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The Wagner Law Group News
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Marcia Wagner Selected as Top
Woman of Law
Massachusetts Lawyers Weekly selected Marcia Wagner as a
Top Woman of Law from more than 60 nominations. Marcia will be
honored at the 4th annual Top Women of Law awards event on
Friday, September 23, 2011, from 11:30 am to 2 pm at the Hynes
Convention Center in Boston. Liz Walker, Boston media personality and
humanitarian, is the keynote speaker. If you would like to attend the
event, you can purchase tickets
online.
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Upcoming Events
CFDD 2011 Advisor
Conference in Chicago:
Marcia Wagner will be talking about Techniques to Help Advisors
Consult to the Fastest Growing DC Plan Market and Prospecting the
Market Companion DB
Plan 403(b) Business.
October 18, 2011
MCNY Network for a
Cause Fundraiser Auction:
Marcia Wagner, as a member of the host committee, invites you to the
Copacabana to help raise money for the Metropolitan College of New
York. Please follow the link above to reserve your seat. October 24, 2011
Boston Bar Association:
Eugene F. Pollingue, Jr.will be speaking on income tax implications of
liquidating a partnership. November
10, 2011
Palm Beach Bar Association:
Eugene F. Pollingue, Jr. will be speaking on
the impact of Civil Law on estate planning in the US. January 25, 2012
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Recent
Seminars
Below are links to seminar material that The Wagner Law
Group recently presented.
"How Women and
Diversity Add Value to Your Practice," Marcia Wagner, Broadridge Women's Leadership Forum
2011 Matrix "Get Connected" Conference
(Keystone, CO)
"Important
Pension Changes from D.C. - What Do You Need to Know?" Marcia Wagner, 2011 Matrix "Get
Connected" Conference (Keystone, CO)
"Important
Pension Changes from D.C. - What Do You Need to Know?"
Marcia Wagner, John Hancock Mixer Meeting, August 11, 2011
(Beachwood, OH)
"Important
Pension Changes from D.C. - What Do You Need to Know?"
Marcia Wagner, Clark Capital Management Group, Inc. Navigator 401(k)
Symposium, August 4, 2011 (Philadelphia, PA)
"Termination of
Tax-Qualified Defined Benefit Contribution Plans," Ari Sonneberg, UBS Financial Services Seminar,
August 5, 2011 (Palm Beach Gardens, FL)
"Overview of
ERISA Fiduciary Responsibility and Liability and Best
Practices," Marcia Wagner,
Retirement Alliance 2011 Advisor Summit, July 27, 2011 (Meredith,
NH)
"Plotting the
Points and Staying the Course: Analyzing Emerging Financial
Regulations and Anticipating its Impact on Investment Strategy," Marcia Wagner, U.S. Pensions Summit 2011, July 20, 2011
(Chicago, IL)
"Important
Pension Changes: What Do You Need to Know?" Marcia Wagner, Commonwealth Financial Network
Symposium, June 21, 2011 (Boston, MA)
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Articles Published
Below are links to recently published articles written
by The Wagner Law Group.
"Review of DOL Amicus Filings," Marcia Wagner, 401(k)
Advisor, August 2011
"Case Suggests That RFPs May Be Necessary to
Fulfill Fiduciary Duties," Marcia
Wagner, 401(k)
Advisor, August 2011
"CIGNA Cash
Balance Conversion Case: Justice Trumps Law 6-to-2 - But Who Got It
Right?" Alvin D.
Lurie, Benefits
Link, June 29, 2011
"New Puerto Rico
Tax Code Requires Big Changes to Retirement Plans for Puerto Rico
Employees, Marcia Wagner, 401(k) Advisor, June
2011
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Webinars and Podcasts
Below are recently conducted webinars by The Wagner Law
Group.
"BlackRock 2011
Defined Contribution Survey Results Shifting Focus: From Retirement
Savings to Retirement Income," Marcia Wagner,
BlackRock, Inc. Webinar, June 28, 2011
"Washington
Update: The Changing Face of 401(k) Plan Regulation," Marcia
Wagner, Women in Pensions Network Webinar, June 23, 2011
"Guidance on
Deferred Compensation: IRC 409A and IRC 457," Marcia Wagner, The 401k Coach Program Year
One - Session 3 Webinar, June 22, 2011
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Quoted Articles
Below are links to recently published articles quoting
The Wagner Law Group
"Great-West, Lincoln Trust Jump on Plan and
Participant Fee Disclosures," Marcia Wagner, Investment News, August 15,
2011
"Two New MEPs Combine Cash Balance and 401k," Marcia
Wagner, The
401kWire, August 4, 2011
"A TPA Launches a Pair of 403(b) MEPs," Marcia Wagner, The 401k Wire, August 2,
2011
"Lurie on Cigna v.
Amara: What Makes this Supreme Court Case Potentially so Significant?" Alvin D.
Lurie, Employee
Benefits and Retirement Planning Newsletter #576, June 23,
2011
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The Wagner Law Group
Description
The Wagner Law Group,
A Professional Corporation, is a nationally recognized
ERISA & employee benefit, estate planning, employment,
labor & human resources practice.
Established in 1996,
The Wagner Law Group has 19 attorneys engaged exclusively in employee
benefits, estate planning and employment law. Six of our
attorneys are AV rated by Martindale-Hubbell as having very high to
preeminent legal abilities and ethical standards. The firm is among
the largest ERISA boutiques in the country. Our practice is national
in scope, with clients in more than 40 states and several foreign
countries.
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Contact Info
The
Wagner Law Group
Massachusetts
Office
Tel: (617)
357-5200
Fax: (617)
357-5250
99 Summer
Street
13th Floor
Boston, MA 02110
Florida
Office
Tel: (561) 293-3590
Fax: (561) 293-3591
7121 Fairway Drive
Suite 203
Palm Beach Gardens, FL 33418
New
York Office
Tel: (716) 650-5987
Fax: (716)
633-0301
333 International
Drive
Suite B-4
Williamsville, NY
14221
www.wagnerlawgroup.com
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This
Newsletter is protected by copyright. Material appearing herein may
be reproduced with appropriate credit.
Pursuant
to Internal Revenue Service Circular 230, we hereby inform you that
any advice set forth herein with respect to US federal tax issues is
not intended or written by The Wagner Law Group to be used and cannot
be used, by you or any taxpayer, for the purpose of avoiding
penalties that may be imposed on you or any other person under the
Internal Revenue Code.
This
Newsletter is provided for information purposes by The Wagner Law
Group to clients and others who may be interested in the subject
matter, and may not be relied upon as specific legal advice.
This material is not to be construed as legal advice or legal
opinions on specific facts. Under the Rules of the Supreme Judicial
Court of Massachusetts, this material may be considered advertising.
Current and back
issues of this Newsletter are available on our website at:
www.wagnerlawgroup.com.
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The Wagner Law Group has some exciting news. In
July, we opened a New York office to serve our clients located in
that state. The New York office is headed by Steve Newman, who focuses on
tax, estate and asset
protection planning. Joining him is Geri Zamber, who has over 25
years experience as a paralegal in tax planning, corporate matters
and employee benefits.
In August, we expanded our current services to include employment, labor
and human resources law. Spearheading this new area is David Gabor, who has 20 years
of experience in litigation, employment and business
law.
As always, if you have any questions or comments,
please call us at (617) 357-5200 or email a member of our team.
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IRS Clarifies Process for Terminating
403(b) Plans and Tax Impact
on Participants Receiving Termination Distributions
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The IRS recently released Revenue Ruling 2011-7 (the
"Ruling") to clarify the requirements for employers
terminating 403(b) plans. The Ruling also explains the tax
consequences for participants receiving 403(b) plan termination
distributions, such as annuity contracts or certificates.
Background
Before the IRS issued regulations in 2007, plan
termination, unlike severance from employment, disability, death or
attainment of age 59½, was not a distributable event for 403(b)
plans. As a result, most employers froze rather than terminated
their 403(b) plans because the plans could not make plan
termination distributions. Freezing a 403(b) plan meant simply
stopping contributions to the plan. As long as the plan assets were
not fully distributed, however, employers whose 403(b) plans were
subject to the Employee Retirement Income Security Act of 1974
("ERISA") had an obligation to continue complying with
ERISA's reporting and disclosure rules (e.g., filing annual
Forms 5500).
The 2007 regulations generally became effective January 1, 2009,
and they permit 403(b) plans to have provisions that allow for plan
terminations and distributions upon plan termination under certain
conditions. It should be noted, however, that an employer generally
cannot contribute to another 403(b) plan during the period
beginning on the 403(b) plan termination date and ending 12 months
after the date that all plan assets have been distributed. (An
exception to this rule allows an employer to terminate a 403(b)
plan while contributing to other 403(b) plans, but only if 2% or
fewer of the participants eligible under the terminated plan are
also eligible under the other 403(b) plans.) The 2007 regulations
also require employers to distribute the 403(b) plan assets as soon
as administratively feasible after plan termination.
Unfortunately, the 2007 regulations did not address
key questions that employers and their advisors had about the plan
termination process and the income tax consequences for plan
participants. The Ruling now addresses those questions.
Revenue Ruling 2011-7
Employer Requirements for 403(b)
Plan Termination
The Ruling clarifies that an employer can terminate
its 403(b) plan by adopting a binding resolution to: (i) cease
contributions, (ii) terminate the 403(b) plan as of a stated
effective date, (iii) fully vest participants as of the termination
effective date, and (iv) direct that all benefits be distributed as
soon as practicable thereafter. Participants should also be
notified of the plan termination. In addition, if the terminating
403(b) plan and the 403(b) contracts used to fund the plan permit
cash distributions that may be rolled over to another tax-favored
retirement savings arrangement, participants must be provided
notice of their rollover rights and afforded the opportunity to
exercise such rights.
Tax Impact on Participants Receiving 403(b) Plan Termination
Distributions
The Ruling clarifies that, if the plan termination
distributions are not in cash but in the form of fully paid
individual annuity contracts (or certificates evidencing fully paid
benefits under a group annuity contract), participants will not be
taxed on their benefits until such amounts are actually paid to
participants. However, those individual and group annuity
contracts must continue to comply with the 403(b) requirements in
effect when the contracts or certificates are delivered to the
participants.
If the plan termination distributions are in cash, then
participants will be subject to income taxation unless the cash is
rolled over to another tax-favored retirement savings arrangement (i.e.,
a tax-qualified plan or an individual retirement account) within 60
days after distribution.
Action Steps for Plan Sponsors Considering Terminating 403(b) Plans
403(b) plan terminations require advanced planning and awareness of
the legal requirements and tax consequences. Employers that are
considering terminating their 403(b) plan should review the plan
document to determine whether it needs to be amended to provide for
plan termination distributions. Employers also need to determine
whether cash distributions are allowed under any 403(b) contracts
used to fund the plan, thereby permitting participants to roll over
cash plan termination distributions into IRAs or another
tax-qualified retirement plan. If cash is available, the employer
must ensure the appropriate rollover notice is provided to plan
participants and should assist plan participants in dealing with
the 403(b) contract vendors. For participants receiving annuity
contracts (or certificates under a group annuity contract) instead
of cash, the employer should obtain confirmation from the 403(b)
contract vendor that the contract complies with the 403(b)
requirements in effect when the plan termination distributions
occur so that participants are not taxed on the value of the
contracts at the time of distribution.
In addition to the IRS-imposed requirements for 403(b) plan
terminations, employers should also investigate whether their
403(b) contracts impose cash surrender charges against participants
who elect to receive a cash distribution instead of an annuity contract
(or certificate) distribution. Surrender charges are usually based
on a percentage of the participant's account and decrease based on
the length of time the participant has had the account. If an
employer cannot negotiate a waiver of any surrender charges, it
should insist that the 403(b) contract vendors communicate and
explain the surrender charge before participants make their plan
termination distribution elections. Employers should also be
cognizant of their fiduciary responsibilities concerning surrender
charges, and behave and negotiate accordingly.
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Common 409A Compliance
Problems for Employers
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While the IRS regularly provides formal and informal
guidance to assist employers with understanding the application of
Internal Revenue Code (the "Code") Section 409A, some of
the rules continue to create compliance and plan design challenges
for employers. Given the serious nature of the penalties under
Section 409A for compliance failures, employers should review their
plans on an ongoing basis for operational and document-related
compliance. Section 409A penalties, which are imposed directly on
the employee who receives the deferred compensation, include the
following:
- Immediate inclusion
in taxable income of the amount of compensation deferred for
the year in which the amount was deferred regardless of
whether the compensation has been paid;
- An additional 20%
income tax on the amount deferred; and
- Additional interest
and penalties for failure to timely remit the income
taxes.
Although employers are not directly exposed to Section
409A penalties, they may decide or have agreed to pay any such
penalties incurred by employees. Moreover, employers may face tax
reporting and withholding penalties attributable to the Section
409A violation.
Below is a list of 409A compliance issues that employers frequently
encounter:
Deferral of Bonuses
Section 409A provides that an employee may elect to
defer compensation for services performed if the employee makes the
election before the close of the taxable year preceding the year in
which the services are performed. However, many employers mistakenly
allow employees to defer discretionary bonuses under a deferred
compensation plan in the year before it is paid rather than in the
year before it is earned.
Consulting Service
Under Section 409A, a termination of employment occurs
when both the employer and employee reasonably believe that the
employee will perform no further services for the employer, or that
the level of services to be performed will be less than 20% of the
services performed by the employee during the preceding 36-month
period.
Quite often, when key executives retire, employers
retain their services as independent-contractors or consultants.
Section 409A requires that such consulting services be counted for
purposes of determining whether there has been a termination of
employment. For example, if an employer retains a retired executive
as a consultant to perform services at a level of 20% or more than
that which the executive provided during the prior 36-month period,
then, for Section 409A purposes, the executive has not terminated
employment with the employer. As a result, any severance payments
scheduled to commence under a nonqualified deferred compensation
plan at termination of employment cannot begin until the executive
experiences a true termination of employment.
Short-Term Deferral Rule
When an employment agreement provides for the payment
of an award immediately upon vesting, the award is exempt from
Section 409A under the "short-term deferral" rule. If,
for example, an employee is required to be employed with the employer
on the last day of the year in order to receive the award, and the
award is, in fact, paid to the employee within 2½ months after the
end of the year, the award satisfies the short-term deferral rule
and the arrangement is exempt from the rules of Section 409A.
Long-term bonus plans and restricted stock plans often
contain early vesting provisions for retirement. Typically, these
agreements will provide that once certain age and service
requirements have been satisfied, an employee can voluntarily terminate
employment at any time and receive either a full or pro-rated bonus
or award. Because this bonus or award vests upon satisfaction of
the required age and service requirements, but its payment is
usually not made within 2½ months after the close of the plan year
in which vesting occurred, it is not a short-term deferral and is
subject to Section 409A. Many employers incorrectly believe such
plans are exempt from Section 409A and fail to incorporate the
required Section 409A language into the plan document, thereby
creating a document failure under Section 409A.
Substitution Payments
When an executive's employment is involuntarily
terminated, the employer may attempt to negotiate new severance
payments that are structured differently and would replace existing
severance payments provided for under the executive's employment
agreement. In general, if severance payments are subject to Section
409A, the time and form of the severance payments may not be
changed by giving up rights under an old agreement for payments
under a new agreement.
Offsets
Section 409A severely restricts employers' ability to
offset non-qualified deferred compensation plan payments based on
other benefits owed to, or debts owed by, an employee. Sometimes,
employers attempt to offset the amount of one deferred compensation
plan from another deferred compensation plan. Section 409A permits
such an offset, but only if payments under both deferred
compensation plans are scheduled to begin at the same time and are
paid in the same form (e.g., lump sum, installments).
Understanding the Definition of Compensation for Elective
Deferral Purposes
Plan documents for elective deferred compensation
plans usually define what compensation participants may defer.
Occasionally, however, employers do not operate their deferred
compensation plan in accordance with the terms of the plan
document, and Section 409A operational failures occur. Employers
must ensure that their payroll departments clearly understand what
the plan document defines as compensation eligible for deferral.
For instance, a plan document may provide that the amount
to be deferred will be calculated based on the compensation paid to
the employee before any deferrals made under Section 125
cafeteria plans and 401(k) plans. However, when the employer's
payroll department effectuates the deferral election, it calculates
the deferrals based on compensation paid to the employee after
deferrals under the Section 125 cafeteria plans and 401(k) plans.
Consequently, a Section 409A operational failure results because of
the incorrect amount of compensation being deferred into the
deferred compensation plan.
Past Service Elections
In general, employees must make elections regarding
the time and form of payment of any deferred compensation before
performing the services related to such compensation. Some benefit
formulas found in deferred compensation plans may use years of
service to calculate benefits (e.g., employee earns $1,000
for each year of service with employer). If past years of service
are used to calculate benefits and an employee is immediately
vested in the plan benefit on the day he becomes a participant in
the plan, the employee generally cannot elect the time and form of
payment under the plan without violating Section 409A as such an
election would apply to services already performed. However,
Section 409A contains an exception to this general rule. Section
409A permits an employee to make elections regarding the time and
form of payment for a benefit that includes past services if the
elections occur within the 30 days following the date the employee
becomes a participant and the benefit does not vest for at
least 12 months after the 30-day election period.
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Extension
of Applicability Dates for ERISA Fee Disclosure Rules
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The U.S. Department of Labor (the "DOL")
recently revised the interim final regulations
concerning service provider fee disclosures under Section 408(b)(2)
of ERISA, and the final regulations concerning participant fee
disclosures under ERISA Section 404(a)(2). These revisions extend
the deadline for fiduciaries and plan administrators to comply with
the regulations. Below is an explanation of the new rules.
Service Provider Fee Disclosure Regulations
On July 16, 2010, the DOL issued interim final
regulations under ERISA Section 408(b)(2) that require certain
retirement plan service providers to disclose information to assist
plan fiduciaries in assessing the reasonableness of the service
provider's compensation and potential conflicts-of-interest. These
disclosure requirements were initially slated to apply to service
contracts or arrangements in existence on or after July 16, 2011.
The new guidance extends the date by which
covered service providers must provide initial disclosures required
under Section 408(b)(2) to plan fiduciaries to April 1, 2012. The
DOL believes this extension will afford service providers and
fiduciaries sufficient time to adjust to any changes contained in
the final regulations, which have yet to be released. The DOL
intends to issue the final regulations by the end of 2011.
Participant Fee Disclosure Regulations
On October 20, 2010, the DOL issued final regulations
under ERISA Section 404(a)(2) that require plan administrators to
make significant disclosures to participants in defined
contribution plans that have participant-directed investments. In
particular, plan administrators must provide participants (as well
as employees who are eligible to participate) with information
about plan-related and investment-related fees and expenses.
The applicability date of the Section 404(a)(2)
disclosure requirements continues to be for plan years beginning on
or after November 1, 2011. However, under the final regulation,
plan administrators are not required to provide the first
disclosure until 60 days after: (1) the effective date of the
408(b)(2) service provider fee disclosure rule (i.e., April
1, 2012), or (2) the date the regulations apply (i.e., plan
years beginning on or after November 1, 2011). Thus, plan
administrators of calendar year plans have until May 31, 2012, to
provide the initial disclosure.
The new guidance additionally clarifies the
deadline for plan administrators to provide the first quarterly
expense disclosure required under the final regulations, which
is the 45th day of the calendar-quarter following the
quarter in which the plan must provide the initial disclosures.
Therefore, plan administrators of calendar year plans have until
August 14, 2012, to start providing quarterly accountings of fee
and expense deductions to individual participants.
The DOL has announced that plan administrators may
provide participant fee disclosures using electronic media, relying
on the Internal Revenue Service's 2006 electronic disclosure rules,
which are more flexible than the DOL's 2002 electronic disclosure
rules. Moreover, the DOL has indicated that it will issue revised
electronic disclosure rules (later this year) as well as
transitional guidance on electronic delivery (within the next
month).
ERISA Section 404(c) Changes
One item left unchanged by the new
guideance is the effective date of the changes made to the
ERISA Section 404(c) regulations, which is the first day of the
plan year beginning after October 31, 2011. The participant fee
disclosure rules moved most disclosure requirements from the
Section 404(c) regulations to the Section 404(a)(2) regulations. A
plan now satisfies the Section 404(c) disclosure requirements by
providing plan participants with: (1) an explanation that the plan
is a Section 404(c) plan, (2) the disclosures required under the
new Section 404(a)(2) regulations, and (3) if the plan offers
employer securities as an investment alternative, a notice of the
plan confidentiality rules on voting employer stock.
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The IRS
has released final versions of Form 8955-SSA and 2010 Form 5500-EZ
and published the corresponding deadlines for filing each form.
Form
8955-SSA
The IRS
recently released the 2009 version of Form 8955-SSA. Form 8955-SSA, which
replaces Form SSA, is used by plans sponsors to report participants
that separate from service with deferred vested pension benefits.
The IRS extended the deadline for plan sponsors to file 2009 and
2010 Forms 8955-SSA from August 1, 2011, to January 17, 2012.
In
completing Forms 8955-SSA, plan sponsors should be aware of the
following:
- As noted above, for
calendar year plans, sponsors must file 2009 and 2010 Forms
8955-SSA by January 17, 2012. The IRS has stated that plan
sponsors cannot extend this deadline by filing a Form 5558.
- The IRS will allow
plan sponsors to combine data for the 2009 and 2010 Forms
8955-SSA into one Form 8955-SSA filing.
- Plan sponsors can
file Forms 8955-SSA with the IRS either on paper or
electronically. Electronic filings must be filed via the IRS's
Filing Information Returns Electronically ("FIRE")
system, and the IRS requires third-party software to prepare
Forms 8955-SSA in a format compatible with FIRE.
- Plan sponsors must
notify participants listed on the Form 8955-SSA that they are
entitled to a deferred vested pension benefit. (See Code
Section 6057(e).) In fact, Form 8955-SSA requires plan
sponsors to certify that they have provided such notice to
applicable participants.
Plan
sponsors must begin collecting the information required to be
included on 2009 and 2010 Forms 8955-SSA and ensure that they
comply with the participant notification requirement. A list of Frequently Asked
Questions that address Form 8955-SSA
filing requirements and deadlines is available online.
2010 Form 5500-EZ
The
IRS recently released the 2010 Form 5500-EZ for use by
"one-participant" retirement plans. A
one-participant plan means a retirement plan (i.e., a
defined benefit plan or defined contribution profit-sharing or
money purchase plan), other than an Employee Stock Ownership Plan,
that:
- covers an
individual (or the individual and their spouse) who owns the
entire business (which may be incorporated or unincorporated)
or one or more partners (or partners and their spouses) in a
business partnership; and
- only provides
benefits for the individual (or the individual and their
spouse) or one or more of the partners (or partners and their
spouses), as applicable.
For
calendar year plans, the filing deadline for the 2010 Form 5500-EZ
is July 31, 2011. Plans that file a Form 5558 with the IRS by July
31, 2011, will receive a 2½ month extension to file the 2010 Form
5500-EZ.
The
2010 Form 5500-EZ cannot be electronically filed and must be filed
on paper. However, one-participant plans may be able to satisfy
their Form 5500 filing obligations by filing a Form 5500-SF
electronically in place of Form 5500-EZ, provided that the plan
covered fewer than 100 participants at the beginning of the plan
year. The IRS encourages eligible one-participant plans to
electronically file using Form 5500-SF. Eligible one-participant
plans complete only the following questions on the Form 5500-SF:
- Part I, lines A, B
and C;
- Part II, lines 1a -
5b;
- Part III, lines 7a
- c and 8a;
- Part IV, line 9a;
- Part V, line 10g;
and
- Part VI, lines 11 -
12e.
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Supreme
Court Lists Remedies for Misrepresentations in SPDs
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The U.S. Supreme Court recently
addressed the issue of appropriate remedies under ERISA when an
employer misstates information in a summary plan description
("SPD"). In CIGNA Corp. v. Amara, the Court held
that SPDs are not part of a plan document and, as a result, ERISA
does not allow plan participants to enforce the terms of an SPD or
change the terms of a plan to conform to representations made in
the SPD. However, the Court said that aggrieved participants may
"obtain other appropriate equitable relief" under ERISA,
such as monetary compensation and make-whole relief for breaches of
fiduciary duty.
CIGNA converted its defined benefit pension plan to a
cash-balance plan. It provided an SPD to participants who then
claimed the SPD misled them into believing that all participants
would receive the full value of their frozen defined benefit, as
well as additional benefits under the cash balance plan. Current
and former employees filed a class-action suit when they learned
that many participants would, in fact, receive smaller pension
benefits.
The lower court ruled in favor of the plaintiffs,
finding that CIGNA's SPD was significantly incomplete and
intentionally misleading. As a remedy for these violations, the
court said the provisions of the plan should be conformed to the
representations made in the SPD.
The Supreme Court ruled that ERISA did not permit a
court to rewrite the plan document to conform to the terms of the
SPD. The Court reasoned that representations made in an SPD are
simply communications about the plan and not actual terms of the
plan.
However, the Court next discussed the
"appropriate equitable relief" that may be available
under ERISA and proceeded to identify certain legal principles that
could be applied. The first is "reformation," which
allows a court to rewrite a plan to reflect the "real
agreement" between the employer and participants. Next, the
Court found that "equitable estoppel" was a remedy that
could be used by courts. Equitable estoppel would prevent an
employer from reneging on non-contractual promises to participants
if the participants acted in reliance on such promises. Finally,
the Court recognized that, under the doctrine of
"surcharge," participants could seek relief in the form
of monetary compensation directly from the plan fiduciaries, in the
event of a breach of fiduciary duty.
The Court's opinion in CIGNA will apply to both
pension and welfare plans and will undoubtedly impact plan
participants, plan sponsors and fiduciaries for years to come.
Before CIGNA, many U.S. Appeals courts had found that when
an SPD contains terms that are more favorable to participants than
the terms in the actual plan document, the SPD's terms must
control. These rulings have now been overturned by the Supreme
Court. However, the Court has opened various forms of other relief
for participants, which may lead to additional litigation and
liability for plan sponsors with inaccurate SPDs.
Al Lurie of The Wagner Law
Group recently published a related article
through BenefitsLink.com. He asks, "Who Got It Right?"
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