ERISA Litigation Update - 15 June 2011
Supreme Court Expounds on ERISA's Remedial Provisions Seventh Circuit Requires 401(k) Plan Fiduciaries to Stand Trial Where They Did Not Seek an RFP for Plan Recordkeeping Services Every Three Years Another Circuit Court Adopts Fiduciary Exception to Attorney-Client Privilege in ERISA Context Publications and Upcoming Conferences Supreme Court Expounds on ERISA's Remedial Provisions
In deciding CIGNA Corp. v. Amara, No. 09-804 (May 16, 2011), the U.S. Supreme Court expounded on two of ERISA's major remedial provisions —Sections 502(a)(1)(B) and 502(a)(3). The Court's holding that Section 502(a)(1)(B) does not provide a remedy for violation of ERISA's disclosure requirements clarifies the scope of that provision. By contrast, the Court's discussion of ERISA Section 502(a)(3) creates substantial uncertainty regarding the remedies potentially available under that provision. The opinion is available here.
CIGNA arose from the following facts. In November 1997, an employer that maintained a defined benefit plan with a traditional benefit formula announced that the plan would be changed to a cash balance pension plan effective January 1, 1998. In late 1998, the employer provided plan participants with a summary of the plan as amended to include the cash balance features. Participants sued the employer and the plan, challenging the changes to the plan and alleging (among other things) that the employer's disclosures regarding the plan amendments failed to comply with ERISA requirements.
District Court Decision
The district court certified a class of plan participants and ruled that the disclosures to participants regarding the plan changes violated ERISA Section 204(h) and Sections 102(a) and 104(b). In this regard, Section 204(h) requires that participants be provided with advance notice of any significant reduction in the rate of future benefit accrual under a defined benefit plan. Sections 102(a) and 104(b) require that participants be provided with summary plan descriptions and summaries of material plan changes that are sufficiently accurate and comprehensive to apprise participants of their benefit rights and obligations. The district court concluded that the employer's communications to participants violated these statutory disclosure requirements because they were materially incomplete and misled participants.
In fashioning a remedy to address these violations, the district court relied exclusively on Section 502(a)(1)(B), which authorizes participants to sue to "recover benefits due . . . under the terms of the plan." First, the court ordered that the plan's terms be "reformed" to provide enhanced benefits which the court believed was consistent with the communications provided to participants. Second, the court permitted participants to recover benefits under the terms of the "reformed" plan language. In this regard, the court did not require each member of the plaintiff class to demonstrate that he or she had been harmed individually by the disclosure violations – for example, by showing that he or she had detrimentally relied on the disclosures. Instead, the court held that class-wide relief was appropriate because the evidence had raised a presumption of "likely harm" to participants and the employer had failed to rebut that presumption. After the district court's holding was affirmed by the...
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