This month, we discuss the Ninth Circuit's recent decision in Skinner v. Northrop Grumman Retirement Plan B, 2012 WL 887600 (9th Cir. March 16, 2012), which applied the Supreme Court's decision in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), to hold that employees who received a flawed summary plan description, which did not adequately explain that their benefits would be offset, were not entitled to equitable remedies under Section 502(a)(3) of ERISA. In so doing, the Ninth Circuit became one of the first circuit courts to actually analyze reformation and surcharge as equitable remedies after Amara. The article discusses the practical significance of the Ninth Circuit's decision in ERISA claims arising from allegedly deficient SPDs, as well as the decision's insight as to how courts will apply Amara's observations on ERISA's equitable remedies and as to what a plaintiff must prove to obtain reformation of a plan or a surcharge award.
Next, we provide a follow-up discussion on the federal discovery rule's application to contractual provisions in a plan document that not only narrow the limitations period to bring an ERISA claim for benefits, but also prescribe when the claim accrues for limitations purposes. Although most circuits enforce such contractual provisions, there are some holdouts. As discussed below, courts that have invalidated contractual accrual provisions do so out of the misplaced belief that because federal law, rather than state law, governs the accrual of a cause of action, a contractual limitations period cannot apply.
As always, be sure to review the section on Rulings, Filings, and Settlements of Interest.
Contributed by Stacey Cerrone
In CIGNA Corp. v. Amara, 131 S. Ct. 1866, 50 EBC 2569 (2011), the U.S. Supreme Court stated in dicta that the "equitable relief" authorized under ERISA Section 502(a)(3) included a broader range of remedies than previously recognized.[2] Less than a year later, the U.S. Court of Appeals for the Ninth Circuit applied Amara to claims arising from a flawed summary plan description (SPD) in Skinner v. Northrop Grumman Retirement Plan B, 2012 WL 887600, 52 EBC 2089 (9th Cir. March 16, 2012). [3] The Skinner court held that employees who received an SPD that did not adequately explain that their benefits would be offset were not entitled to equitable remedies under Section 502(a)(3) of ERISA. In so doing, the Ninth Circuit became one of the first circuit courts to actually analyze reformation and surcharge as equitable remedies under Amara.
Facts of the Case
The Plan. In 2001, Northrop Grumman Corp. (Northrop) acquired Litton Industries, Inc., (Litton). At the time of the acquisition, Litton sponsored a qualified defined benefit pension plan, Litton Plan B. During the time that Litton was acquired, Northrop had also acquired a number of other companies and thus had many different pension plans with many different plan structures. As a result, Northrop designed a new pension plan, the Northrop Grumman Pension Plan, effective July 1, 2003, which included all of the various retirement plans and transitioned all of those plans to a cash balance plan. As part of this redesign, Litton Plan B became Northrop Plan B and its participants were provided with a five-year transition benefit, which included an offset.
Plan Communications. The 2003 Northrop SPD disclosed the transition benefit and was made available to participants in early 2003, before the effective date of the plan. The Northrop SPD summarized the various changes, described the transition benefit (including the offset), and explained that the offset would be applied to all participants. The language describing the offset as applying to all participants was consistent with a Litton SPD from the 1980s but appeared to conflict with a Litton SPD from 1998, which stated that the offset only applied to participants choosing lump-sum distributions. Noting it was only a summary, the Northrop SPD went on to refer participants to historical plan documents for the ''specific rules and provisions'' and explained that the transition benefit would be calculated according to the terms of prior plans.
In May 2003, Northrop sent all participants a notice of plan amendments, pursuant to ERISA Section 204(h), that also disclosed changes in the retirement plan formulas. This notice referenced the prior benefit formula from Litton Plan B, reminded participants that their prior Litton Plan B benefit also contained an offset, and explained that the five-year transition benefit would be the greater of each participant's historical plan formula—which, for Litton Plan B, included the offset—and the new cash balance formula.
Northrop benefits representatives also conducted meetings for employees who were affected by the plan changes. During the meetings, a PowerPoint presentation described and highlighted changes to the plans and a so-called ''Glossy Overview" was distributed. The Glossy Overview also described the transition benefit. In 2005, the company also provided a Summary of Material Modifications (SMM) to participants that specifically explained the application of the offset.
Plaintiffs. Plaintiff Stratton retired on July 31, 2006. He received an estimated pension calculation in February 2005 and an updated pension calculation shortly before his retirement. During his deposition, Stratton testified that he reviewed the 2003 SPD and received both the 1988 and 1998 SPD for the Litton Plan B. He also testified that he was aware of the offset and correctly understood how the offset would affect his pension.
Prior to his retirement, he submitted an administrative claim to the Northrop Administrative Committee claiming that defendants had not administered the plan in accordance with the SPDs regarding the calculation of the Part B transition benefit. The committee denied his claim.
Plaintiff Skinner retired May 31, 2005. In both June 2004 and December 2004, Skinner received estimated pension calculations. Both calculations showed how his Part B transition benefit would be calculated and included a correct application of the offset. In deposition, Skinner acknowledged reviewing the estimates and understanding how Northrop would calculate the transition benefit, including the offset.
After his review, Skinner asked the Northrop Benefits Center to clarify the calculations and advised coworkers regarding the use of the offset. Skinner also stated that he understood there was a master plan document outlining the formula in detail but that he did not review it. He testified that he did receive the 1988 and 1998 Litton Plan B SPDs.
Before retiring, Skinner also submitted an administrative claim to the Northrop Administrative Committee claiming that the defendants had not administered the plan in accordance with the SPD provisions regarding the transition benefit. The committee denied his claim.
Procedural History
The plaintiffs filed suit June 15, 2007, alleging that Northrop violated ERISA by miscalculating their benefits. They challenged the use of the offset in determining their pension benefits, arguing that the 2003 SPD did not give them notice of the offset, because it merely told participants that their transition benefit would be determined under their prior plan, and since the 1998 SPD for the Litton B Plan did not give adequate notice that the offset would apply to all participants.
The plaintiffs further argued that, because their expectation of the offset was based on the 1998 SPD's description, the 1998 SPD controlled over the general offset described in the 2003 SPD. In March 2008, the district court granted summary judgment dismissing the claims.[4]
In 2009, the Ninth Circuit reversed, holding that the 998 Litton SPD's description of the offset (i.e., limiting application to individuals taking lump-sum distributions) controlled over the 2003 Northrop SPD's offset description (i.e., extending the offset to all participants), because the 2003 SPD's incorporation of the earlier Litton SPD did not adequately notify plaintiffs that the offset would apply to their transition benefits.[5]
The Ninth Circuit held that this ambiguity between the plan and SPD created a triable issue of fact in light of prior precedent dictating that a more-employee favorable SPD controls over a conflicting and ambiguous plan document.
On remand, the parties filed cross-motions for summary judgment. The district court again ruled for the defendants, holding that the plan participants did not rely on the faulty SPD. Accordingly, the plaintiffs were not entitled to recover greater benefits than those provided in the plan simply because of the faulty SPD.[6]
Ninth Circuit Affirms Dismissal of Claims
The plaintiffs appealed again, arguing that they did not need to prove reliance on the SPD to prevail on their claim. After initially staying the case while the Supreme Court considered Amara, the Ninth Circuit asked for supplemental briefing on Amara's impact on the appeal.
On supplemental briefing, the plaintiffs argued the disclosures to participants were not adequate and, consistent with the Supreme Court dicta in Amara, sought to ''obtain other appropriate equitable relief'' to redress ERISA violations under Section 502(a)(3).
Since the appeal arose from a summary judgment, the Ninth Circuit viewed the facts in the light most favorable to the plaintiffs. Thus, the court accepted that the Northrop administrative committee failed to ensure that plan participants received an accurate and comprehensive SPD that included ''a statement clearly identifying circumstances which may result in ... offset [or] reduction ... of any benefits'' that a participant would reasonably expect.[7]
The court then turned to whether the plaintiffs' claims for equitable relief under one or more of the three possible forms of...
