Don't Rely on SPD Disclaimers: The US Supreme Court to Rule on Remedies for Deficient Employee Communications
Readers of our Canadian posts know that allegedly deficient participant communications have generated lawsuits in Canada. Now US plan communications have come under scrutiny by the US Supreme Court, with a focus on remedies for deficient communications.
Sometimes a summary plan description (SPD) is prepared in a rush, although the U.S. Employee Retirement Income Security Act (ERISA) requires each participant to receive an SPD that describes the material provisions of the plan in language the average plan participant can understand. This is not easy. It has become standard to put a prominent disclaimer on the SPD stating that in case of any conflict between the SPD and the plan’s terms, the plan controls, even though courts have not upheld these disclaimers, typically ruling that the SPD can control in the case of conflict.
Deficient SPDs have now moved to the front burner, as the US Supreme Court heard oral argument on November 30 in CIGNA v. Amara. In this case the Supreme Court will rule on the correct remedies when an SPD does not describe a material limitation on pension benefits (i.e., that participants might not accrue any new benefits for a period of time) contained in the plan document.
If the CIGNA SPD had a traditional disclaimer, it was not viewed as determinative by the justices in the published reports of the oral argument. Indeed, Justice Kagan is reported to have stated that “…if ERISA says that the summary has to be consistent with the plan documents, nothing in the SPD can negate that requirement.” The issues considered by the Justices according to those who attended the oral argument are the following:
- Should participants always be able to recover benefits promised in the SPD?
- Is the SPD really part of the plan? If so, can a conflicting SPD function as a plan amendment?
- Do class members have to show that they actually read the SPD in order to recover?
- What kind of detrimental reliance might be required if detrimental reliance is a condition for relief?
- What remedies are available under Section 502 of ERISA if the SPD conflicts with the plan?
- Is recovery under contract law or trust law?
Regardless of how the Supreme Court rules, this case is a vivid reminder that SPD conflicts and deficiencies may lead to expensive lawsuits, and that SPDs should receive the same careful review as plan documents. So far, CIGNA won on the major plan challenges, but still remains embroiled in an expensive lawsuit with potentially costly relief.
Plan sponsors should heed the warnings raised by the CIGNA suit and make sure that material restrictions and limitations on benefits are clearly described in their SPDs. It is always a good idea to have the plan drafter and plan record-keepers review the SPD to identify any inconsistencies. Even more important, SPDs should be reviewed and updated periodically to make sure that they reflect recent plan amendments. Subjecting all participant communications to this type of review avoids the risk of having to pay benefits not promised by the plan documents.
