Pension Protection Act Blog

Difficult, time-consuming, and expensive litigation with uncertain results - such as this case represents - is assuredly not a sensible way to manage the Nation’s retirement system for either employers or employees.

- Judge Mark R. Kravitz
U.S. District Judge, District of Connecticut
February 15, 2008

A partial decision is in from the U.S. District Court of Connecticut on Amara v. CIGNA Corp., No. 3:01CV2361 (D. Ct. Feb. 15, 2008), the class action case arising out of CIGNA’s conversion of their traditional defined benefit plan into a cash balance plan in 1998. In a 122-page opus on cash balance conversions, Judge Mark R. Kravitz weaves precedent and prose into a very well-written opinion which is both a fascinating and compelling discussion of these three issues:

1. whether CIGNA’s cash balance plan is age discriminatory or otherwise violates certain non-forfeiture and anti-backloading rules under ERISA;

2. whether CIGNA gave notices and other disclosures required by ERISA; and

3. whether the information CIGNA provided its employees about the conversion and the cash balance plan in summary plan descriptions and other materials satisfied ERISA requirements.

The Court concluded that:

1. CIGNA’s plan is not age discriminatory and does not violate the non-forfeiture and anti-backloading rules under ERISA;

2. in effectuating the conversion to the cash balance plan, CIGNA did not give a key notice to employees that is required by ERISA; and

3. CIGNA’s summary plan descriptions and other materials were inadequate under ERISA and in some instances, downright misleading…. ERISA also emphasizes the importance of disclosure by employers to employees regarding the details of the company’s pension plan, to enable employees to plan for their retirement and to make decisions of profound importance for their lives. This is where CIGNA failed to fulfill its obligations; the company did not provide its employees with the information they needed to understand the conversion from a traditional defined benefit plan to a cash balance plan and its effect on their retirement benefits.

Specifically, the Court determined that:

1. CIGNA’s cash balance plan did not violate the anti-backloading and non-forfeiture rules in ERISA sections 203(a) and 204(b)(1)(B) (Count One);

2. CIGNA did not violate the age discrimination provisions I ERISA section 204(b)(1)(H) (Count Three); and

3. CIGNA was not required to provide notice to rehired employees of the modification of the rehire rule under ERISA section 204(h) (Count Four);

4. To the extent Plaintiffs maintain an anti-cutback claim under ERISA section 205(g) as part of Count Five, the Court also finds no cutback of accrued benefits occurred under Part B (Count Five);

5. CIGNA failed to provide notice of a significant reduction in the rate of future benefit accrual under Part B in violation of ERISA section 204(h) (Count Four);

6. CIGNA failed to adequately disclose material modifications to its pension plan and features that may result in reductions, losses, or forfeitures of benefits that a participant might otherwise reasonably expect to receive, in violation of ERISA section 102 (Count Two); and

7. CIGNA failed to disclose the extent to which optional forms of benefits were subsidized, as required by Treas. Reg. 1.401(a)-20, Q&A 36, and whether plan participants’ Part A minimum benefit exceeded their Part B account balance, as CIGNA had promised to do in its disclosures regarding Part B (Count Five).

The Court then granted judgment to CIGNA on Counts One, Three, Four (to the extent Count Four addressed the rehire rule), and Five (to the extent Count Five addressed the cutback of accrued benefits). The Court granted judgment to the participants on liability only on Counts Two, Four (to the extent Count Four addresses CIGNA’s 204(h) notices), and Five (to the extent Count Five addressed failures of disclosure).

The Court has ordered the parties to provide briefs no later than March 17, 2008, with responses to those briefs to be filed no later than March 31, 2008, so stay tuned because there will be more to come. The briefs are to address what remedies are available to the parties, and are appropriate in light of the Court’s findings on liability. The Court also ordered the parties to file briefs regarding the issue of how to address any remaining claims, including individual claims.

Additional Informational:

On ERISA Pension Claims, Attorney Stephen R. Bruce, has posted the CIGNA Pension Class Action Suit webpage which contains copies of pleadings in this case, including previous decisions;

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