In May, the U.S. Supreme Court in its decision, CIGNA Corp v. Amara, refused to read terms in a summary plan description (SPD) as the correct plan terms, saying that the SPD disclosures are about the plan and not a part of the plan.  When the SPD differs from the plan, an ERISA lawsuit to recover plan benefits cannot claim benefits based on the SPD terms rather than the terms of the plan document.

The decision went on to discuss remedies under another provision of ERISA and the possibility that equitable relief could permit a monetary result that is the same, or nearly the same, as the monetary relief sought in the claim for plan benefits.

Many commentators have examined the decision and the technical issues of equitable remedies under ERISA.  This summary will focus on the issue of the terms of the SPD vs. the plan document and some implications for employers and plan fiduciaries.

Background

Since making a plan change 13 years ago, CIGNA Corp. has been tied up in litigation stemming from the conversion of its traditional defined benefit plan to a cash balance retirement plan.  The District Court found that CIGNA failed to tell employees of certain features of the cash balance plan and thus intentionally misled the employees through its written SPD and other materials.  These materials failed to tell employees that;

1. the opening balance in the cash balance plan that was intended to give credits for the traditional defined benefit plan did not take into account any early retirement subsidies in the traditional plan;
2. the opening balance included a mortality adjustment that adjusted the initial credit downwards; and
3. the cash balance plan design shifted the interest rate investment risk from CIGNA to the plan participant. 

Also, CIGNA did not describe the "wear away" provision under which, when interest rates fell, an employee's cash balance account might not exceed the value of the frozen traditional plan benefit for some time, leaving the employee to earn no new benefit for that period. Some may have thought these points too "technical" for a SPD.  If, as in Amara, such points can be the basis of liability, employers will need to consider whether technical terms and their effect on benefits should be described in more detail in a SPD.

Role of Plan Sponsor

The Supreme Court noted that a plan sponsor (generally, the employer) had three responsibilities akin to the responsibilities of a trust settlor:

1. To create the basic terms and conditions of the plan;
2. To execute the written instrument that contains those terms and conditions, i.e., the plan document; and
3. To provide a procedure in the plan document for making amendments to the terms and conditions.

In contrast, the plan administrator as a fiduciary has responsibility to:

a.    Manage the plan;   
b.    Follow the terms of the plan; and 
c.    Provide the participants with summary documents that describe the plan in an
       understandable form.

This division of responsibilities under ERISA is generally accepted.  The Court noted that CIGNA filled both roles but that ERISA does not intend to mix the roles, even if one party acts in both roles.  Thus, the plan administrator does not have the power to alter plan terms, even indirectly, by including terms in the SPD that deviate from the plan terms set by the plan sponsor in the plan document. 

Changing Presumptions

The Supreme Court in the Amara decision went on to say that the information in a SPD or other summary is about the plan but is not a part of the plan. 

As a result, and taking a position different than a number of lower court decisions, the terms of the SPD cannot be enforced as plan terms if the SPD's terms do not reflect and summarize the plan's terms.   This changes the trend that had been spreading that the employer/plan sponsor would be required to deliver benefits as described in an SPD even if different than in the underlying plan document. 

As a practical matter, plan sponsors and administrators should carefully compare their plan documents and SPDs (including summaries of material modifications or SMMs) and ensure that the plan documents accurately reflect the intended benefits and then ensure that the SPD accurately describes the plan in an understandable form. 

Should a SPD be Briefer?

Despite the Court's emphasis on plan summaries as a summary of the plan, the Amara decision should not be viewed as endorsing shorter and briefer SPDs.  Rather, the Court admonished plan administrators to provide "complete and accurate" summaries.  To do otherwise could open the plan fiduciary to a breach of its fiduciary duty under ERISA. (See responsibility (c) above.)

If there is such a breach of fiduciary duty, the Supreme Court's opinion explored the equitable remedies that may be available under ERISA, including reformation of the contract (as opposed to enforcing the terms of the SPD), estoppel (based on representations in the SPD), and "surcharge" in the form of monetary relief to prevent unjust enrichment or to compensation for a fiduciary breach.  The Court elaborated in dicta that is not binding on the parties but which gave direction to the District Court that will decide how to carry out the Supreme Court's decision. The Supreme Court has opened doors to a new analysis that could allow plaintiffs to recover money damages where it was not previously considered possible.

Keeping plan documents and SPDs updated, accurate and understandable continues to be very important for both legal compliance and defense of claims.