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Age Discrimination and Retiree Medical Benefits

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May 19, 2005
Author: , J.D.,L.L.

The Age Discrimination in Employment Act of 1967 (ADEA) prohibits employers from discriminating against any individual with respect to "compensation, terms, conditions, or privileges or employment, because of such individual's age." Protected individuals include retired employees. Since the enactment of the Older Workers Benefit Protection Act of 1990 (OWBPA), this prohibition has extended to employer-provided medical benefits. In the past, many employers relied on legislative history to OWBPA which appeared to indicate that eliminating, reducing, or altering employer-sponsored retiree medical benefits when an individual us eligible for Medicare as being permissible under ADEA.

This understanding was challenged in Erie County Retirees Association v. County of Erie (220 F.3d 193, 24 EBC 2390 (3d Cir. 2000) cert. denied, 121 S. Ct. 1247 (2001).  In that case, the Court of Appeals for the Third Circuit held that an employer that coordinates its retiree medical benefits with Medicare violated the ADEA if the employer provides lesser benefits to older Medicare eligible retirees than younger retirees.  As a result of the decision, the employer, Erie County decided to reduce benefits for pre-age 65 retirees.

The EEOC supported the decision in Erie County and adopted it as its official position.  As a result of its enforcement effort, many employers cut benefits.  In 2004, it changed its position and issued a final rule exempting from the ADEA the practice of coordinating employer provided retiree medical coverage with eligibility for Medicare or comparable state-sponsored medical benefits program.  

The AARP (formerly the American Association of Retired Persons) filed suit against the EEOC in the Third Circuit to enjoin the enforcement of the rule.  In cross motion for summary judgment, the question before the court was the validity of the EEOC final rule. The EEOC argued that it had the power to exempt conduct otherwise prohibited under ADEA provided that the exemption was "reasonable" and "necessary and proper in the public interest."

In March 2005, the court rejected the EEOC's argument on three grounds (AARP v. EEOC, No. 05-509 (E.D. Pa. March 30, 2005) and found that the EEOC could not: 

  • issue regulations or rules contrary to the intent of Congress;
  • exercise its ruling making authority when it takes precedence over substantive provisions and prohibitions of the statute under which the EEOC has exercised it authority; and 
  • issue rules and exemptions where the Congress has left no gaps or ambiguity in the law and the court found no such no gap or ambiguity in the ADEA as it relates to retiree medical  benefits.

When this decision was announced, the benefits and business community were in shock. To control costs, most employers coordinate its provided retiree medical coverage with eligibility for Medicare. The EEOC has indicated that it will appeal the decision and members of Congress have indicated that if the Justice Department does not appeal they will intervene. If this decision stands, its immediate impact will be felt in employers in Delaware, New Jersey, Pennsylvania and Virgin Islands. Eventually, other federal courts will be asked to join in and, if Congress does not act, it could be decided by the U.S. Supreme Court.

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