Amara v. Cigna Corp.

534 F.Supp.2d 288

Janice C. AMARA, individually and on behalf of others similarly situated, Plaintiff, v. CIGNA CORPORATION and Cigna Pension Plan, Defendants.

No. 3:01CV2361 (MRK).

United States District Court, D. Connecticut.

February 15, 2008.

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Allison C. Caalim, Stephen R. Bruce, Law Offices of Stephen R. Bruce, Washington, DC, Thomas G. Moukawsher, Moukawsher

& Walsh, Hartford, CT, for Plaintiff.

Bradford S. Babbitt, James A. Wade, Brett J. Boskiewicz, Robinson & Cole, Hartford, CT, Christopher A. Parlo, Morgan, Lewis & Bockius, New York. City, Jamie M. Kohen, Jeremy P. Blumenfeld, Joseph J. Costello, Morgan, Lewis & Bockius LLP, Philadelphia, PA, for Defendants.

MEMORANDUM OF DECISION

MARK R. KRAVITZ, District Judge.

Since the mid-1980s, hundreds of U.S. employers have converted their traditional defined benefit pension plans into what are known as "cash balance" retirement plans. In fact, according to the Pension Benefit Guaranty Corporation, over 1,500 cash balance plans and other similar hybrid plans were in existence as of 2003, providing pension benefits to over 8 million participants, approximately one-quarter of the total employee population covered by defined benefit plans. See Pension Benefit Guaranty Corp., Pension Insurance. Data Book 2004, at 59-60 (2005), available at http://www.pbgc.govidocs/2004databook. pdf. Like many other corporations, CIGNA Corporation converted its traditional defined benefit plan to a cash balance plan, in 1998.

Despite their popularity among employers, cash balance plans have spawned considerable, litigation. This case is yet another in a long list of cases challenging an employer's conversion to a cash balance retirement plan under the Employee Retirement Income Security Act ("ERISA").¹ Plaintiffs consist of a class of current and former CIGNA employees who participated in CIGNA's traditional defined benefit plan before January 1, 1998 and have participated in CIGNA's cash balance plan since that time. See Memorandum of Decision [doc. # 61]. Plaintiffs and Defendants raise numerous class, sub-class, and individual claims and defenses. See Order Under Federal Rule 23(c)(1)(B) [doc. # 241] (listing the class, sub-class, and individual claims and defenses). At the risk of over-simplification, however, the central issues in this case may generally be described as follows: whether CIGNA's cash balance plan is age discriminatory or otherwise violates certain non-forfeiture and anti-backloading rules under ERISA; whether CIGNA gave the notices and other disclosures required by ERISA; and whether the information CIGNA provided its employees about the conversion and the cash balance plan in summary plan descriptions and other materials satisfied ERISA's requirements.

The questions raised in this case are vitally important to both employers and employees (and their families). Given how profoundly significant retirement plans and planning are to the great majority of Americans — employees and employers alike — this is one area where the answers should be clear, explicit, and definite. Regrettably, however, the answers to the issues raised by these parties are not entirely clear, in large measure due to the fact that ERISA, and the regulations under it, are often lamentably obscure — to describe them as a tangled web does not do them justice. On top of that, there are conflicting decisions around the country on identical issues, making planning for nationwide enterprises impossible. Difficult, time-consuming, and expensive litigation with uncertain results — such as this case represents — is assuredly not a sensible way to manage the Nation's retirement system for either employers or employees. Sadly, at least for now, litigation appears to be the only option available to them.

In this case, the Court conducted a bench trial over seven days, hearing testimony (live and via deposition) from more than a dozen witnesses and receiving into evidence over 800 exhibits. The parties submitted detailed stipulations, proposed findings of fact and conclusions of law, and pre-trial briefs, and following trial, they submitted post-trial briefs and proposed findings of fact and conclusions of law. The Court also held a lengthy oral argument following completion of post-trial briefing. Counsel for each side distinguished themselves throughout this case by their skillful advocacy, professionalism, and civility. The Court is grateful to each of them.

In accordance with Rule 52 of the Federal Rules of Civil Procedure, the Court makes the following findings of fact and conclusions of law. As a preface to those findings and conclusions, the Court would note that these are close questions of law, involving complex and technical regulations, and the facts underlying this case are also complicated and extensive. Risking oversimplification, the Court can summarize as follows its general findings and conclusions to the key issues noted above: CIGNA's Plan is not age discriminatory and does not violate the non-forfeiture and anti-backloading rules under ERISA; in effectuating the conversion to the cash balance plan, CIGNA did not give a key notice to employees that is required, by ERISA; and CIGNA's summary plan descriptions and other materials were inadequate under ERISA and in some instances, downright misleading. ERISA gives employers substantial leeway in designing a pension plan, and the Court believes that CIGNA's Plan complies with the relevant statutory provisions. However, ERISA also emphasizes the importance of disclosure by employers to employees regarding the details of the company's pension plan, to enable employees to plan for their retirement and to make decisions of profound importance for their lives. This is where CIGNA failed to fulfill its obligations; the company did not provide its employees with the information they needed to understand the conversion from a traditional defined benefit plan to a cash balance plan and its effect on their retirement benefits. As noted below, the Court will require further briefing on the issue of what remedies are required or appropriate in view of the Court's rulings on liability.

I. Factual Background

The summary that follows, which is based upon the facts adduced at trial, is intended to provide general background information needed to understand the parties' dispute. Further facts bearing directly on certain contested issues are discussed in later sections.

Background Regarding Retirement Plans. A traditional defined benefit plan provides an eligible employee with an annuity (an annual benefit payable for the life of the employee) that is calculated as a percentage of the employee's salary multiplied by the employee's years of service. "Salary" may be defined as the highest salary the employee achieved, an average of the employee's salary over the last several years of service, or some other similar definition. For example, an employee might accrue a pension benefit beginning at age 65 of 1.5% of salary for every year of service; an employee who worked for the company for 30 years would then have an annual retirement benefit of 45% of salary. If a retirement plan defines "salary" as the employee's highest salary, then the employee's plan benefits, would increase as the employee moves closer to retirement and enjoys the higher salary that typically comes with longer service. By design, participants in traditional defined benefit plans often earn most of their benefits in the last several years of service. Also by design, the employer bears the risk of fluctuations in interest rates or, the market over the life of the retired employee.

Traditional, defined benefit plans often offer subsidized early retirement benefits, which encourage employees to remain with the company until the benefits are available and then to leave. A subsidized early retirement benefit is a benefit payable before normal retirement age (often as of age 55) that has an overall value that is greater than the present value of the benefit payable at normal retirement age (usually age 65). If the employee does not retire at the earliest opportunity to obtain the subsidized early retirement benefit — 1 say, 55 — the value of that benefit diminishes with each passing year until it is completely lost as of the date of normal retirement — for example, by age 65.

By contrast to traditional defined benefit plans, defined contribution plans do not offer fixed assurances of annual benefits for life upon retirement. Instead, the employer contributes a certain amount (for example, 10% of each year's salary) to the plan each year. Each employee is entitled to the money allocated to a separate individual retirement account, plus the upside risk of favorable investment returns. However, the employee bears the risk of fluctuations in interest rates or the market once the employer contributes the funds to the employee's retirement account.

Cash balance plans "imitate some features" of defined contribution plans by referring to individual accounts and allocations, Esden v. Bank of Boston, 229 F.3d 154, 158 (2d Cir.2000), but the accounts and allocations are only "hypothetical," not real. The "employee has no actual account, the employer makes no contributions to the employee account, and so there is no account balance to which interest might be added." Berger v. Xerox Corp. Ret. Income Guarantee Plan, 338 F.3d 755, 758 (7th Cir.2003). Though they may imitate some of the features of defined contribution plans, cash balance plans are governed by the rules for defined benefit plans. See Esden, 229 F.3d at 158.

Cash balance plans were introduced in the mid-1980s, and hundreds of employers have adopted them since then. Recent estimates are that between one-quarter and one-third of large U.S. employers sponsor a cash balance plan. See Pension...