Depenbrock v. Cigna Corp.

Citations: 278 F. Supp. 2d 461; 30 Employee Benefits Cas. (BNA) 2681; 2003 U.S. Dist. LEXIS 14299; 2003 WL 21995182Docket: CIV.A.01-6161

Court: District Court, E.D. Pennsylvania; July 31, 2003; Federal District Court

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John Depenbrock initiated a civil lawsuit against CIGNA Corporation and the Cigna Pension Plan, alleging wrongful denial of his benefits under the Employee Retirement Income Security Act (ERISA) and breach of fiduciary duty related to the claim denial. The case is currently before the United States District Court for the Eastern District of Pennsylvania, with both parties filing cross motions for summary judgment.

Depenbrock was employed by CIGNA from 1983, primarily selling investment management services, and participated in a defined benefit pension plan. After resigning in 1998 and briefly working at Lazard Asset Management, he returned to CIGNA and was placed into a new cash balance retirement plan. He contested the application of the Rehire Rule, which converted his prior pension benefits into a new account balance, arguing he should have resumed participation in the original pension plan. His claim, submitted in December 2000, was denied in March 2001, and his subsequent appeal was also denied in October 2001.

The standard for summary judgment requires that there be no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. The court must evaluate evidence while drawing reasonable inferences in favor of the non-moving party, but cannot rely on mere allegations or vague statements. Summary judgment is warranted if no reasonable jury could favor the non-moving party based on the evidence presented, and it is essential for the non-moving party to demonstrate the existence of necessary elements of their case to avoid summary judgment.

The excerpt examines the amendment of the Rehire Rule under the Employee Retirement Income Security Act (ERISA). The Supreme Court has clarified that ERISA does not guarantee employer-provided health or welfare benefits, allowing employers to modify or terminate welfare plans at their discretion. ERISA mandates that employee benefit plans be maintained in accordance with a written instrument, and plan administrators must adhere to these written terms. Specifically, Section 402(b)(3) requires a formal amendment procedure, which the Supreme Court has interpreted to necessitate a minimal standard of compliance, including proper identification of amendment authority.

The plaintiff, Depenbrock, challenges the amendment to the Plan’s Rehire Rule, claiming it violated Section 402(b)(3) and was misapplied to him. He argues that a July 23, 1997 Resolution from the Peoples Resources Committee (PRC) did not authorize the Chief Executive Officer (CEO) of CIGNA, Mr. Taylor, to transfer him into a cash balance plan, as the resolution expressly excluded employees like him who were accruing benefits and had over 45 age and service points. Furthermore, Depenbrock contends that even if the PRC authorized the amendment, Taylor did not formally approve it until December 21, 1998, making the amendment retroactively inapplicable to him.

In response, the defendant argues that the July 1997 PRC Resolution did indeed grant Taylor the authority to amend the Rehire Rule. The document outlines the amendment methods, which include a resolution from the Board of Directors or the PRC, or a written instrument executed by authorized CIGNA officers. The PRC's July 23, 1997 Resolution authorized the CEO to amend the CIGNA Pension Plan effective January 1, 1998, with specific exceptions for certain employees. The analysis will involve determining if Taylor was properly authorized to amend the Rehire Rule and whether CIGNA adhered to its amendment procedure.

Plaintiff argues that the July 23, 1997 Resolution of the PRC did not authorize Taylor to amend the Rehire Rule, claiming the Resolution only allowed general amendments to the Plan. Consequently, Plaintiff asserts he should be exempt from the new cash balance plan. This argument is rejected on two grounds. First, the Resolution explicitly authorized Taylor to adopt amendments to the CIGNA Pension Plan effective January 1, 1998, in compliance with the Plan’s amendment procedure. Second, Taylor had prior authorization from a July 24, 1996 PRC Resolution granting him full authority to adopt, modify, and terminate employee benefit plans, which includes the Rehire Rule amendment.

Regarding the amendment process, Plaintiff contends that Taylor did not execute the Rehire Rule amendment until December 21, 1998, contrary to Defendant’s procedural requirements. However, Defendant claims that Taylor properly adopted the amendment on October 31, 1997, when he executed Amendment Numbers 2 and 4, which encompassed the new Rehire Rule as part of a larger Final Plan Design package. If not, Defendant argues that the amendment was ratified by Taylor’s actions.

The uncontested facts include a July 15, 1997 memorandum from Donald Levinson, Chief Human Resources Officer, outlining proposed amendments to convert the existing Defined Benefit plan to a Cash Balance plan effective January 1998, while Tier 1 participants, including Plaintiff, would retain the current formula until termination or retirement. The PRC approved this proposal during its July 23, 1997 meeting, with Levinson, Taylor, and Vice President Gerald Meyn present. Following this, a November 4, 1997 letter from Levinson to Taylor detailed the new cash balance plan and included Amendments No. 2 and No. 4, indicating that formal approval for a restated Plan document would be sought in early 1998, retroactively effective as of January 1, 1998.

The 'CIGNA Cash Balance Pension Final Plan Design' document outlines the effective date of the cash balance plan as January 1, 1998, and introduces the Rehire Rule stating that employees rehired after 1997 would participate in this Plan, with their prior benefits converted accordingly. Taylor executed Amendment Numbers 2 and 4 on October 31, 1997, and an interoffice memorandum sent on November 28, 1997, clarified the new rules, confirming that rehired employees post-1997 would join the cash balance plan. In December 1997, CIGNA provided the 'Signature Benefits Information Kit' to participants, including Mr. Depenbrock, which reiterated that individuals reemployed after December 31, 1997, would qualify for the new Retirement Plan instead of the Pension Plan. In October 1998, a Summary Plan Description was issued, restating the Rehire Rule. Taylor signed the Formal Plan Documents for both parts of the new plan on December 21, 1998, which confirmed that rehired employees after January 1, 1998, could only participate in the new plan. Depenbrock, rehired on November 30, 1998, thus became eligible solely for the new cash balance plan following his departure on January 2, 1998.

The legal analysis references the Curtiss-Wright case, where retirees alleged improper amendments to their benefits plan under ERISA Section 402(b)(3). The Supreme Court evaluated whether the amendment procedure of the Curtis-Wright plan complied with ERISA requirements and concluded that it had a valid procedure. The Third Circuit later confirmed that the amendments were made according to this procedure. The analysis highlights that while ERISA aims to inform beneficiaries of their rights, this is primarily achieved through the reporting and disclosure requirements, not Section 402(b)(3). This section emphasizes the need for a functional amendment procedure to ensure plans remain amendable, aligning with trust law principles in ERISA interpretation.

Section 402(b)(3) emphasizes the importance of plan amendments for beneficiaries and establishes a procedure for plan administrators to distinguish valid amendments from conflicting corporate communications. Plaintiff Depenbrock argues that CIGNA failed to follow its amendment procedure by not properly adopting the Amendment to the Rehire Rule until December 21, 1998, after his return on November 30, 1998, suggesting he should have been placed back in Plan A instead of the cash balance plan. CIGNA counters that the execution of Amendments 2 and 4 by Taylor indicated approval of the Rehire Rule, as stated in Levinson's cover letter. While it is acknowledged that the Formal Plan Documents were signed on December 21, 1998, this does not negate the validity of the Amendment to the Rehire Rule. Under ERISA, a company is bound to its stated amendment procedures, but corporate law allows for the ratification of unauthorized amendments through subsequent actions. Such ratification confirms the act as if it had been authorized originally. The Third Circuit's decision in Frank v. Colt Industries highlighted the need to examine intentions reflected in corporate meeting minutes to determine if a plan amendment was properly made, asserting that the settlor's intention at the time of the trust's creation is crucial. It concluded that only specific manifestations of intent can constitute the terms of a trust. In this case, Taylor's actions indicated his intent to amend the Rehire Rule effective January 1, 1998.

The cover letter accompanying the memorandum indicated that a restated Plan document would be presented for approval in the first quarter of 1998, retroactively effective from January 1, 1998. It confirmed that Taylor would receive a document to sign, which would include the cash balance plan summary and the new Rehire Rule. Taylor signed the amendments, including Amendment Number 4, which was crucial for freezing participant pension benefit accruals for conversion to the cash balance plan effective December 31, 1997. The documents surrounding the Rehire Rule's adoption demonstrated CIGNA's intent to amend that rule. Taylor's actions post-signing of Amendments 2 and 4 implied and expressly ratified the Rehire Rule, as he did not oppose its terms in the distributed materials. In December 1998, Taylor formally ratified the Rehire Rule by executing the necessary amendment, aligning with the amendment procedure specified in the Plan. The Court concluded that CIGNA properly amended the Rehire Rule in compliance with ERISA Section 402(b)(3), despite recognizing that the conversion was not necessarily financially beneficial for Depenbrock. The Court granted summary judgment in favor of CIGNA on Count One of the Complaint.

In Counts Two and Three, Depenbrock claimed CIGNA failed to adequately disclose the changes to the Rehire Rule as required by ERISA. He argued that the Summary Plan Description (SPD) was insufficient for average participants to understand the modifications. CIGNA responded that Depenbrock's reliance on the SPD was unwarranted, asserting compliance with ERISA through the distribution of the Signature Benefits Retirement Information Kit in December 1997. Under ERISA's notice and disclosure requirements, plan administrators must provide a clear summary of material modifications to participants within 210 days after the end of the plan year in which changes are adopted, ensuring participants receive this information effectively.

CIGNA was not obligated to issue a new Summary Plan Description (SPD) to comply with ERISA Section 1024(b)(1) because it provided adequate notice to employees about changes to the cash balance plan, including the Rehire Rule. Depenbrock received a letter indicating changes would occur, followed by a Signature Benefits Newsletter that summarized these changes and mentioned a forthcoming Retirement Information Kit. The Kit, individually addressed and sent in December 1997, clearly explained the Rehire Rule, stating that reemployed individuals after December 31, 1997, would not participate in the Pension Plan but would be eligible for the new CIGNA Retirement Plan. These actions were deemed compliant with ERISA's notice requirements.

Count Four of Depenbrock's complaint, regarding the right to review documents, was dismissed as he abandoned the claim and provided no supporting authority. Count Five, alleging breach of fiduciary duty due to the application of the new Rehire Rule, was found to lack legal support, as Depenbrock did not cite any authority allowing recovery for a wrongful denial of benefits under ERISA Section 404 when an adequate remedy exists under Section 1132(a)(1)(B). 

Consequently, summary judgment was granted in favor of CIGNA on all counts of Depenbrock's complaint, dismissing it with prejudice. The case was officially closed following this ruling.