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Read your pension’s paperwork

By Jennie L. Phipps · Bankrate.com
Tuesday, May 17, 2011
Posted: 4 pm ET

The U.S. Supreme Court made one thing clear in yesterday's Amara v. Cigna decision: Employees are on their own to understand what their pension paperwork actually says.

In 1997 and 1998, Cigna, the Philadelphia-based insurance company, converted its traditional pension plan to a cash balance plan. It gave its employees a synopsis of the plan that made it sound a lot more attractive than it was by leaving out key details.

The summary didn't tell participants that they would earn less in retirement benefits overall, and it didn't explain that their current retirement benefits wouldn't grow until benefit credits in the new plan were greater in value than the retirement benefits in the old plan. (This greater-of provision also known as "wear away" has since been disallowed by law.)

Cigna admitted in court that it intentionally didn't tell participants about the wear-away effect when the new plan was introduced at employee meetings, and the summary plan descriptions provided to each employee didn't mention the wear-away factor, either.

Lower courts decided this was deceptive and ordered Cigna to make good on this. Cigna appealed to the Supreme Court, saying the summary was a simplified version of the full explanation and the details that were left out couldn't be proven to harm all 1,000 members of the class action suit individually.

The Supreme Court agreed that the summary didn't have to mirror the full explanation, saying that's what summaries are. It also said that each and every participant in the class action suit doesn't have to show that they had actual financial harm. It's enough that there is apparent harm -- a good decision for class action suits in general.

But it didn't decide in favor of either Cigna or its suing employees. Instead, it sent the decision back to the district court in New Haven, Conn. It told the lower court that it didn't have the right to order Cigna to revise its plan based on the segment of the Employee Retirement Income Security Act, or ERISA, on which the lower court decisions relied. It suggested that there could be other ERISA rules that applied and, essentially, told the lower court to try again.

It's estimated that if the high court decision had clearly gone against Cigna, it would have owed $70 million to participants in the suit. Rebecca Davis, legislative counsel for the Pension Rights Center, said that under the circumstances, the case is likely to be settled out of court with pensioners getting some money but not all they wanted.

Understanding your plan is a retirement planning must. You can get free help and advice at the Department of Health and Human Services' Pension Counseling and Information Program. The Pension Rights Center also sponsors Pension Help America, a referral service that will point you toward legal and other kinds of assistance.

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