Cigna ruling puts pension statements in question

If you have a traditional defined benefit pension at work, you're entitled to receive a regular statement of what you've got coming at retirement. But you can't necessarily rely on the statement's accuracy.

That's the eyebrow-raising upshot of a recent U.S. Supreme Court ruling on a closely watched case involving the defined benefit plan of the Cigna health insurance company (Cigna v. Amara). The case focused on the Cigna plan for its own workers; Cigna had converted its defined benefit plan into a hybrid cash balance plan but provided incorrect information about benefits owed to employees when the conversion took place.

Cash balance plans typically are described to beneficiaries as having a hypothetical balance similar to what you'd see in a 401(k) account. Workers accumulate credits based on a percentage of compensation as well as interest credits. But unlike a typical 401(k) plan, cash balance plans still are defined benefit plans, in that the employer has an obligation to pay out a specific sum at retirement.

Central to the Cigna case is the company's Summary Plan Document -- a short-form description of plan benefits that employers distribute to beneficiaries when they become covered, and when material changes are made to the plan. Cigna admitted in court that its document was misleading but disputed the contention that all 27,000 members of the class-action lawsuit suffered "likely harm."

Two lower courts had backed the plaintiffs' contention that they should receive the benefits as described in the document. The Supreme Court ruled that nothing in the Employee Retirement Income Security Act permits a court to alter the terms of a pension plan, but the high court also sent the case back to the district court to determine how to remedy the problem.

Legal experts differ on whether the ruling was a win for Cigna and other plan sponsors, or for the beneficiaries -- although pension advocates think the decision ultimately will produce a victory for employees when the lower court rules.

"This ruling says that if you are a plan trustee and deliberately mislead beneficiaries, they can sue you for monetary damages," says Karen Ferguson, director of the Pension Rights Center. "The standards laid down by the Supreme Court in this decision make it likely that the Cigna employees and retirees will get the pensions that they had been led to believe that they would get."

But no matter how the case turns out, the legal battle serves up a clear cautionary reminder to private-sector workers participating in defined benefit plans -- namely, that you can't take your Summary Plan Document to the bank.

If you do participate in a private-sector defined benefit plan, here are three key factors to keep in mind, and steps you can take:

Manage complexity. Defined benefit plans offer a great deal of value in that they provide lifetime income -- but they're more complex to manage and understand. "We all know how a 401(k) works -- you get a statement, here's what you've accumulated, here are your investments," says Mary Ellen Signorille, an attorney with the AARP Foundation, which filed an amicus brief in the Cigna case.

"A DB [defined benefit] plan is more complex, and the benefits can change depending on definitions of things like salary, multipliers and the like. It's crucial to know the different pieces and try to get as much information as you can."

Get your statement. The Pension Protection Act of 2006 requires defined benefit plans to distribute an individual benefit statement to each plan participant every three years. As an alternative, plans must notify participants annually that an individual benefit statement is available. The Pension Rights Center offers a fact sheet with more detail on this aspect of the law.

Get help. If you have questions about your defined benefit or any other retirement benefit plan, free legal assistance is available in 29 states through the U.S. Administration on Aging's Pension Counseling and Information Program. The program funds pension counseling projects to help people understand their rights and get the benefits they've earned. The Pension Rights Center offers a downloadable PDF with more information on this program. Workers (or their spouses) who live in New York or New Jersey, or who earned their pensions in this region, should call the Mid-Atlantic Pension Counseling Project at 800-355-7714.

Pension recipients outside the United States covered by this program can contact PensionHelp America (pensionhelp.org), a one-stop source of pension information and assistance. Finally, the American Academy of Actuaries (actuary.org) offers free or low-cost actuarial services to people who have questions about their plans.

Mark Miller's Retire Smart column is carried on Tribune Media Services.