The Equal Employment Opportunity Commission (EEOC) has backed off from its previous position that reducing or eliminating retiree medical benefits on the basis of age or Medicare-eligibility violates the Age Discrimination in Employment Act (ADEA). The agency has announced its intention to review its policy concerning the ADEA's effect on employer-sponsored retiree health benefit plans, such as those offering extended health care coverage in the form of a Medicare bridge. The revised policy will consider the interests of both retirees and employers.
Erie County and the EEOC's Compliance Manual
In Erie County Retirees Assoc. v. County of Erie, Pennsylvania, the Third Circuit Court of Appeals held that the ADEA applies to retirees and retiree health plans. The EEOC cited language from Erie County in its Compliance Manual, stating that retiree health benefits are not equal if they are reduced or eliminated when a retiree becomes eligible for old-age benefits under Medicare. The EEOC's position was that (1) retirees are covered by the ADEA, and (2) reducing or eliminating health coverage upon Medicare eligibility is age discrimination that must be justified under the ADEA, through either Medicare "carve-out" or equal cost/benefit analysis.
After Erie County and the subsequent revision to the Compliance Manual, many employer and employee organizations lobbied the EEOC to change its policy. Fearing that its current course would discourage employers from providing retiree health plans at all, the EEOC agreed to rethink its position. The agency has pledged to draft a new policy that "protects the rights of older retirees, but does not deter employers from providing health benefits to retirees in general." Employer organizations involved in lobbying the EEOC have indicated that a regulatory "fix" by way of a safe harbor provision may be the answer to this issue. But the ERISA Industry Committee (ERIC) believes that a legislative solution could have unfavorable consequences for employers.
Tentatively, this is good news for employers. The EEOC will stop pursuing cases involving retirees and health coverage, which could discourage some retirees from pursuing these types of ADEA claims. And, the EEOC's new position will likely be more favorable to employer-sponsored retiree health plans. However, the agency's shift in position will neither affect court cases nor negate the effects of Erie County. Employers are still vulnerable to litigation brought by individuals or by class action suits based on the decision of the appellate court in Erie County (that the ADEA applies to retirees). Employers in the third circuit - Delaware, New Jersey, Pennsylvania and the U.S. Virgin Islands - face the same litigation risks that existed before the EEOC's announcement.