2004 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

11-10-2004

Depenbrock v. Cigna Corp

Precedential or Non-Precedential: Precedential

Docket No. 03-3575

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PRECEDENTIAL

IN THE UNITED STATES COURT OF

APPEALS

FOR THE THIRD CIRCUIT

____________

No. 03-3575

____________

JOHN DEPENBROCK,

Appellant

v.

CIGNA CORP.; CIGNA PENSION PLAN

 ____________

Appeal from the United States District

Court

 the Eastern District of Pennsylvania

D.C. No.: 01-cv-06161

District Judge: Honorable Robert F.

Kelly

____________

Argued: September 21, 2004

Before: McKEE, ROSENN and WEIS,

Circuit Judges

(Filed: November 10, 2004)

Stephen R. Bruce, Esq. (Argued) 

805 15th Street, N.W. 

Washington, DC 20005-2271

William M. O'Connell, III, Esq. 

Barbin, Lauffer & O'Connell 

608 Huntingdon Pike 

Rockledge, PA 19046

Counsel for Appellant

Joseph J. Costello, Esq. (Argued)

Tamsin J. Newman 

Morgan, Lewis & Bockius 

1701 Market Street 

Philadelphia, PA 19103 

Counsel for Appellee 

____________

OPINION OF THE COURT

____________

ROSENN, Circuit Judge.

This case is a by-product of

corporate America’s recent effort to curb

costs by, inter alia, scaling back the

benefits provided under pension plans.

John Depenbrock (“Depenbrock”) claims

that his employer, CIGNA Corporation

(“CIGNA”), violated the Employee

Retirement Income Security Act

(“ERISA”), 29 U.S.C. § 1001, et seq., by

denying him benefits without the required

notice and lawful amendment to the

pension plan. Depenbrock also alleges

that CIGNA violated ERISA by failing to

provide him an opportunity to review

pertinent documents relating to his denialof-benefits claim, and by breaching the

fiduciary duty owed as plan administrator.

The District Court granted

CIGNA’s motion for summary judgment

and denied Depenbrock’s cross motions.

We reverse the summary judgment in

favor of CIGNA and remand with

directions to enter summary judgment for

Depenbrock. 

I.

In 1983, Depenbrock began
2

working at CIGNA. At that time, CIGNA

provided its employees with a generous

traditional pension plan.1 On November 4,

1997, presumably to cut costs, CIGNA

proposed amendments to its plan that were

to become effective January 1, 1998.

According to the amendments, younger,

short-term employees were to be

transferred to a more modest “cash

balance” pension formula (“the New

Plan”),2 while long-term employees –

such as Depenbrock – would

“grandfather” in under the traditional plan

(“the Old Plan”) and receive higher

benefits.3 In addition, the proposed plan

amendment included a “Rehire Rule”

which stated that long-term employees

who left CIGNA and were re-employed

after December 31, 1997, would not

participate in the Old Plan upon return but

instead would be transferred immediately

into the New Plan. For reasons unknown,

CIGNA did not formally adopt the

amendment and “Rehire Rule” until

December 21, 1998, when CIGNA’s CEO

executed a written adoption in accordance

with the amendment procedure set forth in

the plan. 

On January 2, 1998, Depenbrock

resigned from CIGNA to work for another

company. However, Depenbrock was

rehired at CIGNA on November 30, 1998.

Depenbrock claims that the pension rule in

effect when he was rehired provided that

he immediately resume participation under

the Old Plan. Depenbrock bases this

assertion on the fact that the proposed

amendment to CIGNA’s plan had not yet

been formally adopted when he was

rehired on November 30, 1998. Because

the formal adoption date came twenty-two

days after Depenbrock returned to work,

Depenbrock asserts that the amendment

does not apply to him. To hold otherwise,

Depenbrock argues, would amount to an

impermissible retroactive reduction of his

 

1A traditional pension plan is a defined

benefit plan that “pays an annuity based

on the retiree’s earnings history, usually

the most recent or highest paid years, and

the number of completed years of service

to the company.” Campbell v.

BankBoston, N.A., 327 F.3d 1, 4 (1st

Cir. 2003). The CIGNA pension plan

was determined by factoring in the

retiree’s credited years of service, 2% of

his 36-month average compensation at

the time of retirement, minus a Social

Security offset. 

 

2

“Cash balance” plans “guarantee an

employee a certain contribution level,

usually an annual percentage of salary,

plus a fixed percentage of interest.” 

Campbell, 327 F.3d at 4. CIGNA’s

“cash balance” plan offered employees

an account balance to which was credited

an amount based on eligible earnings and

credited years of service, as well as an

annual declared interest rate. 

 

3CIGNA refers to the Old Plan as

“Part A” and the New Plan as “Part B.” 

We employ the terms “Old” and “New”

in order to orient the plans

chronologically.
3

rights.4

CIGNA counters that although the

amendment was not formally adopted until

December 21, 1998, the announcement of

the proposed changes on November 4,

1997, coupled with the CEO’s conduct

subsequent to the announcement, served to

implement and retroactively ratify the

amendment as of November 4, 1997. As

such, CIGNA asserts that the effective

date of the amendment was January 1,

1998 – the effective date specified in the

internal announcement of the amendment.

Because Depenbrock resigned from

CIGNA on January 2, 1998, one day after

the specified effective date of the “Rehire

Rule,” CIGNA contends the “Rehire Rule”

lawfully applies.

Depenbrock filed suit against

CIGNA in the Eastern District of

Pennsylvania on December 11, 2001, for

wrongful denial of ERISA benefits,

disclosure violations, and breach of

fiduciary duty. During discovery,

Depenbrock moved to compel the

production of fifty-two documents that

CIGNA claimed were protected by the

attorney-client privilege and/or “work

product” doctrine. The District Court

invited CIGNA to submit an ex parte

memorandum in support of its claims.

After conducting an in camera review, the

District Court denied Depenbrock’s

motion to compel without offering any

explanation for its finding. The District

Court held oral argument on cross motions

for summary judgment and on July 31,

2003, issued an opinion and order granting

summary judgme nt to CIGNA.

Depenbrock timely appealed. 

II.

This case having arisen under

ERISA, the District Court had subject

matter jurisdiction pursuant to 28 U.S.C. §

1331 and 29 U.S.C. § 1132. This Court

has appellate jurisdiction pursuant to 28

U.S.C. § 1291 over the final judgment of

the District Court. Berger v. Edgewater

Steel Co., 911 F.2d 911, 916 (3d Cir.

1990).

We review de novo the District

Court’s order granting CIGNA’s motion

for summary judgment. Bixler v. Cent. Pa.

Teamsters Health & Welfare Fund, 12

F.3d 1292, 1297 (3d Cir. 1993). Motions

for summary judgment must be granted if

there is no genuine issue as to any material

fact and the moving party is entitled to

judgment as a matter of law. Fed. R. Civ.

P. 56(c); Ryan by Capria-Ryan v. Fed.

Express Corp., 78 F.3d 123, 125 (3d Cir.

1996).

Depenbrock initially raised five

issues on appeal: 1) whether the “Rehire

Rule” was effective January 1, 1998; 2)

whether the plan amendment adopted

December 21, 1998, can be given

retroactive effect; 3) whether CIGNA

complied with ERISA’s notice and

disclosure requirements; 4) whether

Depenbrock’s failure-to-produce claim

against CIGNA fails as a matter of law;

 

4One of CIGNA’s actuaries estimated

that transferring Depenbrock from the

Old Plan to the New Plan will result in

his losing $800,000 in benefits, assuming

he continued to work for CIGNA until

age 55.
4

and 5) whether the “fiduciary exception”

to the attorney-client privilege compels

CIGNA to produce fifty-two ostensibly

privileged documents. Disposition of the

first two issues renders discussion of the

remaining issues unnecessary. We

therefore turn to the effective date of the

amendment and analyze whether the

amendment may be applied retroactively.

A. Effective Date of the Amendment

Before turning to the merits, we

first set forth some background on ERISA.

“Erisa does not create any substantive

entitlement to employer-provided . . .

welfare benefits. Employers or other plan

sponsors are generally free under ERISA,

for any reason at any time, to adopt,

modify, or terminate welfare plans.”

Curtiss-Wright Corp. v. Schoonejongen,

514 U.S. 73, 78 (1995); see Bellas v. CBS,

221 F.3d 517, 522 (3d Cir. 2000) (“ERISA

neither mandates the creation of pension

plans nor in general dictates the benefits a

plan must afford once created.”).

However, “ERISA requires that all

employee benefit plans be ‘established and

maintained pursuant to a written

instrument,’ 29 U.S.C. § 1102(a)(1) . . . .”

Ryan by Capria-Ryan, 78 F.3d at 126.

Thus, “[t]his section precludes oral or

informal amendments to employee benefit

plans.” Confer v. Custom Eng’g, 952 F.2d

41, 43 (3d Cir. 1991) (citing Hozier v.

Midwest Fasteners, Inc., 908 F.2d 1155,

1163 (3d Cir. 1990)). Although the

Supreme Court has established a de

minimus standard for compliance with

ERISA, see Curtiss-Wright, 514 U.S. 73,

the plan must identify the person who has

the authority to amend the plan, and

amendments must be conducted according

to formal procedures. 29 U.S.C. § 1102.5

“[W]hateverlevel of specificity a company

ultimately chooses, in an amendment

procedure or elsewhere, it is bound to that

level.” Curtiss-Wright, 514 U.S. at 85.

Thus, an amendment is ineffective if it is

incon sistent with the gov ernin g

instruments. Delgasso v. Sprang & Co.,

769 F.2d 928, 935-36 (3d Cir. 1985); see

Confer, 952 F.2d at 43 (“Only a formal

written amendment, executed in

accordance with the Plan’s own procedure

for amendment, could change the Plan.”).

As a threshold matter, Depenbrock

 

5The pertinent provisions of 29 U.S.C.

§ 1102 provide:

(a) Named fiduciaries

(1) Every employee benefit

plan shall be established

and maintained pursuant to

a written instrument. . . .

* * *

(b) Requisite features of

plan: Every employee

benefit plan shall--

* * * 

(3) provide a procedure for

amending such plan, and for

identifying the persons who

have authority to amend the

plan, and

(4) specify the basis on

which payments are made to

and from the plan.
5

claims that CIGNA’s CEO lacked

authority to amend the plan. Alternatively,

Depenbrock contends that even if the CEO

was authorized to amend the plan, he

failed to comply with CIGNA’s own

written amendment procedures so that the

amendment was not effective until

December 21, 1998, the date when

CIGNA finally executed revised formal

plan documents in accordance with the

amendment procedure set forth in the plan.

Because the amendment’s effective date

came twenty-two days after Depenbrock

was rehired, Depenbrock contends the

adverse amendment does not apply to him.

CIGNA counters that its CEO was

duly authorized to amend the plan and he

did so pursuant to the doctrine of

ratification. According to CIGNA,

although the plan amendment was not

formally adopted until December 21, 1998,

the CEO’s approval on November 4, 1997,

of a summary of the proposed “cash

balance” pension formula and “Rehire

Rule,” coupled with his subsequent

conduct, effected a retroactive ratification

of the plan amendment to be effective

January 1, 1998. Accordingly, CIGNA

claims that the “Rehire Rule” was

effective as of the date specified for the

amendment – January 1, 1998 – and

applied to Depenbrock because he

resigned on January 2, 1998, one day after

the alleged effective date of the rule.

We first address the CEO’s

authority to amend. As a threshold

determination, we agree with the District

Court that the CEO was authorized to

amend the plan and adopt the “Rehire

Rule.” Section 16.1 of the CIGNA plan

specified three methods for amendment:

1) a resolution of the Board of Directors;

2) a resolution of the People’s Resources

Committee of the Board of Directors

(“PRC”); or 3) a written instrument

approved and executed by one or more

duly authorized officers of CIGNA. On

July 23, 1997, the PRC adopted a

resolution authorizing the CEO to: 

adopt amendments to the

CIGNA Pension Plan . . . to

be effective January 1, 1998

(or a later date if deemed

appropriate by the CEO), as

necessary or appropriate to .

. . [c]hange the Plan’s

current “final average pay”

benefit accrual formula to a

“cash balance” formula for

all eligible participants

under the Plan except those

who (1) are currently

accruing benefits under the

formula in effect on

December 31, 1988, and (2)

whose combined age plus

years of credited service . . .

is 45 or more as of

December 31, 

1997 . . . .

 This resolution gave the CEO plenary

authority to amend the plan from a “final

average pay” to a “cash balance” formula.

The exception provided for long-term

employees does not insulate them from the

CEO’s decision-making authority so much

as clarify that long-term employees are not

subject to the plan changes. Accordingly,
6

we conclude that the CEO had authority to

adopt the “Rehire Rule” amendment. 

However, the CEO did not exercise

his authority to amend the plan until

December 21, 1998, the date the written

amendment was executed and formally

adopted. ERISA specifies that a valid

amendment can only be made in the

manner specified in the plan document.

Curtiss-Wright, 514 U.S. at 85.

Regardless of the method specified for

amendment, however, an indispensable

requirement under ERISA for effective

plan amendment is that the amendment be

in writing. See Hozier, 908 F.2d at 1163

(citing Nachwalter v. Christie, 805 F.2d

956. 960 (11th Cir.1986) (“ERISA

precludes oral modifications of employee

benefit plans.”)); Pizlo v. Bethlehem Steel

Corp., 884 F.2d 116, 120 (4th Cir.1989)

(stating that “informal” or “unauthorized”

modification of pension plans is

“impermissible” under ERISA); Degan v.

Ford Motor Co., 869 F.2d 889, 895 (5th

Cir.1989) (“ERISA mandates that [a] plan

itself and any changes made to it [are] to

be in writing.”); Musto v. Am. Gen. Corp.,

861 F.2d 897, 910 (6th Cir.1988) (“[A]

written employee benefit plan may not be

modified or superceded by oral

undertakings on the part of the

employer.”), cert. denied, 490 U.S. 1020

(1989); Moore v. Metro. Life Ins. Co., 856

F.2d 488, 492 (2d Cir.1988) (“[A]n ERISA

welfare plan is not subject to amendment

as a result of informal communications

between the employer and plan

beneficiaries.”). The CEO did not sign a

written instrument amending the plan until

December 21, 1998, more than three

weeks after Depenbrock had been rehired.

Thus, December 21, 1998, is the effective

date of the amendment. However, this

does not resolve the issue, for we must

consider whether the doctrine of

ratificatio n , urg ed by CIGN A ,

retroactively rendered the amendment and

“Rehire Rule” effective as of January 1,

1998. 

B. Retroactive Ratification

The doctrine of ratification provides

that an improperly authorized amendment

may be ratified ex post by subsequent acts.

See Curtiss-Wright, 514 U.S. at 85.

Moreover, a validly accomplished

ratification ordinarily must be given

retroactive effect, rendering the ratified

action valid as of the original decision

date. Schoonejongen v. Curtiss-Wright,

Nos. 92-5695 & 92-5710, slip op. at 3 (3d

Cir. Aug. 30, 1995). However, ratification

is prohibited where the amendment

retroactively reduces the intervening rights

of third parties, such as plan participants.

See Curtiss-Wright v. Schoonejongen, 143

F.3d 120, 124-25 (3d Cir. 1998) (on

remand) (rejecting ex post ratifications that

defeat intervening rights); Confer, 952

F.2d at 43 (holding that an amendment

limiting eligibility can operate only

prospectively); 2A William Fletcher,

Fletcher Cyclopedia of the Law of Private

Corporations § 782, at 647-48 (perm. ed.

rev. vol. 1992) (“Ratification cannot relate

back so as to defeat intervening rights of

strangers to the transaction.”).

In the instant case, the District

Court concluded that the December 21,

1998, date of formal adoption is not fatal

to the adoption of the amendment to the
7

“Rehire Rule” as of January 1, 1998.

According to the District Court, the CEO

“manifested his intent” to amend the

“Rehire Rule,” effective January 1, 1998,

by his approval of a summary of the

proposed amendment on November 4,

1997. Furthermore, the CEO’s actions

subsequent to his approval ostensibly

“constituted a ratification of the

amendment both express and implied.”

The District Court cites as proof the

following subsequent conduct: the CEO’s

failure to voice opposition to the “Rehire

Rule” described in the “Signature Benefits

Retirement Kit” distributed to participants

in December, 1997; the CEO’s failure to

object to the “Rehire Rule” described in

the Summary Plan Description that was

generated for the New Plan in October,

1998; and the CEO’s express execution of

the formal amendment to the plan on

December 21, 1998. 

Unfortunately for CIGNA, the

District Court’s reliance on the doctrine of

ratification is misplaced because

ratification would effect a retroactive

reduction of Depenbrock’s accrued

benefits under the Old Plan. Given that

the amendment was not formally adopted

until December 21, 1998, Depenbrock

acquired rights in the interval before

affirmance – namely, the right to receive

benefits under the Old Plan – and retained

his right to accrued benefits, instead of

having to settle for the more modest

benefits provided under the New Plan.

Because ratification of the amendment as

of November 4, 1997, would unlawfully

deprive Depenbrock of intervening

substantial benefits, ratification is

ineffective. 

CIGNA argues nonetheless that the

amendment did not reduce Depenbrock’s

then-accrued benefits under the plan

because Depenbrock worked for only a

short period in 1998 before the amendment

became effective on December 21, 1998.

Because Depenbrock worked only a

fraction of the year, CIGNA contends he

did not amass the 1,000 work hours

needed to accrue a year of service credit

under the Old Plan. Because Depenbrock

allegedly accrued no service credit under

the Old Plan, retroactive application of the

“cash balance” formula to his service

following his rehire did not reduce any

accrued benefit. As such, CIGNA claims

there is nothing unlawful in subjecting

Depenbrock to the “Rehire Rule.”

Even if we were somehow to

conclude that excluding Depenbrock from

the Old Plan was not a retroactive

reduction of benefits, CIGNA’s argument

fails because it wrongly assumes that

CIGNA could transfer Depenbrock out of

the Old Plan and into the New Plan

without effectuating another formal plan

amendment. CIGNA contends that even if

the amended plan were not properly

adopted until December 21, 1998, CIGNA

could leave Depenbrock in the Old Plan

for twenty-two days, and then transfer him

to the New Plan on December 21, 1998,

the effective date of the amendment.

However, CIGNA overlooks that it would

have no authority upon which to transfer

Depenbrock without effectuating another

formal plan amendment, which it did not

do.

Moreover, CIGNA’s assertion that
8

the ame ndment did n ot reduce

Depenbrock’s accrued benefits is premised

on an unsubstantiated interpretation of

ERISA’s “Anti-cutback” rule, 29 U.S.C. §

1054(g).6 The “Anti-cutback” rule

prohibits a plan amendment from

decreasing a participant's “accrued

benefits.” Id.; see, e.g., Cent. Laborers’

Pension Fund v. Heinz, 214 S. Ct. 2230,

2237 (2004); Bellas, 221 F.3d at 522 (“[A]

plan amendment that retroactively reduced

benefits promised to plaintiffs for almost

seven years was precisely the sort of

inequity Congress designed ERISA to

prevent.”). ERISA defines “accrued

benefit” as an individual's right to a

retirement benefit “determined under the

plan . . . expressed in the form of an annual

benefit commencing at normal retirement

age.” 29 U.S.C. § 1002(23); see Berger,

911 F.2d at 917. CIGNA construes

“accrued benefit” narrowly to mean purely

a dollar amount of benefits. According to

this interpretation,retroactive amendments

to a plan are permissible so long as the

dollar amount of accrued benefits is not

reduced. CIGNA claims – which

Depenbrock disputes – that transferring

Depenbrock to the New Plan does not

reduce his dollar amount of benefits

because the benefits he earned under the

Old Plan were converted into an opening

account balance in the New Plan.7

Regardless of the merits of

Depenbrock’s challenge to CIGNA’s

assertion, CIGNA’s argument fails

because it is predicated upon a proposed

treasury regulation that is not yet the law.

See Prop. Treas. Reg. § 1.411(d)-3(a)(4),

Example 2, 69 Fed. Reg. 13769 (Mar. 24,

2004) (proposing to reinterpret the “Anticutback” rule so as to limit the protection

of accrued benefits to purely a dollar

amount). Although the Treasury

Department retainsinterpretive jurisdiction

over the “Anti-cutback” rule, see 43 Fed.

Reg. 47713 (Oct. 17, 1978), “a proposed

regulation does not represent an agency's

considered interpretation of its statute . . .

.” Commodity Futures Trading Comm’n

 

6

29 U.S.C. § 1054(g) provides in

relevant part: 

(1) The accrued benefit of a participant

under a plan may not be decreased by an

amendment of the plan . . . .

(2) For purposes of paragraph (1),

a plan amendment which has the effect

of-- 

(A) eliminating or reducing an early

retirement benefit or a retirement-type

subsidy (as defined in regulations), or 

(B) eliminating an optional form of

benefit, with respect to benefits

attributable to service before the

amendment shall be treated as reducing

accrued benefits. . . .

 

7Depenbrock maintains that CIGNA

credits the initial “cash balance”

accounts of rehired employees like him

with less than the full value of their

previously earned annuities. As a result,

he claims employees start with lower

benefits for purposes of the “cash

balance” formula than they had before

and it takes years for rehired employees

to catch-up with where they began. 
9

v. Schor, 478 U.S. 833, 845 (1986); see,

e.g., Ca. Rural Legal Assistance, Inc. v.

Legal Servs. Corp., 917 F.2d 1171, 1173

n.5 (9th Cir. 1990) (“We decline to take

cognizance of the proposed regulation

however, because ‘a proposed regulation

does not represent an agency's considered

interpretation of its statute . . . .’”) (quoting

Schor, 478 U.S. at 845). 

Until the proposed treasury

regulation becomes law, the current

regulations govern.8 The current

regulations, 26 C.F.R. § 1.411(d)-3(b),

9

prohibit plan amendments that “directly or

indirectly” affect accrued benefits. “Plan

provisions indirectly affecting accrued

benefits include, for example, provisions

relating to years of service and breaks in

service for determining benefit accrual . .

. .” Id. Because CIGNA’s amendment

adopts the “Rehire Rule” that “directly or

indirectly” affects the calculation of

benefits, the amendment as applied to

Depenbrock is prohibited.

Even if Depenbrock had been

notified of the proposed “Rehire Rule” by

the “Signature Retirement Benefits Kit” –

as CIGNA urges – such notice was

insufficient to have implemented the

amendment because ERISA provides that

amendments to a plan may only occur if

made in writing. See supra Part II.A. The

written amendment, as previously stated,

was not executed until December 21,

1998. Thus, December 21, 1998, is the

effective date of the amendment.

Depenbrock’s participation in the

 

8We note that as of June 28, 2004, the

proposed treasury regulation redefining

“Protected Benefits” – Section 411(d)(6)

(BIN 1545-BC26) – has progressed to

the “Final Rule Stage.” See 69 Fed. Reg.

37976. However, it is still not the law.

 

9

26 C.F.R. § 1.411(d)-3(b) provides in

relevant part:

Under section 411(d)(6) a plan is

not a qualified plan (and a trust

forming a part of such plan is not a

qualified trust) if a plan amendment

decreases the accrued benefit of

any plan participant, unless the plan

amen dme n t satisfies th e

requirements of section 412(c)(8)

(relating to certain retroactive

amendments) and the regulations

thereunder. For purposes of

determining whether or not any

participant's accrued benefit is

decreased, all the provisions of a

plan affecting directly or indirectly

the computation of accrued benefits

which are amended with the same

adoption and effective dates shall

be treated as one plan amendment.

Plan provisions indirectly affecting

accrued benefits include, for

example, provisions relating to

years of service and breaks in

service for determining benefit

accrual, and to actuarial factors for

determining optional or early

retirement benefits.
10

Old Plan should have resumed

immediately upon his return to work on

November 30, 1998. And his participation

should have continued until either his

employment ended or the terms of

participation in the Old Plan were altered

by a prospective amendment executed in

accordance with CIGNA’s specified

procedures.

Having determined that the

amendment adversely affects Depenbrock,

we do not reach the question of CIGNA’s

compliance with ERISA’s notice and

disclosure requirements, the validity of

Depenbrock’s failure-to-produce claim

against CIGNA, or the correctness of the

District Court’s finding of attorney-client

privilege.

IV.

Accordingly, for the reasons set

forth above, the summary judgment in

favor of CIGNA Corporation will be

reversed and the case remanded to the

District Court with direction to enter

summary judgment in favor of John

Depenbrock. Costs taxed against CIGNA.