Supreme Court Looks at Deficient Plan Communications: Fiduciaries Beware?

In the past, I have written about the importance of including accurate language in summary plan descriptions and how significant it is for plan sponsors to include appropriate "discretionary authority" language and "reservation of rights" provisions in plan documents. These typically give the administrator the ability to interpret and amend the plan without giving rise to claims for breach of duty by participants once changes are made. Recently, the US Supreme Court heard arguments in the case of CIGNA v. Amara that addresses these provisions. At first blush, the reaction is to say "wait, they are going to say we can't rely on those provisions when we administer the plan." And in fact, some commentators have suggested this case is about taking away the ability to rely on these provisions in administration. But a closer look at the case reveals that its real issue is one about damages and remedies, and that should be the true concern for plan sponsors. The appeals court decision affirmed a lower court decision that determined when Cigna switched from a traditional defined-benefits retirement plan to a cash-balance plan in 1998, the new summary plan description (SPD) misled employees about the benefits they'd be entitled to. Specifically, the SPD left employees with the incorrect understanding that they would begin accruing incremental benefits under the new plan immediately. However, the detailed plan document provided that each worker's cash-balance account had a starting balance that was less than the value of his or her defined-benefit account. Thus, anyone who left the company before the new account caught up in value with the old one would not, in effect, have earned any new benefits. Many employees thought, based on the SPD, they were to get the full value of the first plan plus new benefits accruing from the date of the change, so they commenced a class-action case and the lower courts gave them that relief. In an odd twist, Cigna does not dispute the finding that its SPD was misleading. Instead, its appeal is based the lower court determination that all 27,000 participants in the lawsuit suffered "likely harm." In other words, to recover, the participants do not actually have to show they "detrimentally relied" on the misstatement to recover. The way the law currently sits, to recover on a claim for misrepresentation, there has to be a showing of detrimental reliance and actual harm. In this case, there would have to be a showing that "but for the misrepresentation," the participants would not have acted the way they did. Typically, ERISA relief is limited to benefits you would otherwise have received under the terms of the plan. So in this case, you would expect the remedy to be limited to those who were either denied benefits, or those who can prove that had they know they were not going to get benefits, they would have acted differently. But to simply say "everyone in the plan was misled" seems to expand the remedies available to something not intended under ERISA. So while the court's ultimate decision on the issue may not seem to have direct impact on plan sponsors (and may only be of interest to benefit attorneys to debate ad nauseum), there is at least some concern. This case has cost a lot of money to get where it is, and the exposure is now potentially very large depending on the Court's determination on remedies. All of this because of a misleading statement in a communication. So while your practices may not directly change as a result of the decision, whenever it may be issued, certainly it should serve as a reminder of the importance of clear communications to participants. Not only should you be careful to avoid conflicting or misleading statements, but you should also consider having your communications reviewed by an independent outside entity. Like your benefits counsel. Don't assume your communication is clear just because you understand it, and don't assume that just because your plan says you can amend or terminate at any time. you can do it without repercussions. Make sure you know what you have promised and to whom you have promised it and then communicate those changes to all of them effectively. Your attorneys at Fox Rothschild can help in this process so don't hesitate to call them.

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