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Supreme Court considers ERISA reliance standard

WASHINGTON — If a summary of pension-plan benefits fails to notify employees of a benefit reduction, what relief can those employees seek? And must they prove detrimental reliance?

Those were the issues the Supreme Court justices grappled with during Tuesday’s oral arguments in CIGNA Corp. v. Amara.

Former Solicitor General Theodore Olson, now a partner at Gibson, Dunn & Crutcher, argued that ERISA does not require the Summary Plan Description to include every detail about the plan.

Imposing such strict requirements on summaries would force plan administrators to issue summaries that are “hundreds of pages long” to avoid missing provisions and thus being subject to liability, Olson said.

“They can’t do that,” Justice Ruth Bader Ginsburg noted, “because the statute requires the summaries to be easily understandable.”

“It’s a Catch-22,” Olson said.

While the class-action plaintiffs might have been entitled to equitable relief under another section of ERISA, Olson argued, the section they sued under — §502(a)(1)(B) — applies only to enforcement of plan documents.

“Congress crafted a carefully balanced ERISA recovery scheme,” Olson said. “Since the plan itself did not violate ERISA, only equitable relief could be sought. [The] violation was in the summary itself. The summary is not the plan.”

‘Wear away’ effect

Arguing for the class, Washington solo practitioner Stephen R. Bruce disagreed.

“Our position is that the SPD is one of the documents [of] the plan,” Bruce told the justices.

“It seems to me that is a tough argument,” said Chief Justice John G. Roberts Jr. “The whole point of a summary is not to disclose everything.”

“But an unfavorable plan term” such as the change in this case “must be validly adopted and disclosed in accordance with ERISA in order to be effective,” Bruce said.

A federal judge agreed with the employees, finding CIGNA violated ERISA by failing to disclose an adverse effect in the SPD sent to participants when it retroactively switched from a defined-benefit plan to a cash-balance plan.

Due to fluctuating interest rates, the cash balance in some accounts was less than the employee had accrued in the old plan. Both sides referred to this as the “wear away” effect, which in some cases continued for years.

“The SPD did not disclose the wear away provision,” Bruce noted.

The 2nd U.S. Circuit Court of Appeals affirmed the lower court’s ruling, leading to CIGNA’s petition to the Supreme Court.

Deputy Solicitor General Edwin S. Kneedler argued as amicus in support of the employees. The government’s position is that the SPD should control if it promises materially greater benefits, unless the plan administrator shows the employees could not have reasonable expected such increased benefits.

“[For] the employees, typically the SPD is the only thing” they see, Kneedler said.

Showing reliance

On the reliance issue, Justice Stephen Breyer asked why the plaintiffs shouldn’t be able to simply show likely harm, rather than have to prove detrimental reliance in order to recover.

“Under equity, this is like an estoppel action,” Olson replied. “The essential part of an estoppel action is detrimental reliance. [A contrary ruling] would throw the burden to the plan administrator to demonstrate that [thousands of employees] were not likely harmed.”

Bruce argued that the case is analogous to securities actions, so the likelihood of harm standard should apply.

In securities law “there is a presumption of reliance because you cannot prove that thousands of people [each] relied,” he said.

Justice Sonia Sotomayor, who was a judge on the 2nd Circuit at the time it took up the matter, recused herself from consideration of the case.

A decision from the court is expected later this term.