WASHINGTON BUREAU -- The U.S. Supreme Court has significantlynarrowed the grounds an employee can use to sue for additionalpension benefits based on errors in a plan’s summary plandescription (SPD).

An SPD should be accurate, but it need not be as complete as theunderlying plan documents, and participants cannot sue to enforcetheir interpretation of the SPD in the same way that they could sueto enforce the actual terms of the plan, the court has held in an8-0 ruling in CIGNA Corp. v. Amara, No. 09-804.

CIGNA Corp., Philadelphia (NYSE:CI), the company that sponsoredthe pension plan involved in the case, moved in 1998 to convert atraditional defined benefit pension plan, which used a fundingformula based on the assumption that an employee would spendmany years at the company, into a cash balance plan. An employerthat sponsors a cash balance plan simply puts in a set amount ofcash each year. The amount of benefits accrued each year is the sumof the contribution and interest earnings on the contribution.

Janice Amara, the lead plaintiff in the case, and otherplaintiffs argued that the SPD for the new plan -- thedocument that was supposed to describe the plan in terms thatparticipants could understand -- was misleading, because it saidemployees would do at least as well as in the old plan and failedto explain that a drop in interest rates could affect the ultimatebenefits.

A U.S. District Court judge in Connecticut ruled that the CIGNA SPD was incomplete and inaccurate, that the participantswere "likely harmed" by the inaccuracies, and that all 27,000plan participants should share in a recovery.

A panel at the 2nd U.S. Circuit Court of Appeals upheld thelower court ruling. The U.S. Labor Department; and the Obamaadministration's solicitor general supported the plan participantswhen CIGNA appealed the 2nd Circuit ruling to the SupremeCourt.

Lawyers for CIGNA estimated that, if the Supreme Court had sidedwith the plaintiffs, CIGNA might have had to pay out as much $70million.

When analyzing the case, the Supreme Court considered provisionsof the Employee Retirement Income Security Act of 1974 (ERISA) suchas Sections 102(a), 104(b) and 204(h), which set plan disclosurerequirements, and ERISA Section 502(a)(1)(B), which authorizes aplan participant or beneficiary to sue to recover benefits dueunder the terms of a plan.

Members of the Supreme Court held that ERISA Section502(a)(1)(B) did not give the district court authority to reformCIGNA’s plan, but that ERISA Section 502(a)(3) does give aparticipant, beneficiary, or fiduciary an opportunity to seek“'other appropriate equitable relief” to redress violations ofERISA ' or the [plan’s] terms.'”

The Supreme Court ordered that the terms of the plan bereformed, and it ordered CIGNA to enforce the plan as reformed. Thecourt also remanded the case to the 2nd Circuit, and it askedthe 2nd Circuit to consider providing the plan participants withequitable relief.

But the court prevented lower courts from imposing "equitablerelief," such as a surcharge, without getting proof either that SPDerrors were the result of fraud or that the errors had led toserious harm.

"To make the language of a plan summary legally binding couldwell lead plan administrators to sacrifice simplicity andcomprehensibility in order to describe plan terms in the languageof lawyers," Justice Stephen Breyer writes in the opinionfor the court. "Consider the difference between a will and thesummary of a will or between a property deed and its summary. ...None of this is to say that plan administrators can avoid providingcomplete and accurate summaries of plan terms in the mannerrequired by ERISA and its implementing regulations."

But, if the court had agreed with the Obama administration'ssolicitor general and treated an SPD as a legally bindingdocument, that "might bring about complexity that would defeat thefundamental purpose of the summaries," Breyer says. "Forthese reasons taken together we conclude that the summarydocuments, important as they are, provide communication withbeneficiaries about the plan, but that their statements do notthemselves constitute the terms of the plan for purposes of[Section] 502(a)(1)(B)."

Chief Justice John Roberts and Justices Anthony Kennedy, RuthBader Ginsburg, Samuel Alito Jr. and Elena Kagan joined in theBreyer opinion.

Justice Antonin Scalia filed a separate opinion concurringin the judgment, and Justice Clarence Thomas joined in the Scaliaconcurrence.

Justice Sonia Sotomayor took no part in the consideration ordecision of the case.

"CIGNA is pleased that the U.S. Supreme Court has ordered thelower court to reconsider its initial decision and undertakefurther proceedings in the case," CIGNA says in a statement aboutthe ruling.

Ellen Doyle, a Pittsburgh lawyer who helped represent the planparticipants in the class-action lawsuit, called the ruling a"significant loss for employees."

"SPDs are usually the only documents provided to them as totheir rights and obligations under pension, health, and otheremployee benefits plans," Doyle says in a statement. "TheSupreme Court’s decision effectively overrules the opinions ofother courts finding that SPDs are plan documents which may beenforced by plan participants."

In the future, employees may not be able to determine what aplan promises without going through litigation, Doyle says.

RUMELD: THREAT AVERTED

If the Supreme Court had accepted the arguments of the planparticipants, the Labor Department and the 2nd Circuit, that wouldhave posed “a substantial threat to employer plan sponsors bysubjecting them to class-wide relief for a miscommunication withoutrequiring any showing of harm,” Myron Rumeld, a employee benefitspartner in the New York office of Proskauer Rose L.L.P., says in acomment on the case.

If the participants had prevailed, a court could have enforcedthe terms of an SPD as understood by the participants, rather thanterms of the plan itself, Rumeld says.

The Supreme Court now has made it clear that plan participantsmust show that an employer committed fraud in an SPD, or thatan error caused harm, before they can ask a court to impose formsof equitable relief such as equitable estoppel, planreformation, or surcharge, Rumeld says.

“The Supreme Court rejected the notion that there is a ‘one sizefits all’ approach to claims based on faulty communications, suchthat all participants automatically recover additional benefitsthat were never intended under the terms of the plan,” Rumeld says.“The court correctly concluded that the SPD is merely meant to be asummary of the plan, and thus the mistaken terms of the SPD shouldnot be enforced as a contractual matter."