One of the cases I’ve covered on this blog since the beginning, was a lawsuit challenging CIGNA’s change from a traditional defined benefit plan to a cash balance plan.

In plain English, it was basically (and I’m oversimplifying) a conversion from a pension plan to a 401(k) plan.

That case has gone all the way up to the U.S. Supreme Court.

(And, in the interests of full disclosure, one of the named plaintiffs is a family friend who attended my wedding many years ago.)

Today comes word that the matter is reaching a conclusion, in a report by Mara Lee of The Hartford Courant.

Fifteen years after Cigna Corp. employees and former employees first sued over 1998 changes to the company pension plan, a federal court ordered the company in January to provide a list of all 27,000 people in the class-action lawsuit and how much each one is owed. There are 3,620 Connecticut residents in the lawsuit.

The conversion from a pension to a cash balance plan was legal, and did not discriminate against older workers, a U.S. District judge in New Haven found. But because the way the company described the changes was misleading, the court found Cigna liable for paying for what they are owed from the original pension, frozen at the end of 1997, plus additions to the lump sums the pensions were converted to.

Lawsuits like this one are rare. But after 15 years of pursuing the claims, the current and former employees look to finally get some closure on the matter later this year with payouts.  The exact amount is still to be determined but the company has reserved over $180M for the potential payouts.

It’s rare for a case from Connecticut to make it all the way to the United States Supreme Court. But this week, a case did just that.

I’ve previously discussed the case of Cigna v. Amara in many posts which you can read here.  The case ultimately concerns the receipt of retirement benefits and whether documents about those benefits were misleading. But the narrower issue the court is now deciding concerns the type of proof and allegations that need to be presented in a class action of this type and what remedies are available. 

The American Bar Association has prepared a summary of the case and has summed up the issue that the court is to decide:

Must participants who are members of a class action suit prove detrimental reliance on an inaccurate summary plan description in order to receive a remedy under ERISA, or is the mere proof of “likely harm” enough to justify equitable relief?

Oral argument from that case is now available online.  A decision is expected sometime this spring. 

For those involved deeply with ERISA issues, it’s definitely worth a read.  There was an interesting back-and-forth discussion about what should happen when a summary plan description conflicts with the underlying plan documents.  Indeed, as noted in the argument, CIGNA conceded that its summary plan descriptions were deficient. But the issue, according to CIGNA, is what is the proper remedy:

My point I guess in this is that, yes, Justice Kagan, the statute requires the SPD to contain certain information.  We accept the fact of the conclusions of the court below in this case that they did not do so. There are two SPDs. They failed to live up to the requirements of ERISA. There is a remedy for that.

For everyone else, keep an eye on this case. It may provide some guidance to employers about how to oversee some plan issues when the case is decided next year. 

(Note: See a prior post for my familiarity with one of the class representatives. I have no involvement whatsoever in the case.) 

Employee benefit cases (better known as ERISA cases, after the Employee Retirement Income Security Act) aren’t the most exciting topic in the world.  At this point, just by my very mention of ERISA, I’m imagining your mouse wandering off to view another page.

But yesterday, the U.S. Supreme Court agreed to hear an important case that arises out of Connecticut about retirement benefits and alleged misrepresentations by the company of those benefits.  The case, CIGNA v. Amara, has been decided in the employees’ favor at the lower court and appellate court thus far, but the issues that it raises are incredibly complex.  (The decision at the District Court level was 122 pages!

I’ve discussed this case in various posts over the last three years here, here and here.  The District Court said in early 2008 in words that would ring true even more:

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.

So, what’s the case about? Lawmemo does a good job recapping it here with copies of the briefs filed by the parties:

After CIGNA converted its traditional defined benefit pension plan to a cash balance plan, it issued a summary plan description (SPD) to plan participants. Amara brought a class action claiming that CIGNA failed to comply with ERISA’s notice requirements and SPD provisions. The trial court held for Amara; the 2nd Circuit affirmed. The finding was that the SPD misrepresented the terms of the plan itself. Although CIGNA argued that the plaintiffs failed to show injury, the court found that the participants had shown "likely harm" and that CIGNA had failed to establish harmless error.

The U.S. Supreme Court agreed to hear the case during its 2010-2011 term. The issue to be decided is as follows:

Whether a showing of “likely harm” is sufficient entitle participants in or beneficiaries of an ERISA plan to recover benefits based on an alleged inconsistency between the explanation of benefits in the Summary Plan Description or similar disclosure and the terms of the plan itself.

In other words, what is the proper standard for a court to use to determine whether there should be a recovery for an alleged discrepancy between a SPD and the actual plan itself? It remains to be seen where the court will come out on this but for those employers who converted their pension plans to 401(k) plans, the case will have national significance. 

(In the interests of full disclosure, I should note that I am familiar with one of the named plaintiffs, although I have not discussed the case with her in any detail, nor do I have any role in the litigation.)

A few months ago, I reported on the District Court’s decision in Amara v. CIGNA, an important class-action case on ERISA retirement benefits and on alleged misrepresentations made by the Company about retirement benefits.  Over the last few months, then, the court was asked to consider the issue of what is appropriate relief from the decision. 

Late Friday, Judge Mark Kravitz issued his decision on what the appropriate remedy should be from his decision. But then, sua sponte (a nice Latin phrase meaning, in essence, "on my own"), the Court decided to stay its own judgment on the appropriate relief.  What does that mean? In essence, the court threw up its hands and conceded that the issues of damages and liability were so "unclear" that there was no good way to predict that the decision would even be upheld on appeal:

The Court also recognizes that the benefits awarded by this opinion are substantial, and that the law on which they are based is anything but settled. In light of the complexity of the issues and the weighty interests at stake, as well as the possibility that some or all of this opinion and the Liability Decision may be reversed on appeal, the Court believes that a stay is appropriate…..

The lack of clear guidance in the law and the unusual factual circumstances present in this case have convinced the Court that the outcome of any appeal is far from certain, and the Court believes a stay is therefore both appropriate and necessary.

So what relief did the court propose? Well, the language the court uses (see you if you can make sense of it) shows that it is reluctant to impose draconian consequences on CIGNA and instead proposes a bit of a compromise: 

In light of CIGNA’s statements in those publications that all early retirement benefits would be protected and CIGNA’s failure to warn of wear away, the Court orders and enjoins the CIGNA Plan to reform its records to reflect that all class members must now receive "A+B" benefits; that is, all class members must receive their accrued benefits under Part A, in the form in which those benefits were available under Part A, and in addition their accrued benefits under Part B [the new formula], in whatever form those benefits are available under Part B.

While I have not been following the case closely, the Court rejected various claims made by the Plaintiffs and declined to impose even harsher penalties on CIGNA.  But the Court declined to let CIGNA off completely either, indicating that some sort of financial burden must be imposed on CIGNA for misrepresentations the court found in its earlier decision 

Under A+B, an employee would receive all of her Part A benefits in the form those benefits were previously offered under Part A, plus all the benefits she accrued under Part B, in whatever form those benefits are offered. Because there is no attempt to transition Part A benefits into the Part B accrual formula, there is no need for an opening account balance and thus no question of whether early retirement benefits are a part of that. …   
The Court recognizes that a return to Part A would result in a larger recovery for Plaintiffs.
That fact alone, however, is insufficient to render A+B inadequate, especially in light of [expert] testimony regarding the substantial effect on class members’ benefits as a result of wear away and the lack of any evidence in the trial record to support Plaintiffs’ current complaints. For all of these reasons, then, the Court rejects both parties’ objections to the A+B remedy, which the Court believes is a meaningful, substantial, and appropriate remedy.

The decision is a technical one and frankly, incredibly complex.  For employers looking for guidance on this issue, they should tread very carefully.   As the Court notes time and again, the issues involved are far from settled and that an employer who takes action in the area, will do so with substantial risks for the foreseeable future.

For members of the Amara class, the decision means many more months of waiting for a resolution of the issue. Because of the complexity, I would be surprised to get a decision from the Second Circuit before the end of the year.  Class members can keep up with the lawsuit at a website created by the Plaintiffs’ attorneys

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.