The Supreme Court today reversed two lower-court rulings in a class-action case that arose after Cigna switched from a traditional defined-benefits retirement plan to a cash-balance plan in 1998.

As CFO reported in December, Cigna employees had argued that the new summary plan description (SPD) misled them into thinking they would be getting the full value of the first plan plus new benefits accruing from the date of the change. But, as stated in the detailed plan document, and as is common practice with such plan changes, each worker’s cash-balance account had a starting balance that was less than the value of his or her defined-benefit account.

A federal district court sided with the employees. In its appeal, the insurance company did not deny that the SPD was misleading, but rather took issue with the lower court’s finding that all 27,000 class members suffered “likely harm.” Employees who were not likely to have done anything differently had the SPD been crystal clear should not get the higher retirement benefits, Cigna argued. But the appeals court upheld the original ruling, and the plaintiffs brought the case to the Supreme Court.

Today’s ruling overturns the two earlier decisions, which enforced the terms of the SPD, as understood by the participants, instead of the terms of the plan itself. “The lower-court ruling had posed a substantial threat to plan sponsors by subjecting them to classwide relief for a miscommunication without requiring any showing of harm,” says Myron Rumeld of the global law firm Proskauer. “But the Supreme Court correctly concluded that the SPD is merely meant as a summary of the plan, and its mistaken terms should not be enforced as a contractual matter.”

The high court did remand the case back to district court to consider whether the relief it had imposed could still be fashioned as an equitable matter. But it placed significant obstacles to such relief by making clear that any equitable relief must be conditioned on a showing of fraud or harm to plan participants. 

“In short, the Court rejected the notion that there is a ‘one-size-fits-all’ approach to claims based on faulty communications, such that all participants automatically recover additional benefits that were never intended under the terms of the plan,” Rumeld says.