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 lecourtesy morgue file - retireegal 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. …