In 2011, the Supreme Court issued a major ERISA decision, Cigna Corp. v. Amara, 131 S.Ct. 1866 (2011), holding that courts could not reform an ERISA plan as part of a claim for benefits under 29 U.S.C. 1132(a)(1)(B), but could do so as an equitable remedy under 29 U.S.C. 1132(a)(3). The case involved a situation in which the district court had ruled that Cigna had misrepresented the terms of a new pension plan when asking employees with vested rights in an outgoing plan to accept transfer. The district court had reformed the plan under 1132(a)(1)(B) to provide the benefits Cigna had promised; the Supreme Court held that the district court had used the wrong section of ERISA as the basis for its ruling.The Supreme Court then remanded for further consideration under the rules and limitations it had announced.

Amara v. CIGNA Corp., 775 F.3d 510, 513 (2d Cir. 2014), presumably is the final decision in this long-running dispute.

The substance of the dispute, in brief, concerned the effects of the 1998 conversion of Cigna’s defined benefit plan (“Part A”) to a cash balance plan (“Part B”). Before the Supreme Court decision, the district court had certified the plaintiff class, and ordered Cigna (under 1132(a)(1)(B)) 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+B” benefits.

On remand, not surprisingly, the district court again ordered Cigna (now under 1132(a)(3)) to provide plaintiffs with A+B benefits. Both sides appealed.

On appeal, Cigna argued that, under trust law, it is the settlor’s intent, only, that is relevant to reformation, and Cigna never intended to provide A+B benefits. However, the Second Circuit held that it was proper to apply contract principles, rather than trust principles, in reforming the plan. As support, the Second Circuit noted that the Supreme Court had referred to principles of contract law in the Amara decision, and noted that the Restatement of Trusts provides that, when consideration is involved in the creation of a trust, contract reformation principles apply.

Under contract principles, the plaintiffs were required to show either mutual mistake, or “fraud or similar inequitable conduct.” Because Cigna did not make a mistake in its understanding of the plan terms, plaintiffs were required to prove fraud by clear and convincing evidence. Given that the district court had found intentional misrepresentation, and the Second Circuit had affirmed, before the case went to the Supreme Court, it is not surprising that the district court found fraud on remand and the Second Circuit affirmed.

Of interest, the court found that it does not affect reformation that Cigna made the misrepresentations at issue in its role as a plan administrator, nor sponsor. This was a distinction that was important to the Supreme Court in Cigna v. Amara. But the Second Circuit held: “We agree with the district court that to deny reformation solely due to the general distinction between sponsor and administrator in ERISA would be inequitable in the circumstances here[.]” Moreover, 1132(a)(3) permits equitable claims against both sponsors and administrators. And, as the Supreme Court held, the SPD (in which the misrepresentations were made) “provide communication with beneficiaries about the plan,” making the SPD an appropriate source to find misrepresentations supporting reformation.