The U.S. Equal Employment Opportunity Commission

EEOC Office of Legal Counsel staff members wrote the following informal discussion letter in response to an inquiry from a member of the public. This letter is intended to provide an informal discussion of the noted issue and does not constitute an official opinion of the Commission.


ADEA: RETIREE HEALTH

August 19, 2004

Dear

Your June 6, 2004 letter to the Assistant Secretary of Labor was forwarded to the Equal Employment Opportunity Commission (EEOC) for response. We appreciate the opportunity to respond to your concerns regarding the EEOC's proposed final regulation regarding retiree health benefits. We hope this information clarifies the purpose, scope, and history of the rule.

The EEOC is responsible for enforcing the Age Discrimination in Employment Act of 1967 (ADEA), which prohibits age discrimination against employees and retirees age 40 and above in all aspects of employment, including fringe benefits. The ADEA includes a provision authorizing the EEOC to "establish such reasonable exemptions to and from any or all provisions of [the ADEA] as it may find necessary and proper and in the public interest." The rule is an exercise of that authority. The EEOC does not administer Medicare and does not have authority to set general retiree health policy. This rule simply provides that employers will not violate the ADEA if they provide retiree health benefits that differ based on whether or not the retiree is eligible for Medicare (or a comparable state health benefit program).

To understand the rule, it is necessary to be aware that no law requires a private employer to provide any health benefit to its employees or retirees. Thus, with or without this rule, an employer may reduce or eliminate health benefits for all of its retirees without violating the ADEA or any other federal law. Of course, an employer that has entered into a collective bargaining agreement or other contractual commitment to provide such benefits is legally bound to honor those commitments; again, with or without this rule.

Most employers that do offer health benefits to retirees coordinate those benefits with Medicare benefits in some way. Some provide health coverage just to "bridge" the gap between an employee's date of retirement and the date that s/he becomes eligible for Medicare. Others provide some Medicare supplement. The extent of such supplements varies considerably from one employer to another.

In August 2000, the United States Court of Appeals for the Third Circuit ruled in Erie County Retirees Ass'n v. County of Erie, 220 F.3d 193 (3d Cir. 2000), that the ADEA prohibits employers from providing different health benefits to retirees based on whether or not they are eligible for Medicare, unless the employer can prove that it incurs equal costs for both groups of retirees. In October of 2000, EEOC adopted the Erie County rule as its national enforcement policy.

In August 2001, in response to concerns voiced by employer and labor groups that the Erie County rule would erode retiree health benefits, EEOC announced that it would review its enforcement of the Erie County rule. To begin the review process, EEOC developed an internal Retiree Health Benefits Task Force. The Task Force met with a wide range of EEOC stakeholders, including employers, labor unions, human resource consultants, benefit consultants, actuaries, state and local government representatives, and representatives of AARP.

Stakeholders told the EEOC that most existing retiree health plans could not meet the Erie County criteria. Many, including the Alliance for Retired Americans, American Federation of Teachers, AFL-CIO, 60 Plus Coalition, United Seniors Association, National Education Association and the American Benefits Council, said that because no law requires employers to provide any retiree health benefits, and because employers found it difficult to assure that the benefits provided to pre- and post-Medicare-eligible retirees were equal, many employers would react to the Erie County rule by eliminating or reducing health benefits to all retirees. This concern proved to be prophetic for the plaintiffs in Erie County. Ultimately, the County equalized benefits not by raising the benefits of its Medicare-eligible retirees, but by lowering the benefits available to all other retirees.

After an extended study of possible alternatives to the Erie County rule, EEOC decided to invoke its exemption authority. In July 2003, it published a proposed rule providing that the ADEA would not apply to the practice of coordinating employer-provided retiree health coverage with eligibility for Medicare (or a State-sponsored equivalent). The exemption was proposed in order to eliminate any ADEA-inspired incentive for employers to reduce or eliminate retiree health benefits. Under the exemption, employers will not violate the ADEA if they alter or eliminate a retiree's health benefits when the retiree becomes eligible for Medicare. The exemption is limited specifically to the coordination of retiree health benefit plans and does not set a precedent for the reduction of any other retiree benefits. The exemption does not require any cuts to currently provided retiree health benefits, is not intended to encourage employers to alter their retirees' health benefits, and does not alter any contractual obligation that the employer has made. It simply allows those employers who do provide retiree health benefits to continue to do so through some form of coordination with the retiree's Medicare benefits without violating the ADEA.

The EEOC is aware that Congress declined to include a similar exemption, Section 631, in the Medicare prescription drug bill. However, a majority of the Commissioners concluded that the EEOC was obliged to act because it is responsible for enforcing the ADEA and it had reason to believe that its previous interpretations were exacerbating the erosion of retiree health benefits. Indeed, during the public comment period, many organizations representing unions and employers filed comments confirming that application of the Erie County rule was further eroding retiree health benefits.

After considering all of the public comments, the Commission concluded that it was appropriate to finalize the exemption. Accordingly, at the conclusion of a public meeting on April 22, 2004, the EEOC's Commissioners voted, 3-1, to approve the rule. Following the vote, the proposed rule was circulated to other federal agencies for comment. Before the rule becomes effective, any comments from other agencies must be reconciled and the rule must be reviewed by the Office of Management and Budget (OMB) and published in the Federal Register.

We hope that this information is helpful. Further information, including a copy of the proposed rule, a transcript of the Commissioners' statements in their April 22, 2004 Commission meeting, and Commissioner Leslie Silverman's written testimony for the May 17, 2004 hearing of the Senate Special Committee on Aging is available on our web site, at www.eeoc.gov.

Sincerely,

- s -

Dianna Johnston
Assistant Legal Counsel
Office of Legal Counsel


This page was last modified on April 27, 2007.

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