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Tuesday, July 23, 2024 | Back issues
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Supreme Court Reviews|ERISA Reliance Standard

WASHINGTON (CN) - The Supreme Court on Tuesday considered whether employees whose employer misled them in a summary of their retirement benefits plan had to show detrimental reliance to receive damages.

"The whole point of these plans is to give some people some comfort and assurance" about retirement, Chief Justice John Roberts said to Ted Olson who argued for Cigna Corp. "And your formulation would put that up in the air and say: 'We don't know if you are going to be harmed or not; wait until you are 65 and we will see.'"

"Well, Mr. Chief Justice, that is the statute," Olson said, adding that under the laws of equity a person has to show that they are harmed.

When Cigna switched from defined benefit pension plan to a cash balance retirement plan, some employees' account balances lowered due to a "wearing down" effect, which Cigna failed to disclose in its summary of the plan.

Olson argued that the employees could only claim recovery under a portion of the Employee Retirement Income Security Act that provides for equitable remedies. But seeking an equitable remedy, employees argued, requires them to prove detrimental reliance on the summary, which would be difficult for the 27,000 employees affected by the company's action.

Olson claimed that was how Congress wanted it.

Justice Elena Kagan said that the plan summary could be considered part of the plan, and therefore govern it, because the Act says multiple instruments can create a plan.

Olson argued that multiple documents may be part of a plan, but the summary was not one of them. Olson said the summary could not govern the plan unless the plan itself said it could.

Kagan argued that the Employee Retirement Income Security Act, or ERISA, trumped what the plan said about the summary.

"[T]he SPD can't negate the force of ERISA," Kagan said, "and if ERISA says that the summary has to be consistent with the plan documents, nothing in the SPD can negate that requirement."

Justice Stephen Breyer said it may not be that hard to have employees form a class that could show likely harm and then shift the burden to the company to show in individual cases that an employee wasn't harmed.

Olson said the approach "defies reality" because of the different employment situations and retirement plans for tens of thousands of employees. He argued that companies would be discouraged from creating summaries or would make them too lengthy to avoid liability.

Kagan asked Olson if proving detrimental reliance would require employees to say they read the summary.

"Doesn't that really misunderstand the realities of the workplace?" she asked, saying that very few people actually read the summaries, but if one employee came in to the workplace and said 21,000 people would not be receiving their employment benefits in the next few years, word would get around within a day.

"So doesn't this give an incredible windfall to your client, Cigna, or to other companies that commit this kind of intentional misconduct if you hold them to this detrimental reliance standard?" Kagan asked.

Olson said the employees may not have to prove that they read it, but to have been aware of it and taken some action because of it.

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