Plan fiduciaries and ERISA litigators got a few
surprises in a recent United States Supreme Court decision on
whether participants can be awarded benefits promised to them in
plan communications, but not in the plan document.
The decision, CIGNA v. Amara, has been described as a
victory for plan sponsors by defense counsel and as a win for
participants by plaintiffs' counsel, but that may simply mean
that while CIGNA won the battle when the lower court decision
against it was overturned, careless fiduciaries (and even CIGNA)
may have lost the war. The big issue was whether participants
needed to show detrimental reliance on the communications that
promised greater benefits than the plan, including that they had
actually read the communications. The Supreme Court's answer
was "not always".
Osler Update for more about the facts and legal theories of
this case. For the plan fiduciary, though, the most significant
development is that in the course of its decision, the Court gave
us a primer on (i) the status of the summary plan description
(SPD), the primary disclosure booklet participants receive under
ERISA; and (ii) how to frame an ERISA suit to successfully recover
promised benefits. The Court ruled that:
Participants can't recover simply because their SPD is
inconsistent with the plan text; i.e., the SPD doesn't
automatically amend the plan. This means that the disclaimers
typically used in SPDs saying that the terms of the plan govern if
there is an inconsistency may be enforceable.
Plaintiffs can't sue to recover benefits under the terms of
the plan if they claim the SPD promised greater benefits. Rather,
they need to sue for equitable relief to reform (rewrite) the plan
to reflect the communications, equitable estoppel, or fiduciary
surcharge, which is an award of monetary compensation for a loss
caused by fiduciary breach. "Actual harm" may be all that
participants are required to demonstrate, so recovery may be
available for participants who haven't even relied on the
Fiduciaries trying to reduce their litigation risk in light of
this decision should consider the following tips:
Avoid using your required communications as plan marketing
tools. If your goal is to make employees want to participate in the
plan or to keep them from complaining about changes, you are likely
to lose track of the legal requirements to disclose benefit limits
Always review communications to make sure that they satisfy all
applicable legal requirements.
If participants are being told about elections they may make,
give them enough information to make informed decisions, including
any applicable fees that may apply.
Consider "test driving" your communications by
showing them to a test group of participants and then questioning
them to determine how much they understand.
Don't rely solely on disclaimers, even if you include them
in your documents. It is best practice to review the plan and the
SPD to make sure that there are no conflicts.
Even if CIGNA v. Amara leads to increased litigation,
as some predict, and a lawsuit is commenced, you and your plan will
be in a better defensive position if these practices have been
Carol Buckman has practised in the employee
benefits field for over 25 years, advising clients on all aspects
of employee benefits and retirement plans, including questions
relating to 401(k), defined benefit and employee stock ownership
plans, welfare plans, fiduciary responsibility, prohibited
transactions and plan asset issues arising in investment fund
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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