class of retirees from CIGNA will argue that their clients are entitled to "hundreds of millions" of dollars in retirement benefits as a result of misrepresentations made by CIGNA, according to a report in yesterday's Hartford Courant. 

The Courant -- which finally reported on the decision 5 days after it came out and well after we posted on it  -- barely mentions the argument of whether the new cash balance plan is age discriminatory (which the court found it wasn't). Instead, it focuses on the fact that CIGNA failed to mention that the benefits could be subject to "wear-away". 

Eager to claim victory, the class representative attorneys now say that the disclosure argument is vitally important to the case:

Friday's ruling will serve as "an excellent blueprint for other courts to scrutinize these disclosures" that companies make concerning conversion to cash balance plans, said Tom Moukawsher in Hartford, co-counsel representing the CIGNA employees. "This court decision is a precedent for looking at the underbelly of the disclosures for basic honesty."

Certainly the court was disturbed by communications by CIGNA. For example, in a Newsletter discussing the changes, the Court found that: "nothing in the Newsletter indicated to plan participants that their rate of benefit accrual might decrease, much less by a significant margin. And yet that is exactly what happened." (Decision at 80.) Indeed, as the Court said later:

Taking all of this information into consideration, the Court concludes that CIGNA was aware of the significant reduction in the rate of future benefit accrual that would affect at least a substantial proportion of its employees as a result of the transition to Part B, that CIGNA wished to avoid the employee backlash likely to result from a thorough discussion of these aspects of Part B, and that CIGNA sought to negate the risk of backlash by producing affirmatively and materially misleading notices regarding Part B. As a result, its § 204(h) notice failed to meet ERISA's stringent standards.

As I indicated previously, both parties have until March 17th to brief the issue of what the appropriate remedy would be in this situation. 

Although the lawyers for the class have reason to be pleased with the decision, certainly CIGNA and other companies nationwide must be relieved that the underlying conversion from a defined benefit plan to a cash balance plan itself has been upheld.  If the court had found that the conversion was discriminatory, it could have had an impact nationwide; the decision here may have a more modest impact given the evidentiary findings of the court that are particular to this case.

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My post from last Friday's ERISA decision in Amara v. CIGNA Corp. has drawn quite a bit of interest. Since my post over the holiday weekend (from vacation) was intended merely as a brief summary until this week, it has drawn sufficient attention that a few points bear further elaboration, including disclosure of my knowledge of one of the class representatives.

• First, I know one of the named class representative as a longtime family friend. Other than being aware generally of her involvement, we haven't discussed the case in any specifics and I didn't discuss the decision with her either.  I don't believe this impacts my reporting of the case but readers should be aware of that fact.
  
  
• Second, in my discussion of the age discrimination claim, one reader has suggested that I may have oversimplified the judge's rationale. I can't dispute that since, after all, I'm attempting to reduce a 122 page decision to a few paragraphs.  I did not, for example, discuss whether this case suggests "that more and more courts are buying into the Easterbrook line of argument that cash balance plan conversions are generally not age discrimination" as Workplace Prof did.  As I have suggested, however, readers should review the entire decision for its analysis.  But this additional quote from Judge Kravitz bears review too:
  
             Finally and importantly, the Court agrees with CIGNA that what Plaintiffs see as age
  discrimination is merely the transition from one plan that was heavily age-favored to another plan that is still age-favored but less so. In the Court's view, that transition is not age discrimination.
  
  
• Third, in my discussion of the remedies that may be appropriate, I pointed out that the court suggests at one point that only injunctive relief may be appropriate against CIGNA (versus the plan administrator) in one of the claims.   It is hardly conclusive, however, and it may be that the court fashions a remedy that is more far-reaching on the notice and disclosure provisions.  The court left a discussion of remedies (i.e. damages) for further briefing.  There are also individual claims that need to be resolved as well.
  

The Pension Protection Act blog has another discussion of the case with some additional points that bear review.  And to review other original source documents, readers can go to  Attorney Stephen Bruce's webpage on the actual lawsuit as well.   And for readers that may question whether the attorneys, like Stephen Bruce, did their job well, I'll quote directly from the judge's opinion:

Counsel for each side distinguished themselves throughout this case by their skillful advocacy, professionalism, and civility. The Court is grateful to each of them.

The decision has lots of little items like this to review.  The best thing about a blog like this is that readers can and should decide for themselves what it ultimately means.

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Difficult, time-consuming, and expensive litigation with uncertain results – such as this case represents – is assuredly not a sensible way to manage the Nation's retirement system for either employers or employees. Sadly, at least for now, litigation appears to be the only option available to them.

In a 122 page opus on ERISA law (download here), District Court Judge Mark Kravitz has issued a fascinating and thorough decision, Amara v. CIGNA Corp. et al analyzing one company's change in 1998 from a traditional defined benefit plan to a cash balance plan.  The decision -- despite its length -- is a fairly easy legal read (as easy as reading a legal decision can be, of course) and does a good job at explaining the different theories that have developed in such a conversion. 

I'll quote from the beginning below, but the keys to the case are:

1) The conversion of CIGNA's retirement plan to a cash balance plan did not discriminate against older workers.  As the court stated, "To the contrary, the CIGNA Plan provides greater annual benefits to older workers who are similarly situated to younger workers."  The court wisely observed that any apparent difference in benefits from a worker retiring in 2015 to a worker retiring in 2030 is due to the "time value of money" or interest, not discrimination.

2) CIGNA can, however, be liable for its failure to provide proper notices to the retirees and failure to explain things in an easy to understood manner.  The court seems to suggest that only non-monetary relief may apply in such circumstances, but has left the issue to further briefings.

For Connecticut, the decision ought to become required reading for those interested in ERISA issues such as cash balance plan conversions, anti-backloading and non-forfeiture rules, and plan descriptions and disclosures. 

 I'll leave it to Judge Kravitz's own words to describe the importance of these issues:

Since the mid-1980s, hundreds of U.S. employers have converted their traditional defined benefit pension plans into what are known as "cash balance" retirement plans. In fact, according to the Pension Benefit Guaranty Corporation, over 1,500 cash balance plans and other similar hybrid plans were in existence as of 2003, providing pension benefits to over 8 million participants,approximately one-quarter of the total employee population covered by defined benefit plans.

Like many other corporations, CIGNA Corporationconverted its traditional defined benefit plan to a cash balance plan, in 1998.Despite their popularity among employers, cash balance plans have spawned considerable litigation. This case is yet another in a long list of cases challenging an employer's conversion to a cash balance retirement plan under the Employee Retirement Income Security Act ("ERISA").

Plaintiffs consist of a class of current and former CIGNA employees who participated in CIGNA's traditional defined benefit plan before January 1, 1998 and have participated in CIGNA's cash balance plan since that time. Plaintiffs and Defendants raise numerous class, sub-class, and individual claims and defenses. At the risk of over-simplification, however, the central issues in this case may generally be described as follows:whether CIGNA's cash balance plan is age discriminatory or otherwise violates certain non-forfeiture and anti-backloading rules under ERISA; whether CIGNA gave the notices and other disclosures required by ERISA; and whether the information CIGNA provided its employees about the conversion and the cash balance plan in summary plan descriptions and other materials satisfied ERISA's requirements.

The questions raised in this case are vitally important to both employers and employees (and their families). Given how profoundly significant retirement plans and planning are to the great majority of Americans – employees and employers alike – this is one area where the answers should be clear, explicit, and definite. Regrettably, however, the answers to the issues raised by these parties are not entirely clear, in large measure due to the fact that ERISA, and the regulations under it, are often lamentably obscure – to describe them as a tangled web does not do them justice. On top of that, there are conflicting decisions around the country on identical issues, making planning for nationwide enterprises impossible. ...

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In recent years, some employers have turned to EPLI (or employment practices liability insurance) to help control their costs. Some find it useful, others do not. But one important part of having the insurance is making sure it applies when you actually have a claim.

A recent federal court case highlights the importance of notifying the insurer of the claims at the time they are filed with an administrative agency such as the EEOC or CHRO -- not when those charges become a lawsuit.  As a colleague of mine once said, "Just pick up the phone and make the call." 

In American Ctr. for Int'l Labor Solidarity v. Federal Ins. Co., (D.D.C., Oct. 15, 2007), a federal district court held that, where the employer failed to notify the insurance company of the employment discrimination claim when it was filed at the EEOC, the employer cannot recover the costs of settlement an defense from the insurer. 

In doing so, the court concluded that a charge before the U.S. Equal Employment Opportunity Commission constituted a "formal" administrative proceeding requiring notice under the insurance policy. The court reviewed the policy's definition of a "claim" which was included a "formal administrative or regulatory proceeding commenced by the filing of a notice of charges, formal investigative order, or similar document."

The Background

In American Ctr., the employer (a non-profit) twice received Notices of Charges from the EEOC in August 2002 and November 2002.  While the first charge indicated that no action was required by the employer, the second notice contained a  "perfected" Charge of Discrimination outlining the allegations in greater detail. The EEOC requested that the employer either participate in mediation or submit a position statement. The employer rejected mediation and submitted a position statement instead.  The EEOC ultimately dismissed the charge.

In December 2003, a race discrimination lawsuit against the employer was filed by the employee.
In January 2004, the employer notified the insurer of the lawsuit for the first time. In March 2004, the insurance company declined to cover the claim because of the untimely notice. 

The employer argued that the EEOC proceedings were not "formal" administrative proceedings.  The District Court rejected that argument and reviewed the scope of EEOC administrative proceedings, which includes charges, position statements, evidence, mediation, investigation fact-finding, subpoena powers, settlements and determinations on the merits.  Moreover, statements made by parties at the EEOC can be deemed to be admissions in later court proceedings. 

Ultimately, the court rule that the most "natural reading" of the liability policy was that an EEOC proceeding constituted a "formal administrative proceeding."

What should employers take away from this decision?

• While each EPLI policy may differ, overall, insurance companies must be notified immediately whenever a charge or notice is received from an administrative agency, such as the EEOC and CHRO.  This should be done even if the employer is unsure the notice constitutes an actual "claim" under their liability policy.   While this case arises out of the District of Columbia, the facts presented in that case are likely to arise in many other jurisdictions, including Connecticut.
  
• Employers should also have internal procedures as to how to handle the receipt of such administrative complaints and designate a person who will be responsible for notifying the insurance company and determining how the claim should be processed internally.
  
• Lastly, management personnel should be notified that if they receive any notices from any governmental agencies, they should notify the appropriate company-designated personnel for handling the charges.

EEOC and CHRO charges typically have very short time frames for responding (30 days in many cases).  Ignoring them or shielding them from insurance companies will not make them go away and such actions will only compound issues later on.

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