A lawsuit over changes to Cigna’s pension has gone on so long that 1,000 of the former employees have died, but the lawyer who brought the class-action suit said retirees and employees will finally get paid this year.
Fifteen years after Cigna Corp. employees and former employees first sued over 1998 changes to the company pension plan, a federal court ordered the company in January to provide a list of all 27,000 people in the class-action lawsuit and how much each one is owed. There are 3,620 Connecticut residents in the lawsuit.
The conversion from a pension to a cash balance plan was legal, and did not discriminate against older workers, a U.S. District judge in New Haven found. But because the way the company described the changes was misleading, the court found Cigna liable for paying for what they are owed from the original pension, frozen at the end of 1997, plus additions to the lump sums the pensions were converted to.
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In the case of a pension, employees are promised a certain percentage of their final salaries, based on years of service. With cash balance plans, employers promise to contribute a certain percentage of an employee’s salary each year, and that a hypothetical account representing that amount will grow at a certain interest rate. At retirement, employees can choose to take a lump sum or buy an annuity, which provides a lifetime income stream.
“Unfortunately for all concerned, the literature describing these changes including a summary plan description overstated the benefits … and concealed that the new plan resulted in a net reduction in benefits,” said employment lawyer Paul Mollica, with New York firm Outten & Golden.
A 15-Year Case
As part of the conversion, Cigna made assumptions about how much cash would be enough to create the same size annuity at retirement age, but did not include the spousal survivor benefit, which only covered people hired before the end of 1988, in its calculations.
And, because of the assumptions it made about the future careers of workers, there could be several years when additional service credits and interest on the cash balance still weren’t enough to get employees back to where they were under their original pension. That kind of conversion formula was later outlawed
If workers left before the cash balance grew large enough to equal the pension at the time it was terminated, they did get the cash value of the original pension when they left. But that meant they didn’t accrue any benefits for those years. That’s what happened to Gisela “Gigi” Broderick, a West Hartford resident who is one of the three women whose names are on the lawsuit.
Broderick worked for Cigna from 1987 to 1997 and then from 2000 to 2004.
Cigna decided to protect long-time, middle-aged and older workers by letting them keep the pension and Broderick fell into that group. But because she rejoined the company after the change, she was moved into the cash balance when she was rehired.
After she returned to Cigna in 2000, she wanted to know the assumptions used to determine how her cash balance account would grow until she was ready to retire.
“I’m a math major. I know present value,” she said, referring to the concept in finance of how much you would need today to produce a certain income stream in the future. “They wouldn’t give me the formula,” she said, telling her: “This is too difficult.”
“I was irate because they thought they could do this behind people’s back,” she said.
A Precedent for Other Cases
When Cigna lost its case at the Supreme Court, the justices sent it back to Connecticut to finalize what was owed the workers and former workers. Cigna and the former employees both appealed the next ruling, and January’s ruling settled those claims
There are roughly 2,000 to 2,500 in the lawsuit who are still working at Cigna …
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Broderick, who was a well-paid manager at Cigna, used the cash balance lump sum to buy an annuity when she left work in 2004, which pays about $1,900 a month. Whatever settlement she gets in the end which should be something in the neighborhood of 7 percent of her last four years of pay, plus interest, minus 17.5 percent for attorney fees she plans to give to her grown children, who live in Connecticut.
“I am doing it for all these people, secretaries who were making $30,000, who took a lump sum when an annuity was worth more,” she said. “There are a lot of people who don’t really understand. That was what Cigna was counting on, that people were ignorant.”
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