Reformation is “appropriate” remedy for notice violations in cash balance conversion

In its second attempt to establish a remedy for a class of pension plan participants whose employer failed to properly notify them regarding a cash balance plan conversion, the U.S. Court of Appeals in New York City (CA-2) has determined that reformation of the plan was “appropriate equitable relief” under ERISA Sec. 502(a)(3). As such, the members of the class would receive all benefits accrued under the original defined benefit plan (“Part A”) at the time of the conversion, plus the benefits accrued thereafter under the cash balance plan (“Part B”) (the “A+B” remedy).

District court remedy

A district court had concluded that an employer’s misrepresentations and omissions regarding the cash balance plan conversion violated ERISA Secs. 102(a), 104(b), and 204(h). The district court reformed the terms of the cash balance plan by substituting the “A+B” remedy for the provision that gave retired participants the greater of benefits earned under “Part A” or “Part B”. The district court found authority for this remedy under ERISA Sec. 502(a)(1)(B).

The Supreme Court in 2011 barred the “A+B” remedy fashioned by the district court under ERISA Sec. 502(a)(1)(B). The High Court found nothing that suggested that ERISA Sec. 502(a)(1)(B) authorized a court to alter plan terms, “at least not in present circumstances, where that change, akin to the reform of a contract, seems less like the simple enforcement of a contract as written and more like an equitable remedy.” However, the Court remanded the case with the suggestion that ERISA Sec. 502(a)(3) could provide authority for the “A+B” remedy.

Upon remand, the district court again ordered the employer to provide the participants with the A+B benefits. Once again, the employer appealed, this time arguing that (1) the class of participants should be decertified under Rule 23(b)(2) of the Federal Rules of Civil Procedure and (2) that the elements of reformation had not been sufficiently established. The participants also appealed the district court’s decision to limit relief to A+B benefits, rather than ordering a return to the terms of the employer’s original pension plan.

Class certification

The appellate court rejected the employer’s contention that the A+B remedy will make some class members worse off because they will receive less money from that remedy than from Part B alone. In addition, courts have held that the remedy of reformation is available for ERISA claims made by a Rule 23(b)(2) class. As such, the district court did not abuse its discretion when it declined to decertify the class.


The court next affirmed the district court’s reformation of the plan to provide the A+B benefit. It concluded the district court did not err in reforming the plan in accordance with contract principles, rather than looking to the laws of trusts. A contract may be reformed due to mutual mistake of both parties, or where one party is mistaken and the other commits fraud or engages in inequitable conduct. The district court did not err when it said the participants established a basis for reformation due to the employer’s fraud, paired with the participant’s unilateral mistake.

Regarding the question of fraud, the court determined that the employer misrepresented the terms of the employer’s cash balance plan and actively prevented employees from learning the truth about the plan. In addition, the evidence before the district court was sufficient to support its conclusion that the defendants’ misrepresentations led to a class-wide mistake about the terms of the plan. It further rejected the employer’s contention that determining “mistake” in this context is an individualized inquiry that cannot be decided on a class wide basis.

Finally, the court rejected the participants’ claim that the district court abused its discretion when it declined to order the payment of benefits due under the original defined benefit plan, rather than ordering the A+B remedy.

Source: Amara v. CIGNA Corporation (CA-2).

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