Supreme Court Finds Devil’s in the Details of Summary Plan Descriptions

About 27,000 Cigna Corp. employees thought they were getting a sweet deal in 1998 when they read the terms in a summary plan description of their newly converted retirement plan from a traditional defined benefit pension to a cash balance plan.

But the U.S. Supreme Court recently reversed a lower court’s decision involving the company and its workers, saying even though statements made in the summary of the plan documents may be misleading, participants can’t sue companies based on that information. The terms in the plan document are what determine plan benefits.

The case, Cigna Corp. v. Amara, is significant because the high court in its May ruling said summary plan descriptions can’t be held to the same level of reliability as the plan document. While plan sponsors may find a bit of comfort in that, the high court also said the district court could award damages if employees demonstrated they were harmed by inconsistencies in communication.

Employers need to make sure the summaries match what’s in the plan document, experts agree.

“Employers are going to need to be a lot more careful in making sure summary plan descriptions are more thorough,” says Andrew Volk, partner at Seattle-based law firm Hagens Berman.

In 1998, Cigna told its employees through various forms of communications—which included the summary plan description—that the balance in their new plan would be the combination of their benefit under the old plan plus the new benefit earned in the cash balance plan.

But the complete plan document conflicted with the summary plan description, saying participants with earnings through the old plan would get the greater of whichever balance ended up being larger at the end of their employment: their traditional formula benefit as of Jan. 1, 1998, or what they would accumulate under the new cash balance plan.

In 2001, Cigna workers filed a class-action lawsuit in U.S. District Court for the District of Connecticut in Hartford, saying the Philadelphia-based health insurance company gave misleading information through the summary plan description and other communications to employees about the new retirement plan.

The district court and later the U.S. Court of Appeals for the 2nd Circuit in New York City favored the employees’ argument. Just last month in an 8-0 decision, the Supreme Court reversed the lower court rulings, saying that the summary plan description can’t replace the terms found in the actual plan document. The high court also sent the case back to the district court to decide whether participants were actually harmed by the faulty information.

“We believe that, in order to obtain relief … a plan participant or beneficiary must show that the violation injured him or her,” Justice Stephen Breyer wrote in the opinion for the court.

Adam Greetis, a partner at Seyfarth Shaw in Chicago, said plan documents can be complicated, so it’s important to be clear and consistent with the summary that goes out to participants. Drafts of the summary plan description should be compared line by line to make sure there are no mistakes.

“Review documents for consistency,” Greetis said, speaking during a webinar presented by the Human Resources Management Association of Chicago. “Don’t even get near this error.”

Summary plan descriptions are usually distributed when employees enroll and are the road map workers use to understand benefits. By law, these documents need to be updated every five years if changes are made, or every 10 years if there is no change. The plan document, by law, needs to be provided if an employee asks for it.

The high court decision should encourage employers to make sure provisions in the summary plan descriptions match the plan document, says Kim Buckey, practice lead, summary plan description services, for Woburn, Massachusetts-based consulting firm HighRoads.

“It points out the need for accurate communication and to make sure whoever is communicating your plan understands benefits very well and communicates very well,” she says. “Focus on the benefits and what this means to the employee.”

Buckey adds employers might go so far as using employee focus groups, to make sure workers understand the content in a summary plan description before rolling it out.

“This way you can make sure [summary plan descriptions] are understandable and readable,” she says.

Experts agree it is important to tell the truth about benefits. One of Cigna’s communications said the company would not realize any cost savings, when in fact it did save the plan $10 million annually, according to the high court’s opinion.

“When you are trying to communicate with participants, make sure it is balanced, and not selling,” says Bernard Kearse, principal at Atlanta-based consulting firm ERISA Pros. A good summary plan description “will point out exceptions and tell the plan participant to go to the plan document for more information.”

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