This class action, now over 13 years old - with a liability finding against CIGNA and its pension plan under ERISA for cutting back and misrepresenting benefits under an amended plan - returns from the U.S. Supreme Court to determine what kind of relief should be ordered. The Second Circuit affirms, holding that the district court properly reformed the pension plan to preserve all of the benefits earned under the pre-amended plan, up to the date of the amendment. The court also upholds the class certification order.
Amara v. CIGNA Corp., No. 13‐447 (2d Cir. Dec. 23, 2014): The courts below ruled that CIGNA and its pension plan violated the rights of its employee-participants when it "failed to provide notice of a significant reduction in the rate of future benefit accrual under the Part B retirement plan in violation of § 204(h) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1054(h), and that defendants failed adequately to disclose material modifications to the plan in violation of ERISA §102, 29 U.S.C. § 1022."
In a nutshell, when CIGNA changed its retirement plan (Plan A) in 1997, it failed to give participants accurate notice of the changes and effected cutbacks in benefits that had already been earned. The predecessor plan (Plan A) paid retirement benefits in the conventional form of an annuity. "By contrast, the new plan ‐ Plan B ‐ provided benefits to most of CIGNA's employees in the form of a lump sum cash balance calculated on the basis of defined annual contributions." Participants' rights under Plan A were frozen, the benefits accrued under that plan were reduced to lump-sum balances, and those sums were then credited to the new Plan B effective January 1, 1998.
Unfortunately for all concerned, the literature describing these changes - including a summary plan description (SPD) - overstated the benefits of Plan B, and concealed that the new Plan resulted in a net reduction in benefits. "One SPD describing the plan informed each employee that 'your benefit will grown steadily throughout your career.' E‐265. It also told each employee that his or her 'opening balance [in the new Part B plan] was equal to the lump sum value of the pension benefit [he or she] earned through December 31, 1997.'" For a variety of reasons, these promises turned out to be false. Actuarial discounts were taken from the lump-sum figures, and Plan B benefits (unlike Plan A) would vary with fluctuating interest rates. The amendment also took away a valuable early-retirement option.
The district court held that defendants violated ERISA by both the cutback and misrepresentations. As relief, "the district court ordered CIGNA to reform the terms of its plan under § 502(a)(1)(B)." The reformed plan "provide[d] A+B benefits," by which "CIGNA was required to ensure that 'all class members . . . receive their accrued benefits under Part A, in the form in which those benefits were available under Part A, and in addition their accrued benefits under Part B, in whatever form those benefits are available under Part B." The Second Circuit affirmed by a non-precedential order.
The case went to the Supreme Court, on cross-petitions for certiorari, to consider the legal standard of injury for determining when an ERISA violation occurs. In CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), the Supreme Court vacated the relief entered under ERISA § 502(a)(1)(B), on the ground that a court could not order that a plan be re-written to conform to the SPD under the guise of "recover[ing] benefits due" a participant under the terms of the plan. Nonetheless, in a very important development for ERISA plaintiffs everywhere, the Supreme Court went on to hold that a remedy might be available under ERISA § 502(a)(3), for equitable relief in the form of plan reformation or surcharge.
On remand, the district court reentered the class relief as equitable relief under ERISA § 502(a)(3). Using the equitable remedy of reformation to provide A+B benefits, it ordered that "class members will receive (1) the full value of 'their accrued benefits under Part A,' including early retirement benefits, in annuity form; and (2) 'their accrued benefits under Part B,' in annuity or lump sum form."
The Second Circuit affirms. It first holds that the district court did not err, on remand from the Supreme Court, by denying defendants' motion to decertify the class. It upholds a finding that defendants failed to prove a conflict in the class between participants who benefitted from the relief, and certain retired employees supposedly worse off. The defendants' expert, the court finds, apparently misread the order regarding the treatment of retirees: "under the terms of the district court's remedial order, any employee who has left the company is 'entitled to receive the difference in value between the full‐value of the Part A annuity' and the lump sum he or she has already received under Part B."
The panel also upholds the reformation and corresponding monetary relief as appropriate under Federal Rule of Civil Procedure 23(b)(2).
"[C]ourts confronting the specific question whether reformation is available to a Rule 23(b)(2) class in the context of ERISA claims have answered that question in the affirmative, and with good reason .... Here ,the Supreme Court has already confirmed that an order requiring defendants to enforce a plan providing A+B benefits is injunctive. [Citation omitted.] That the district court used reformation as a route to that result does not render the final relief inconsistent with the mandates of Rule 23(b)(2)."
Furthermore, "[when the plan is reformed according to the district court's order, monetary benefits flow as a necessary consequence of that injunction." Such a remedy was thus incidental to the injunctive relief. Because the calculation of benefits due was reduceable to a equation not otherwise in dispute, "absent class members have no need for" that alternative of opting-out, "because the monetary relief does not depend on 'complex individualized determinations' for which litigation specific to each individual could make a difference."
On the merits of reformation, the court holds that the district court did not abuse its discretion in reforming the pension to provide Plan A+B benefits.
The defendants urged the application of trust-law principles in this case, which they argued would give priority to the settlor's intent. But the panel held that contract-law principles should apply instead. "[B]ecause the CIGNA Pension Plan is part of a compensation package for employees that stems from their employment agreements, plaintiffs have given consideration for their participation in the retirement plan so that it is appropriate, to the extent this plan constitutes a trust, to analyze reformation under contract principles."
Indeed, application of trust principles would lead to an inequitable result:
"To hold otherwise - and rule that reformation of an ERISA plan is governed solely by the settlor's intent even in cases involving intentional misrepresentations - would produce the unreasonable result that a pension plan could only be reformed when the employer is mistaken about its attributes, but not when employees are deceived"
The panel also affirms as not clearly erroneous the district court's finding of fraud by the defendants, an equitable basis for a reformation remedy. The panel refuses to credit the defendants' distinction between CIGNA's dual role as plan settlor and administrator. "That § 502(a)(3) provides for an equitable remedy, moreover,
further supports preventing CIGNA from gaining advantage by virtue of its dual
roles, since the traditional purpose of equity is to redress wrongful conduct causing harm that would otherwise be uncompensated by a rigid interpretation of the law."
The panel upholds the finding that the SPD and other misrepresentations were sufficiently uniform to warrant classwide relief:
"But plaintiffs can prove ignorance of a contract's terms through generalized circumstantial evidence in appropriate cases. Such proof may be more than sufficient, moreover, in certain cases where, as here, defendants have made uniform misrepresentations about an agreement's contents and have undertaken efforts to conceal its effect."
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"CIGNA's misrepresentations achieved the desired result: defendants have not pointed to evidence that any employee understood the ways in which Part A benefits were reduced as a result of the plan conversion or provided testimony from even a single employee stating that he or she understood that the new plan could cause wear away."
Finally, the panel affirms - over the class's cross-appeal - the denial of their preferred relief: continuing the Plan A benefits. Even with the misrepresentations, the class knew that all CIGNA employees would stop receiving benefits under Part A as of December 31, 1997. The panel holds that "The beneficiaries of the CIGNA Pension Plan clearly understood that the plan would be changing, but believed that under the new plan all of their benefits accrued under Part A would be protected."