JANICE C. AMARA, GISELA R. BRODERICK, AND ANNETTE S. GLANZ, individually and on behalf of others similarly situated, Plaintiffs-Appellants-Cross-Appellees,
CIGNA CORPORATION AND CIGNA PENSION PLAN, Defendants-Appellees-Cross-Appellants
Argued: February 10, 2014.
As Amended January 23, 2015.
[Copyrighted Material Omitted]
Appeal from a January 2, 2013 order of the United States District Court for the District of Connecticut (Arterton, J.). The district court, inter alia, reformed CIGNA Corporation's pension benefits plan to reflect the fact that all class members must now receive " A" benefits. We conclude that the district court did not err in finding that the elements of reformation were met, that it properly denied the motion of CIGNA Corporation and CIGNA Pension Plan to decertify the class of plaintiffs seeking relief in this case, and that it was within the district court's discretion to reform the plan such that it provides class members with A benefits.
STEPHEN R. BRUCE (Allison C. Pienta, on the brief), Stephen R. Bruce Law Offices, Washington, D.C.; Christopher J. Wright, Wiltshire & Grannis, LLP, Washington, D.C., for Plaintiffs-Appellants-Cross-Appellees.
JEREMY P. BLUMENFELD (Joseph J. Costello and A. Klair Fitzpatrick, Morgan, Lewis & Bockius LLP, Philadelphia, PA; Stephanie R. Reiss, Morgan, Lewis & Bockius LLP, Pittsburgh PA, on the brief), for Defendants-Appellees-Cross-Appellants.
Before: JACOBS, LIVINGSTON, LYNCH, Circuit Judges.
Debra Ann Livingston, Circuit Judge :
This long-running dispute arises from certain misleading communications made by CIGNA Corporation (" CIGNA" ) and CIGNA Pension Plan (together with CIGNA, " defendants" ) to CIGNA's employees regarding the terms of the CIGNA Pension Plan and, in particular, the effects of the 1998 conversion of CIGNA's defined benefit plan (" Part A" ) to a cash balance plan (" Part B" ). The case was brought in December 2001 by individual plan participants on behalf of themselves and others similarly situated (" plaintiffs" ). The district court granted plaintiffs' motion to certify the class. After trial, it held, inter alia, that defendants had failed to provide notice of a significant reduction in the rate of future benefit accrual under the Part B retirement plan in violation of § 204(h) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1054(h), and that defendants failed adequately to disclose material modifications to the plan in violation of ERISA § 102, 29 U.S.C. § 1022. Amara v. CIGNA Corp., 534 F.Supp.2d 288, 363 (D. Conn. 2008) [hereinafter " Amara I " ]. The district court then issued a decision regarding appropriate relief under ERISA for that violation, ordering defendants to provide the benefits accrued under Part A at the time of the conversion plus the benefits accrued thereafter under Part B, i.e. " A" benefits, and to issue new or corrected notices to all class members under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). Amara v. CIGNA Corp., 559 F.Supp.2d 192, 222 (D. Conn. 2008) [hereinafter " Amara II " ]. This Court affirmed those decisions by summary order, Amara v. CIGNA Corp., 348 F.App'x 627 (2d Cir. 2009), and both parties petitioned for certiorari.
The Supreme Court granted defendants' petition and, in a decision issued on May 16, 2011, vacated this Court's judgment and remanded the case, concluding that the relief afforded by the district court was not available under § 502(a)(1)(B). CIGNA Corp. v. Amara, 131 S.Ct. 1866, 1870-71, 179 L.Ed.2d 843 (2011) [hereinafter " Amara III " ]. The Supreme Court instructed, however, that the district court should consider on remand whether plaintiffs are entitled to relief under § 502(a)(3), 29 U.S.C. § 1132(a)(3), which provides for " appropriate equitable relief" to redress specified violations of ERISA or of plan terms. Amara III, 131 S.Ct. at 1882. In light of its decision to grant defendants' petition for certiorari and remand the case, a week later, on May 23, 2011, the Supreme Court also granted plaintiffs' petition, see Amara v. CIGNA Corp., 131 S.Ct. 2900, 179 L.Ed.2d 1243 (2011) [hereinafter " GVR Order" ],
which requested the Supreme Court to review this Court's affirmance of the district court's decision to order A benefits rather than a return to the Part A plan. See Petition for Writ of Certiorari, Amara v. CIGNA Corp., 131 S.Ct. 2900, 179 L.Ed.2d 1243 (2011) (No. 09-784), 2010 WL 17042. In accordance with the Supreme Court's decisions, this Court vacated the district court's judgment on July 11, 2011, and remanded the case for further proceedings.
On remand, the district court denied a motion by defendants to decertify the class and again ordered CIGNA to provide plaintiffs with A benefits and new or corrected notices, this time ordering such relief under § 502(a)(3). Amara v. CIGNA Corp., 925 F.Supp.2d 242, 265-66 (D. Conn. 2012) [hereinafter " Amara IV " ]. The present appeals ensued. CIGNA argues that the district court erred in declining to decertify the class and in ordering equitable relief pursuant to § 502(a)(3). Plaintiffs argue that the court erred in limiting relief to A benefits, as opposed to affording them the benefits they would have received pursuant to Part A.
We conclude, first, that the district court acted within the scope of its discretion in denying CIGNA's motion to decertify the plaintiff class. Next, we conclude that the district court did not abuse its discretion in determining that the elements of reformation have been satisfied and that the plan should be reformed to adhere to representations made by the plan administrator. Finally, based on the particular facts of this case, we hold that the district court did not abuse its discretion in limiting relief to A benefits rather than ordering a return to the terms of CIGNA's original retirement plan.
The facts of this case are set forth in considerable detail in the several prior opinions concerning this matter and we do not repeat them all here. This litigation stems from CIGNA's alteration of the terms of its standard pension benefit plan in 1998. CIGNA's original plan--Part A--granted beneficiaries defined benefits upon retirement. These defined benefits were generally provided in the form of an annuity in an amount based upon a number of factors such as the employee's salary, date of first employment at CIGNA, years of service, and age at retirement. By contrast, the new plan--Part B--provided benefits to most of CIGNA's employees in the form of a lump sum cash balance calculated on the basis of defined annual contributions. Under Part B, an employee could choose at retirement to receive his or her account balance in lump sum form or else as whatever annuity that lump sum could buy at the time that employee retired. To facilitate the transition between the plans, the new Part B plan included a formula whereby an employee would accrue new benefits to be deposited into his or her retirement account, as well as a formula for converting an employee's already-accrued Part A benefits into a Part B cash balance. The new plan also guaranteed that employees would receive at least the value of their already-accrued Part A benefits. That is, if an employee's total Part B benefits at retirement, including that employee's initial account balance and all benefits accrued by that employee under Part B thereafter, amounted to less than the total of that employee's Part A benefits as of December 31, 1997, then the employee would receive the amount of his
or her Part A benefits rather than the amount in the employee's account under Part B.
Instead of shifting immediately to Part B, CIGNA accomplished the transition between the plans in two stages. CIGNA first froze its Part A plan. As communicated to employees in a November 1997 newsletter, employees' Part A benefits ceased accruing as of December 31, 1997. Employees' account balances were then calculated during 1998, and balances were retroactively credited to each employee as of January 1, 1998.
CIGNA communicated the terms of the new plan and the process for plan conversion to its employees through that November 1997 newsletter, as well as through a summary of material modifications to the plan, two summary plan descriptions (" SPDs" ), and other materials. Among other things, CIGNA told employees that the new plan would " significantly enhance its retirement program." E-204. One SPD describing the plan informed each employee that " your benefit will grow steadily throughout your career." E-265. It also told each employee that his or her " opening balance [in the new Part B plan] was equal to the lump sum value of the pension benefit [he or she] earned through December 31, 1997." Id. In individualized compensation reports, CIGNA assured each employee that his or her initial account balance " represent[ed] the full value of the benefit [he or she] earned for service before 1998 payable to you at age 65."  J.A. 138. CIGNA also stated in a newsletter introducing the new plan that it would not receive any cost savings from its conversion from Part A to Part B.
The parties do not dispute that CIGNA's communications regarding its new plan were inaccurate. CIGNA actually saved an estimated $10 million annually by converting to its Part B plan. Contrary to CIGNA's descriptions of the plan to its employees, moreover, the new Part B plan did not preserve the full value of each employee's Part A benefits. The new plan was inferior in a number of critical ways. For instance, under Part A, employees had a valuable right to retire early with only moderately diminished benefits -- a right that the Part B plan did not preserve. And at least two additional features left many employees worse off:
First, the amount in each employee's initial retirement account actually did not reflect the entirety of that employee's Part A benefits because the calculation converting Part A benefits into the Part B lump sum included an adjustment that reduced each employee's account balance. This " haircut" was undertaken to offset the fact that under the new Part B plan, an employee's survivors were guaranteed to receive that employee's benefits (whether or not the employee died before retirement) whereas under Part A, the employee received benefits in annuity form (and therefore only received benefits if he or she was still alive at retirement). To compensate for this change, each employee's Part A benefits were not only converted into lump sum form, but were also discounted by the probability that the employee would live to retirement age. For example, if according to CIGNA's model, an employee had a 90% chance of living to retirement, the amount obtained by converting his or her Part A benefits into a lump sum was multiplied by
90% to obtain that employee's initial account balance. This meant that those employees surviving to retirement would receive less in retirement benefits than they otherwise would have received under Part A.
Second, under the new Part B plan, employees were not protected from fluctuating interest rates as they were under the Part A plan. The amount that an employee received under Part A was fixed according to factors, such as the employee's salary, which do not directly depend on interest rates. By contrast, the amount an employee receives under Part B is dependent on interest rates in two ways: (i) the rate of accrual of an employee's Part B account hinges on interest rates; (ii) if an employee were to elect to receive an annuity at retirement under Part B, the price of the annuity would be affected by the then-current interest rate (so that an employee would receive a lower annual benefit for the same lump sum price if interest rates were low when he or she retired). Because people tend to be risk averse with respect to their retirement savings, the insulation from interest-rate risk under the Part A plan was valuable.
Because of these differences between Part A and Part B, employees also risked experiencing what is known in the benefits industry as " wear away." Wear away occurs when an employee continues to work at a company but does not receive additional benefits for those additional years of service. While the new plan did guarantee that an employee would receive at least the amount of his or her Part A benefits as of December 31, 1997, it was possible for an employee to work for years after the conversion date before the amount in that employee's Part B account equaled the amount of benefits the employee would have been due under Part A at the time of the switch.
B. Procedural History
In 2001, plaintiffs, acting on behalf of approximately 25,000 beneficiaries of the CIGNA Pension Plan, filed suit. Plaintiffs claimed, inter alia, that by failing to give them proper notice of their benefits and misleading them regarding the nature of their benefits, defendants violated § § 102(a) and 204(h) of ERISA, 29 U.S.C. § § 1022(a) and 1054(h). In 2008, in a decision pertaining solely to CIGNA's liability, Judge Kravitz of the United States District Court for the District of Connecticut agreed that defendants had violated ERISA. Amara I, 534 F.Supp.2d at 363. He held that the appropriate standard of injury for determining whether an ERISA violation has occurred is " likely harm," and concluded that plaintiffs had demonstrated likely harm in this case. Id. at 351, 354. In a separate decision, the district court ordered CIGNA to reform the terms of its plan under § 502(a)(1)(B), which allows a plan " participant or beneficiary" to bring an action " to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B); Amara II, 559 F.Supp.2d at 222. Although plaintiffs indicated their preference for " a declaration that Part B is void and an injunction ordering a return to Part A," the district court instead ordered CIGNA to reform the terms of its plan to provide A benefits. Id. at 203, 222. Under this remedy, CIGNA was required to ensure that " all class members . . . receive their accrued benefits under Part A, in the form in which those benefits were available under Part A, and in addition their accrued benefits under Part B, in whatever form those benefits are available
under Part B." Id. at 222.
The district court expressed doubt regarding whether relief would be available to plaintiffs under § 502(a)(3), which provides for equitable relief. Id. at 205-06. But because the court ordered relief under § 502(a)(1)(B), it declined to examine fully whether relief was available under § 502(a)(3). Id. Critically, in ordering relief under § 502(a)(1)(B), the district court held that " the materially misleading statements in CIGNA's notices and disclosures" actually " constitute benefits under the terms of the plan." Id. at 205. The district court found that CIGNA's misleading communications promised A benefits ...