A U.S. Supreme Court sent an important reminder to retirees this week: you can’t necessarily rely on your employer for an accurate description of your pension benefits.
The court issued a ruling in Cigna v. Amara, a closely-watched case dealing with the health insurance company’s defined benefit (DB) pension plan for its own workers. Cigna had converted its DB plan into a hybrid cash balance plan, but provided incorrect information about benefits owed to employees when the conversion took place.
Central to the case is the company’s Summary Plan Document (SPD) — a short-form description of plan benefits that employers distribute to beneficiaries when they first become covered, and when material changes are made to the plan. Cigna admitted in court that its SPD was misleading, but disputed the contention that all 27,000 members of the class action lawsuit suffered “likely harm.”
Two lower courts had backed the plaintiffs’ contention that they should receive the benefits as described in the SPD. The Supreme Court ruled that nothing in the Employee Retirement Income Security Act (ERISA) permits a court to alter the terms of a pension plan, but the high court also sent the case back to the district court to determine how to remedy the problem.
Legal experts differed yesterday on whether the ruling was a win for Cigna and other plan sponsors, or for the beneficiaries — although pension advocates were confident the decision ultimately will produce a victory for employees when the lower court ultimately rules.
“This ruling says that if you are a plan trustee and deliberately mislead beneficiaries, they can sue you for monetary damages,” says Karen Ferguson, director of the Pension Rights Center. “The standards laid down by the Supreme Court in this decision make it likely that the Cigna employees and retirees will get the pensions that they had been led to believe that they would get."
But no matter how the case turns out, the legal battle serves up a clear cautionary reminder to private sector workers participating in DB plans — namely, that you can’t take your SPD to the bank.
If you do participate in a private sector DB plan, here are three key factors to keep in mind, and steps you can take:
Manage complexity. DB plans offer a great deal of value in that they provide lifetime income — but they’re more complex to manage and understand. “We all know how a 401(k) works — you get a statement, here’s what you’ve accumulated, here are your investments,” says Mary Ellen Signorille, an attorney with the AARP Foundation, which filed an Amicus brief in the Cigna case.
“A DB plan is more complex, and the benefits can change depending on definitions of things like salary, multipliers and the like. It’s crucial to know the different pieces and try to get as much information as you can.”
Get your statement. The Pension Protection Act of 2006 requires DB plans to distribute an individual benefit statement to each plan participant every three years. As an alternative, plans must notify participants annually that an individual benefit statements is available. The Pension Rights Center offers a fact sheet with more detail on this aspect of the law.
Get help. If you have questions about your DB or any other retirement benefit plan, free legal assistance is available in 29 states through the U.S. Administration on Aging’s Pension Counseling and Information Program. The program funds pension counseling projects to help people understand their rights and get the benefits they have earned. The Pension Rights Center offers a downloadable PDF with more information on this program.
Pension recipients outside the states covered by this project can contact PensionHelp America, a one-stop source of pension information and assistance. Finally, the American Academy of Actuaries offers free or low-cost actuarial services to people who have questions about their plans.