>The Third US Circuit Court of Appeals ruled that the giant insurance provider was wrong when it adopted a rule retroactively barring certain workers who had been with the company for longer periods of time from continuing to qualify for the traditional plan and not moving to a cash balance alternative. Appeals judges reversed a lower court ruling in favor of CIGNA.
“This case is a by-product of corporate America’s recent effort to curb costs by … scaling back the benefits provided under pension plans,” wrote Circuit Judge Max Rosenn for the court.
>The ruling came in the case of plaintiff John Depenbrock who started working for CIGNA in 1983 under CIGNA’s original pension plan, which the ruling termed “generous.” According to the ruling, the company announced plan changes effective January 1, 1998 that would channel younger workers into the new “more modest” cash balance plan while longer-term workers like Depenbrock could stay in the pension plan under a grandfather clause.
The changes also included a provision that workers leaving the company and then coming back after December 31, 1997 would automatically get put into the cash balance program. CIGNA formally adopted the proposals December 21, 1998, the court said.
According to Rosenn’s decision, Depenbrock left CIGNA January 2, 1998, but was rehired on November 30, 1998. The timing is important because Depenbrock argued in court that he should have been treated under the original plan rules because the changes weren’t formally instituted until 22 days after he came back to the company. The company argued that its November 1997 announcement of the proposed changes meant that the rules were effectively implemented at that time.
The appeals court rejected the company’s argument and ruled that the effective date of the plan rule change was , December 21, 1998. The appeals court criticized the lower court’s finding. It noted that while the law allows companies to cut benefits going forward, it doesn’t allow companies to cut benefits retroactively. The ruling noted that o ne of CIGNA’s actuaries estimated that transferring Depenbrock to the cash balance plan would result in his losing $800,000 in benefits, assuming he continued to work for CIGNA until age 55.
“Depenbrock’s participation in the (pension plan) should have resumed immediately upon his return to work on November 30, 1998,” Rosenn wrote. “And his participation should have continued until either his employment ended or the terms of participation in the (pension plan) were altered by a prospective amendment executed in accordance with CIGNA’s specified procedures.”
The ruling doesn’t involve age discrimination, which is a central issue in several suits regarding cash-balance pensions.
Meanwhile, Cigna is defending a pending class-action suit alleging that its cash-balance plan violated age-discrimination and other provisions (See CIGNA Cash Balance Conversion Suit Certified as Class Action ).
>The latest ruling is at http://www.ca3.uscourts.gov/opinarch/033575p.pdf .