WASHINGTON BUREAU – Members of the Supreme Court seem to be divided on the standard that should be used when determining whether all beneficiaries of a pension plan should receive additional benefits because the plan’s summary plan description (SPD) was inaccurate.

The case before the court, CIGNA Corp. vs. Amara, No. 09-804, concerns a move by AmaraCIGNA Corp., Philadelphia (NYSE:CI), to switch to a cash balance pension plan in 1998.

The lead plaintiff in the case, Janice Amara, was a participant in the plan.

The lawyers representing Amara and the other 27,000 plan participants say the SPD gave incomplete, inaccurate information about how the conversion would work and how the new plan would perform.

A federal judge in Connecticut said the plan participants were “likely harmed” and deserved damages. The district court verdict was sustained by the 2nd Circuit U.S. Court of Appeals.

According to comments made during oral arguments Tuesday, the damages could amount to about $70 million if the district court award is upheld.

CIGNA appealed to the Supreme Court.

Other circuits have come to different conclusions about the issues involved in the case, and the Supreme Court’s interpretation of the Employee Retirement Income Security Act (ERISA) in this case will be of critical importance to plan sponsors, according to Myron Rumeld, a partner in the New York office of Proskauer Rose L.L.P.

There would be “a tremendous amount of exposure to plan sponsors any time a summary plan description is challenged as misleading and inaccurate if participants can recover from the plan on a class-action basis,” Rumeld said.

If the plan participants go on to win the case, one problem would be that the participants would be collecting damages based on their misunderstanding of what the plan offered, Rumeld said.

“In other words, the plaintiffs want to collect on something the plan never intended to provide just because the plan summary was inaccurate in characterizing what the plan would provide,” Rumeld said.

ORAL ARGUMENTS

Theodore Olson, a lawyer for CIGNA, argued before the Supreme Court Tuesday that “detrimental reliance,” the standard that the defendants back, cannot be handled on a class-action basis and must be analyzed on a case-by-case basis.

Olson contended in oral arguments that the “court shouldn’t determine liability for plan sponsors on the basis that the summary is a contract, the Department of Labor’s point of view, and that plan participants don’t have to show any harm at all to collect damages,” Rumeld said.

Olson acknowledged a “breach” in the accuracy of the SPD, but he contended that, just because something was wrong with the summary, that does not mean that the claimant can collect on that basis, Rumeld said.

The strongest supporter for the plaintiffs’ arguments came from Justice Elena Kagan.

“It seems clear that this statute is set up so that everything that is important, everything that the employee needs to know and needs to rely upon, is supposed to be in the summary, not necessarily in the written instrument,” Kagan said. “The summary can’t negate the force of ERISA, and if ERISA says that the summary has to be consistent with the plan documents nothing in the summary can negate that requirement.”

Kagan appeared to have some support from Justice Ruth Bader Ginsburg.

Justice Antonin Scalia, Stephen Breyer and Anthony Kennedy expressed concern about whether everything in the SPD must be in the written plan, and vice versa.

“So the one cannot be more detailed than the other, can it?” Scalia asked.

“The plan can be more detailed than the SPD,” Olson said.

Breyer noted the pension SPD case could be similar to a case involving problems with trust documents.

“What happens in … trust law where, let’s say, there are 10 or 50,000 beneficiaries in a trust, and — and the trustee has indeed made an error,” Breyer said. “And now they can recover money only if, only if there really has been harm. Now, how does — how does trust law work that out? This can’t be the first time this ever arose in history. We have a big class.”

Stephen Bruce, who represented the plan participants, said that, once it has been shown that there has been a breach of a trustee’s duty to disclose material information, the trustee would have the burden of showing that the breach had caused no harm.