FIRST AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE
RELIEF UNDER ERISA
Nature of the Complaint
This Complaint is about the retirement benefits that Ms.
Amara and similarly situated Cigna employees are required to receive
under the Employee Retirement Income Security Act of 1974 (“ERISA”),
as amended, 29 U.S.C. §1001, et seq. Defendants have conditioned
retirement benefit accruals after January 1, 1998 so that actual benefit
receipt may be illusory for as many as 10 years. This violates ERISA’s
requirement that the payment of vested retirement benefits must be unconditional.
Defendants’ failure to disclose the conditions on actual benefit
receipt also violates ERISA’s disclosure rules.
Jurisdiction, Venue, and Service of Process
Plaintiff invokes
the jurisdiction of this Court pursuant to the Employee Retirement
Income Security Act of 1974, as amended, 29 U.S.C. §1001, et seq.
Venue in this Court is proper under ERISA Section 502(e)(2), 29 U.S.C. §1132(e)(2),
in that Defendants Cigna Corp. and Cigna Pension Plan may be found in this District
and the breach took place in this District.
Service of process is authorized in any other district where a defendant
resides or may be found. ERISA Section 502(e)(2), 29 U.S.C. §1132(e)(2).
The Parties
Plaintiff Janice C. Amara resides at 39 Town Beach Rd., Old Saybrook, CT
06475.
Ms. Amara has worked for Cigna for 26 years.
Ms. Amara is a participant in the Cigna Pension Plan as the term participant
is defined in ERISA Section 3(7), 29 U.S.C. §1002(7).
Defendant Cigna Pension Plan is an employee benefit plan as defined in Section
3(3) of ERISA, 29 U.S.C. §1002(3), and an “employee pension benefit
plan” as defined in Section 3(2)(A), 29 U.S.C. §1002(2)(A). The Cigna
Pension Plan may be found in Connecticut because Cigna employees earn and receive
benefits in Connecticut.
Defendant Cigna Corp. is a business corporation organized and existing under
the laws of the State of Delaware, and operating in all 50 states, including
Connecticut. Cigna is qualified to do business and does business in Connecticut.
Defendant Cigna Corp. functions as the “plan sponsor” and “plan
administrator” for the Cigna Pension Plan within the meaning of ERISA.
Through a Corporate Benefit Plan Committee, Defendant Cigna Corp. also functions
as a “named fiduciary” for the Cigna Pension Plan within the meaning
of ERISA.
Class Action Allegations
Plaintiff brings this action as a class action in accordance with Federal
Rule of Civil Procedure 23 to resolve disputes under the Employee Retirement
Income
Security Act of 1974. Judicial economy dictates that the issues be resolved
in a single action.
The proposed class is defined as any and all persons who:
(a) Are former or current Cigna employees,
(b) Participated in the Cigna Pension Plan before January 1, 1998,
and
(c) Have participated in the “Part B” Cigna Pension Plan at any time
since January 1, 1998.
The proposed class covers all participants in the Cigna Pension Plan whose
receipt of benefit accruals under the Part B plan has been unlawfully conditioned
in
violation of ERISA Section 203(a), 29 U.S.C. §1053(a).
On information and belief the proposed class covers well over 10,000 individuals.
The class is so numerous that joinder of all members is impracticable.
There are common questions of law and fact affecting the rights of the
members of the class. The claims of the named class representative are
typical of
the claims of the class. The named representative will fairly and adequately
protect
the interests of the class.
This action is maintainable as a class action under Rule 23(b)(2) because
Defendant has acted and/or refused to act on grounds generally applicable
to the class,
thereby making appropriate final injunctive and other equitable relief
in favor of the class.
Statement of Facts
Janice Amara was born on April 3, 1950. She has worked for Cigna from July
17, 1972 to August 10, 1995 and from September 8, 1998 to the present.
Ms. Amara managed Cigna’s pension compliance area from 1992 to 1995. She
returned to CIGNA in 1998 as a director of national accounts for Cigna’s
Retirement & Investment Services division. She is currently the NASD principal
for the client services organization of Cigna’s Retirement & Investment
Services, as well as a client executive in charge of accounts.
Effective January 1, 1998, Cigna converted to a “cash balance” pension
plan (which Cigna calls “Part B”). Cigna adopted the cash balance
pension plan to replace Cigna’s traditional defined benefit pension
plan.
Employees who had a specified combination of age and service were offered
the right to be grandfathered under the prior, more generous pension
plan formula
(now called “Part A”).
Since she returned to Cigna in September 1998, Ms. Amara has participated
in Cigna’s “Part B” pension plan.
Under the previous benefit formula, pension benefits were 2% of salary
times years of service. Under the Part B cash balance pension formula,
pension
benefits accrue at a lower rate and have been subjected to additional conditions.
On
December 14, 1995, Cigna notified Ms. Amara that her accrued benefits were
$2,010.41 per month in the form of an annuity lasting from age 55 to
65, with
payments reduced to $1,565.48 per month after age 65. Exhibit 1.
Over 5 years later, on February 23, 2001, Cigna notified Ms. Amara that
her accrued benefits under Part B were $1,340.28 per month in the form
of an
age 55 annuity.
Exhibit 2. Instead of increasing the retirement benefits, Cigna had decreased
her benefits by $670.13 per month between age 55 and 65 and by $225.20
per month after age 65.
Ms. Amara complained that a decrease in her retirement benefits did not
comply with ERISA. ERISA Section 204(g), 29.U.S.C. §1054(g), which
prohibits decreases in accrued benefits as a result of plan amendments.
See also 26 C.F.R. 1.411(d)-4.
In an e-mail dated April 20, 2001, Andrew Hodges, a consulting actuary
for Cigna, stated that there had been a “flaw” in the “conversion
record.” Exhibit
3.
On July 6, 2001, a benefits specialist for Cigna mailed
Ms. Amara another Benefit Summary Sheet, this time showing a benefit
at age 55 of $1,833.65
per month.
Exhibit 4. It is Ms. Amara’s understanding that this monthly amount
is to represent the actuarial equivalent of the benefit which Ms. Amara
was already
entitled to receive in December 1995 of $2,010 per month from age 55
to 65 and $1,565 per month thereafter.
If this were to constitute her
total current benefits, Ms. Amara’s employment
with Cigna from September 1998 to date would not have added even $1.00
to the retirement benefits she already possessed at the end of 1995.
Cigna’s “Part B” Plan document provides annual pay
credits and interest that should be adding to Ms. Amara’s current
benefit total. Beginning at the end of 1998, Ms. Amara was credited
with annual pay credits
of 7% of her salary up to one-half of the social security wage base
plus 8.5% of her salary above that level. Interest is to accumulate
on these annual pay
credits at rates of 4.5% and above.
Cigna should have allocated over
$7,500 annually in pay credits to Ms. Amara’s
account from 1998 to the end of 2001. After the termination of her
employment, Ms. Amara should receive the annual pay credits, with interest,
in annuity or
lump sum form.
Claim One: Offering benefit accruals that
are conditional does not satisfy ERISA’s
nonforfeitability standard.
Cigna’s CEO, Wilson H. Taylor, approved the text
of the Part B Plan document with detailed rules on cash balance benefit
accruals and payment of accrued benefits
on December 21, 1998.
Cigna’s Part B Plan document offers the
annual pay credits and interest described above, but it conditions
actual receipt of those amounts. Article VII
of the Part B Plan document provides that Ms. Amara can receive the
annual accrued benefits she has earned since 1998 if and only if she
does not receive the $1,833
per month in early retirement benefits that she previously earned under
the Part A Plan.
Section 7.3 of the Cigna Plan document makes it impossible for Ms.
Amara to receive her protected early retirement benefits under Part
A plus
her annual
accruals
since 1998 under Part B. To receive her annual accruals since 1998,
she must accept a valuation of her Part A benefits specified in Section
1.28
of the
Plan document (“Initial Retirement Account”). See Exhibit 5. The valuation
specified in Section 1.28 excludes the value of her “protected” early
retirement rights under Part A.
The annual benefit accruals since 1998 are required for Cigna to satisfy
the “anti-backloading” rules
in ERISA Section 204(b)(1)(B), 29 U.S.C. §1054(b)(1)(B). See also 26 C.F.R.
1.411(b)-2(i)(B); Esden v. Bank of Boston, 229 F.3d 154, 167 (2d Cir. 2000) (the “only
test that the [Bank of Boston’s cash balance] plan might satisfy is the
so-called 133 1/3 percent test under ERISA section 204(b)(1)(B)”; “that
test requires that the value of the benefit accrued in any year . . . not exceed
the value of a benefit accrued in any previous year by more than 33%”).
If the accrued benefits for 1998, 1999, etc. are to count for compliance
with ERISA Section 204(b)(1)(B), they must be benefits that will become
nonforfeitable under ERISA’s vesting rules. ERISA Section 203(a), 29 U.S.C. §1053(a),
provides that benefit accruals must be “nonforfeitable” once a participant
has the years of service required to be vested. A nonforfeitable right is a right
that is “unconditional.” ERISA Section 3(19), 29 U.S.C. §1002(19).
However, Sections 1.28 and 7.3 of Cigna’s plan document place conditions
on actual receipt of annual benefit accruals. A nonforfeitable right to a benefit
cannot be one that has a value of $7,500 under one condition and $0 under other
conditions.
“ A right which, at a particular time, is conditioned under the plan upon
a subsequent event, subsequent performance, or subsequent forbearance which will
cause loss of such right is a forfeitable right at that time.” 26 C.F.R.
1.411(a)-4.
IRS Notice 96-8, 1996-1 C.B. 359, explains:
If benefits . . . have accrued [but] those benefits are
disregarded when benefits commence before normal retirement age, the
plan has effectively
conditioned
entitlement to the benefits . . . on the employee not taking a distribution
prior to retirement
age.
Accord Esden v. Bank of Boston, 229 F.3d 154, 168 (2d
Cir. 2000) (“by making
part of [Lynn Esden’s] benefit conditional on the form of payment chosen,
the Plan made that benefit forfeitable, in violation of ERISA”).
Cigna has made receipt of Ms. Amara’s annual pension accruals
conditional on foregoing part of her previously earned benefits or
taking a retirement distribution
only at the plan’s normal retirement age. This violates the nonforfeitability
rules in ERISA Section 203(a), 29 U.S.C. §1053(a).
Claim Two: Failure to Disclose Conditions on New Accruals in the Statutorily-Required
Summary Plan Description
Under ERISA, Summary Plan Descriptions (SPDs)
must be distributed to participants which disclose the circumstances
that may result in disqualification,
denial,
loss, or forfeiture of any benefits that a participant might otherwise
reasonable expect to receive on the basis of the description of the
benefits offered
by the plan. 29 C.F.R. 2520.102-3(l). The disclosure must written
in a manner calculated to be understood by the average plan participant.
29
C.F.R. 2520.102-2(a).
The SPD that Cigna distributed to participants in October 1998 does
not describe any conditions on receipt of the new cash balance pension
accruals.
The SPD’s
description of the annual pay credits does not describe any conditions on their
receipt. It states:
Each dollar’s worth of credit is a dollar of retirement benefits payable
to you after you are vested. Under the plan, your benefit will grow steadily
throughout your career as credits are added to your account.
Exhibit 6. The same description was offered in a revised SPD dated
September 1999. Exhibit 7. The conditional payment rule which Cigna’s CEO approved
on December 21, 1998 was not disclosed to participants in the SPD dated October
1998, the revised SPD dated September 1999, or any SPD distributed after that
date.
In the absence of the statutorily-required disclosure, a rule that
causes benefits to be lost or forfeited may not be enforced. Heidgerd
v. Olin
Corp., 906 F.2d
903 (2d Cir. 1990).
Claim Three: Reductions in the Rate of Benefit
Accruals Because of Age
ERISA Section 204(b)(1)(H)(i), 29 U.S.C. §1054(b)(1)(H)(i), prohibits an
employer from establishing or maintaining plan rules that reduce “the rate
of an employee’s benefit accrual . . . because of the attainment of any
age.” Under a defined benefit plan, an employee’s benefit accrual
is expressed in the form of an annuity at retirement.
Benefit accruals under a cash balance pension plan are a function
of two components: Pay credits and interest credits. Due to the
effect of compound
interest until
retirement, interest credits under a cash balance plan are more
substantial for younger participants. Unless pay credits progressively
counter-balance
the interest
credits, the rate of an employee’s benefit accrual will be reduced because
of age.
Cigna’s cash balance formula increases its pay credits by 1% at 10-point
age and service intervals until the participant accumulates 65 points, e.g.,
age 45 with 20 years of service or age 50 with 15 years of service. After that
point, the pay credit is fixed at a flat percentage of pay.
As a result, once a participant has more than 65 points, the rate
of benefit accrual drops based on age. In addition to suffering
from the
conditions
on actual receipt described in the First Claim, Janice Amara’s rate of cash balance
benefit accrual decreases from almost 1.9% of pay at age 48 to 1.55% at age 52.
The rate decreases further to 1.36% at age 55 and 1.1% if she remains employed
at age 60.
Before a participant has 65 age and service points, the rate of
benefit accrual declines because of age, as well; the reductions
are simply
not quite as
smooth (because of the 1% “bump ups” in the pay credits described above).
For example, an employee with the same salary as Ms. Amara who is age 35 with
10 years of service will have an accrual rate of 3.3%. By age 48, this rate of
accrual will decline to 1.9%.
ERISA’s policy as codified by Section 204(b)(1)(H)(i) is that
an employee’s
rate of benefit accrual should not be reduced because of age but
should remain as great as the rate for a younger employee with the
same salary.
Prayer for Relief
WHEREAS, the Plaintiff prays that this Court:
Declare that Janice Amara’s benefit accruals under the “Part
B” formula
of the Cigna Pension Plan must be unconditional and not reduced
because of age; enjoin the application of Cigna’s conditions
on receipt of benefit accruals earned under the Part B formula and
its reductions in the rate of benefit accruals
because of age, order appropriate equitable and remedial relief
to ensure that this relief is implemented on a class-wide basis, order
such other equitable
and remedial relief as the Court deems appropriate, and award
attorneys’ fees
and expenses.
Respectfully submitted,
__________________________
Thomas Moukawsher Ct 08940
Moukawsher & Walsh, LLC
328 Mitchell St.
Groton, CT 06430
(860) 445-1809
Stephen R. Bruce Ct 23534
Suite 210
805 15th St., NW
Washington, DC 20005
(202) 371-8013
