Has the Erie County saga finally come to a close? Yes, according to the EEOC which yesterday issued this press release-"EEOC Approves Proposal to Exempt Retiree Health Plans From Age Discrimination in Employment Act": During a public meeting today, the…

Has the Erie County saga finally come to a close? Yes, according to the EEOC which yesterday issued this press release–“EEOC Approves Proposal to Exempt Retiree Health Plans From Age Discrimination in Employment Act“:

During a public meeting today, the U.S. Equal Employment Opportunity Commission (EEOC) voted to approve a proposed final rule that would permit employers, under the Age Discrimination in Employment Act (ADEA), to lawfully coordinate retiree health benefit plans with eligibility for Medicare or a comparable state-sponsored health benefit. This common and long-standing employer practice was called into question in 2000, when the U.S. Court of Appeals for the Third Circuit (Erie County Retirees Association v. County of Erie) held that the federal statute requires employers to assure that pre- and post- Medicare eligible retirees receive health benefits of equal type and value.

. . . The Commission’s prior policy, which was rescinded by a unanimous vote in August 2001, had concluded that coordinating retiree health benefits with Medicare eligibility constituted an illegal age-based distinction under the ADEA. A Notice of Proposed Rulemaking published in the July 14, 2003, Federal Register solicited public comments on the document discussed and voted upon today.

Here are the events leading up to this announcement:

(1) In August 2000, in Erie County Retirees Assoc. v. County of Erie, Pennsylvania, the Third Circuit Court of Appeals held that the ADEA applied to retirees and retiree health plans. The EEOC had filed an Amicus Brief in the case.

The county had a retiree medical plan that provided different coverage to pre- and post-Medicare eligible retirees. The Third Circuit ruled that the county’s retiree medical plan violated the ADEA, unless it met either the “equal benefit or equal cost” standard, under which an employer must either provide equal benefits to older and younger workers, or must incur the same costs for benefits on behalf of older and younger workers. The court then remanded the case back to district court to determine whether the plan satisfied the “equal benefit or equal cost” exception.

(2) On October 6, 2000, the EEOC adopted the Third Circuit’s position in its Compliance Manual, referencing Erie County for the premise that the ADEA applied to retirees and retiree health plans. The Manual stated that an employer could avoid liability for age discrimination on the basis of Medicare eligibility by showing either that (i) taking Medicare availability into account for those 65 and over, the total benefits available to older retirees were no less favorable than those the employer offered to younger retirees; or (ii) the employer expended an equal cost for benefits for older and younger retirees and the reductions in benefits for older retirees were actuarially justified.

(3) The case was appealed to the Supreme Court, which declined to hear it on March 5, 2001.

(4) On April 16, 2001, the district court on rehearing found that the retiree medical plan did not meet the equal benefits or cost safe harbor under the ADEA, and that benefits for older retirees were inferior to those for younger retirees. The court did not assess damages at that time.

(5) In August 2001, the EEOC rescinded those portions of the Compliance Manual that related to Erie County, retiree medical coverage and the ADEA. The EEOC also announced that it would stop pursuing cases involving retirees and health coverage, and would develop a new policy.

(6) On March 20, 2002, United States District Judge Sean McLaughlin approved a class-action settlement in Erie County Retirees Ass’n v. County of Erie, Pa., No. 98-CV-272 (W.D. Pa.). Under the settlement, the group of 114 Medicare-eligible retirees reportedly split roughly $205,000, which translated to about $1,800 per retiree. More importantly, though, the County redesigned its retiree health plan in an effort to equalize the Medicare-based benefit and premium differences that prompted the lawsuit. According to reports, the County basically tried to equalize benefits for pre- and post-Medicare retirees by “downgrading” the benefit structure for pre-Medicare retirees.

(7) On July 14, 2003, the EEOC proposed regulations that would allow employer-sponsored retiree health benefits to be changed, reduced, or eliminated when retirees become eligible for Medicare without violating the Age Discrimination in Employment Act (ADEA).

(8) The EEOC has now finalized these proposed regulations, as announced yesterday.

Reactions:

Committee on Education and the Workforce–“House Workforce Committee Leaders Praise Action by EEOC to Protect Important Retiree Health Benefits“:

House Workforce Committee leaders today praised the Equal Employment Opportunity Commission (EEOC) for moving forward a regulation to protect the retiree health care benefits for millions of American seniors. The EEOC regulation, supported by employers, workers, and organized labor, would correct a Third Circuit Court of Appeals decision in the Erie County Retirees Association v. Erie County case that could force employers to reduce or eliminate the health benefits for pre-Medicare eligible retirees in order to avoid potential age discrimination liability.

ERIC–“ERIC Applauds EEOC Approval of Rule to Exempt Retiree Health Benefits from ADEA“:

ERIC today lauded the Equal Employment Opportunity Commission (EEOC) for approving an exemption from the Age Discrimination in Employment Act (ADEA) that permits employers to coordinate post-employment health care coverage with Medicare, thereby providing relief from the Erie County court ruling by the Third Circuit Court of Appeals. . . ERIC also expressed concern over the continuing misperception of the economic effect of the Erie County case by AARP and others who continue to oppose the exemption.

Articles on yesterday’s EEOC action:

  • New York Times: “Commission to Allow Insurance Cuts for Retired Employees
    Leslie E. Silverman, a member of the commission, said the appeals court decision had confronted employers with an all-or-nothing choice: “Give all of your retirees the exact same benefits, which is incredibly difficult, or eliminate your retiree health benefits altogether.” Several commission members said that employers were more likely to continue providing health benefits to retirees under 65 if they were allowed to reduce or eliminate benefits for those 65 and older. A preamble to the final rule says it “is not intended to encourage employers to eliminate any retiree health benefits they may currently provide.”

  • The Wall Street Journal (subscription required): “EEOC Votes to Let Employers Cut Retirees’ Health Benefits
    AARP’s policy director, John Rother, said it was hard to gauge the immediate impact of the rule. The reason: The new Medicare prescription-drug law provides billions of dollars in subsidies for employers who keep providing drug coverage to retirees on Medicare. So, employers who might have been inclined to drop coverage might opt to maintain it instead.

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