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A Supreme Court ruling about a pension conversion will impact all ERISA plans
In May 2011, in the case of Cigna Corp. v. Amara, the U.S. Supreme Court held that a misleading or incomplete summary plan description (SPD) for a cash balance pension plan could not support a claim for benefits under the Employee Retirement Income Security Act (ERISA). Instead, the terms of the actual plan document were the controlling factor. While this was only one of the court’s conclusions in Amara, the impact will be felt by all ERISA-covered benefit plans—including health and welfare plans.
Background of Amara
The Amara case arose from Cigna’s conversion of its defined benefit pension plan to a cash balance plan. The district court in the case found that Cigna had failed to give plan participants proper notice of the changes, thereby violating ERISA’s disclosure requirements; that the evidence showed “likely harm” to the plaintiffs in the form of reduced benefits in the future; and that this justified a reformation of the plan by the court and enforcement of the plan as reformed under ERISA. The U.S. 2nd Circuit Court of Appeals affirmed the district court’s decision. The issue was then brought to the Supreme Court.
The Supreme Court vacated the opinions of the lower courts and remanded the case back to the district court. In doing so, the Supreme Court found that ERISA did not grant a court the right to reform the terms of a plan. Instead, the Supreme Court held that “the statutory language speaks of ‘enforc[ing]’ the ‘terms of the plan,’ not of changing them.”
The Supreme Court further held that the ERISA provision “requiring that participants and beneficiaries be advised of their rights and obligations ‘under the plan,’ suggests that the information about the plan provided by [the SPD] is not itself part of the plan,” and concluded “that the summary documents, important as they are, provide communication with beneficiaries about the plan, but that their statements do not themselves constitute the terms of the plan” for ERISA claims purposes.
Finally, the court concluded that an SPD “would not fulfill its purpose of providing an easily accessible summary of the plan if it were an authoritative part of the plan itself.”
What About Health and Welfare Plans?
While Amara dealt specifically with documents prepared for an ERISA-covered retirement plan, the Supreme Court’s conclusions apply to all ERISA-covered plans—including health and welfare plans—because the terms of all ERISA-covered health and welfare plans are required to be reflected in plan documents and plan sponsors are required to provide summaries of those plan documents to plan participants and beneficiaries.
The Department of Labor (DOL) presented an argument in an amicus brief to the Supreme Court in the Amara case. The DOL contended that miscommunications in the plan’s SPD were “terms of the plan” that could be enforced under ERISA. The Supreme Court rejected the DOL’s contention. The court concluded that ERISA plan SPDs are entirely distinct from—and summaries of—separate plan documents.
Often, the terms of health plans, disability plans and other welfare plans will be described, at least in part, in a single document that serves as the SPD and the plan document. In addition, some health and welfare plans will use the SPDs as plan documents or will incorporate them into plan documents by reference under the terms of a “wrap plan.” While the Supreme Court did not specifically address welfare plans in the Amara decision, two different positions on welfare plan documents can be inferred from the opinion.
-------------------------------------------------------------While the Supreme Court did not specifically addresswelfare plans in Amara, two positions on welfare plandocuments can be inferred.-------------------------------------------------------------
On one hand, if an SPD is described as also serving as the plan document, or a component of the plan document, then an ERISA claim for benefits can be premised on its terms. On the other hand, part of the Supreme Court’s reasoning—that SPDs are meant to be easier-to-understand versions of more-technical plan documents—would arguably raise some questions about one document serving as both the plan and the SPD.
Protecting All ERISA Plans
The ultimate result of Amara was pending as of this writing because the Supreme Court’s discussion of ERISA was for the lower court to apply on remand to the facts and circumstances of the case. More litigation is inevitable as a result of the opinion.
However, what is clear is that the Amara decision underscores the need for careful consideration of the terms of all ERISA plan documents and SPDs as well as all other notices given to ERISA beneficiaries regarding the terms of their health and welfare plans. The Supreme Court’s discussion of the non-binding role of the SPD was helpful in some ways, but ultimately the court found that errors in or omissions from the SPD might justify equitable relief in some circumstances. Drafting quality plan documents and SPDs can be a challenge, and drafters must now consider the effect of the Amara decision when drafting or amending plan documents and SPDs.
Moreover, the Supreme Court’s general statements in Amara concerning the role of the SPD did not address the fact that for many ERISA health and welfare plans the SPD is, or is part of, the actual plan document. It will be interesting to see how, if at all, government regulators respond to the SPD vs. plan comments in the Amara decision.
Plan sponsors might, however, want to review, and possibly clarify, the designation of what constitutes plan documents for their health and welfare plans as well as consider whether the SPDs they maintain are sufficiently easy to understand in order to satisfy ERISA’s requirements.
A thorough review of plan documents and SPDs is needed to protect employers that are sponsoring the plans. Amara serves as another reminder that plan documents (and SPDs) are required for all health and welfare plans covered by ERISA.
Benjamin S. Lupin is director of compliance at Corporate Synergies LLC, an employee benefits advisory firm.
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