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  2. Policy Statement: Application of sec. 4(f)(2) of the ADEA to cases involving "benefit packages" that end life insurance coverage for employees totally disabled after attaining age 60 (Rescinded)

Policy Statement: Application of sec. 4(f)(2) of the ADEA to cases involving "benefit packages" that end life insurance coverage for employees totally disabled after attaining age 60 (Rescinded)

This document was rescinded as part of EEOC's effort to provide guidance and information that is current, accurate, and clear. 

N-915.023
March 21,1988

  1. SUBJECT: Policy Statement:  Application of § 4(f)(2) of the Age Discrimination in Employment Act (ADEA) of 1967, as amended, to cases involving "benefit packages" that end life insurance coverage for employees totally disabled after attaining age 60.
  2. PURPOSE: This Policy Statement reflects the Commission's view of the application of the ADEA to charges involving an employer's refusal to provide any life insurance coverage for employees who become totally disabled after attaining age 60, even though they provide life insurance coverage by means of a "waiver of premium" disability feature to employees disabled at younger ages.  The question has arisen as to whether such charges should be analyzed under a "benefit-by-benefit" approach or by using a "benefit package" approach.  (A discussion of these concepts follows in paragraph 6(e)).  The Commission has determined that charges of this nature are appropriately analyzed using a "benefit package" approach.  This Statement discusses the Commission's Interpretations of § 4(f)(2) found at 29 C.F.R. Part 1625.10.
  3. EFFECTIVE DATE: March 21, 1988
  4. ORIGINATOR: ADEA Division, Office of Legal Counsel
  5. INSTRUCTIONS: File behind § 801 of Volume II of the Compliance Manual
  6. SUBJECT MATTER:

            (a)       Introduction - This Policy Statement reflects the Commission's position on the processing of cases under the ADEA where the respondent has refused to provide any life insurance coverage for employees who become totally disabled after attaining age 60, even though they provide life insurance coverage to employees disabled at younger ages.  On its face, such age-based disparate treatment violates § 4(a) of the ADEA.

                        Respondents are asserting that this practice is pursuant to standard group life insurance policies that are being offered by many major insurance companies whereby a "waiver of premium" disability feature is included in a group life plan for employees disabled prior to age 60.  Under the "waiver of premium" feature, the life insurance premium is discontinued or waived with coverage continuing when a specific event occurs, i.e., a covered employee under age 60 becomes disabled from further active employment.  Not having this "waiver of premium" provision, in effect, ends the employer-provided life insurance coverage for the affected employee (subject only to a conversion right for employees in some policies).  The respondents and their insurers maintain that an age-60 cutoff would appear to be cost-justified under the "employee benefit plan" exception in § 4(f)(2) of the ADEA and the Commission's Interpretations of § 4(f)(2) which are at 29 C.F.R. Part 1625.10.

            (b)       Statutory Provision - Section 4(f)(2) of the ADEA provides in pertinent part:

                        (f)It shall not be unlawful for an employer, employment agency, or labor organization. . .

                                    (2)     to observe the terms of a bona fide employee benefit plan such as a retirement, pension or insurance plan, which is not a subterfuge to evade the purposes of this Act . . . .

            (c)       Legislative History - As stated by Senator Javits (124 Cong. Rec. S.4450-51, daily ed., March 23, 1978):

                                                The purpose of section 4(f)(2) is to take account of the increased cost of providing certain benefits to older workers as compared to younger workers.

                                                Welfare benefit levels for older workers may be reduced only to the extent necessary to achieve approximate equivalency in contributions for older and younger workers. Thus, a retirement, pension, or insurance plan will be considered in compliance with the statute where the actual amount of payment made, or cost incurred in behalf of an older worker is equal to that made or incurred in behalf of a younger worker, even though the older worker may thereby receive a lesser amount of pension or retirement benefits, or insurance coverage.

            (d)       Commission Regulations - The interpretive regulations found at 29 C.F.R. § 1625.10 (referring to the Department of Labor's Interpretative Bulletin)[1] represent the Commission's position and provide that an age limitation (such as discussed in this statement) would not be deemed a "subterfuge" if justified by age-related cost considerations.  See 29 C.F.R. § 1625.10(d) and (f)(2); and see the decision in EEOC v. Borden's, Inc., 724 F.2d 1390, 1396 (9th Cir. 1984) approving the EEOC's interpretation.  Some of the respondents have claimed such a cost justification and have submitted data from their insurance carriers to support that cost claim.  See 29 C.F.R. § 1625.10(d)(1), permitting the use of insurance industry cost data.

            (e)       Cost Comparisons and Adjustments under the I.B.

                        The EEOC's interpretive guidelines provide that "cost comparisons and adjustments . . . must be made on a 'benefit-by-benefit' basis or a 'benefit package' basis" (29 C.F.R. § 1625.10(d)(2)).[2]  Using the so-called "benefit-by-benefit" analysis, the respondents could never justify an absolute age-60 "waiver of premium" cutoff (effectively ending employer-provided life insurance coverage), because such a "benefit" can only be reduced in stages and to the extent actually justified by age-related cost considerations for that particular benefit.  See 29 C.F.R. § 1625.10(d)(2)(i).  However, under the so-called "benefit package" approach, the requisite "cost comparisons and adjustments can be made with respect to § 4(f)(2) plans in the aggregate" (29 C.F.R. § 1625.10(d)(2)(ii)).  It is under that "benefit package" approach that most respondents -- and their insurers -- seek to justify the age-60 "waiver of premium" cutoff.  This approach involves aggregating the costs of providing life insurance coverage to both active and disabled employees under the same group policies.

                        As an example of the above concept, assume that the cost data provided by an actuary for respondent or the insurance carrier demonstrates that the average annual cost of providing $1 of regular term life insurance coverage for employees aged 60-64 is alone greater than the cost of providing the same term insurance coverage with a "waiver of premium" provision for employees aged 55-59. The cost data compiled and offered by the actuary is as follows:

                                          Cost of                            Waiver of

Age Group                   Life Insurance                       Premium                          Total Cost

55 to 59                             $0.00780                          $0.00410                            $0.01190

60 to 64                               0.01240                                - - - -                              0.01240

                        According to the actuary in this example, there is no data available on the cost of a "waiver of premium" provision for employees above age 59, because, due to difficulties in underwriting and increased cost, "waiver of premium" is not customarily provided to individuals age 60 or over.  Of course, it is always possible for an employer to buy a "waiver of premium" provision for its older employees, if the employer is willing to pay the increased cost of such a provision.

                        In another example, respondent steadfastly maintained that the age-60 cutoff was cost justified.  Nonetheless, the respondent agreed to amend its group life plan in order to provide a waiver of premium for all employees under age 65.  The resulting actual cost increase to the respondent could be illustrated by the following analysis from its insurer's actuary:

                                          Cost of                            Waiver of

Age Group                   Life Insurance                       Premium                          Total Cost

55 to 59                             $0.01250                          $0.00390                            $0.01640

60 to 64                               0.01920                            0.01135                              0.03055

                        Assuming that such hypothetical actuarial analyses are correct, and that the underlying cost data is accurate, the Commission would conclude, applying a "benefit package" approach, that there is a cost justification for eliminating the "waiver of premium" provision at age 60.  Applying a "benefit package" approach, respondents in these hypotheticals would be permitted to offset the increased costs of providing unreduced life insurance to active employees aged 60-64 by eliminating the "waiver of premium" provision for the same employees (in the event that they become disabled).  See 29 C.F.R. § 1625.10(f)(2)(iv) and (v).  Even then, respondents in the above examples would still spend more on the life insurance package for employees aged 60-64 than they spend on the next youngest age group, 55-59.  Thus, these respondents would satisfy the 4(f)(2) defense since they incur equal costs or greater costs for older employees.  See 29 C.F.R. § 1625.10(a).

                        The total package of benefits provided to all employees must be assessed in order to compare the benefits provided and the costs expended.  For example, if respondents in addition to eliminating the "waiver of premium" provision were also to reduce the amount of life insurance coverage at age 60, the cost evaluation would have to include this element.  The equal benefits/equal costs criteria of course would still apply.  The respondent would have to produce data demonstrating that the cost of the "benefit package" for older workers is no less than the cost expended for the benefits provided to younger workers.

            (f)        Charge Processing - General procedures for charge processing are set forth in the Compliance Manual, Volume II.  All possible information or data from the employer and its insurer regarding a cost-justification claim for eliminating "waiver of premium" coverage at age 60 should be assessed.[3]  The employer and/or its insurance carrier has the burden, as the one seeking to invoke the 4(f)(2) exception, of justifying on a cost basis the elimination of "waiver of premium" coverage for persons disabled at age 60.  Due to the complexity of actuarial cost data, some situations may call for a commitment of resources beyond those available in the agency, e.g., analysis of the data by an actuary or other expert.  When such situations arise, District Directors should contact the appropriate Regional Program Director to obtain further guidance.

Date: __03/21/88______                                Approved: ____________________________

                                                                                                Clarence Thomas

                                                                                                Chairman

                                                                  APPENDIX A

29 C.F.R. § 1625.10(f)(2)(v), § (f)(2)(v) of the 1979 DOL Interpretative Bulletin:

            (v)       Employers who wish to justify benefit reductions under a benefit package approach must be prepared to produce data to show that those reductions are fully justified.  Thus, employers must be able to show that deviations from a benefit-by-benefit approach do not result in lesser cost to them or less favorable benefits to their employees.  A general example consistent with these limitations may be given.  Assume two employee benefit plans, providing Benefit "A" and Benefit "B."  Both plans fall within section 4(f)(2), and neither is a retirement or pension plan subject to special rules.  Both benefits are available to all employees.  Age-based cost increases would justify a 10% decrease in both benefits on a benefit-by-benefit basis.  The affected employees would, however, find it more favorable -- that is more consistent with meeting their needs -- for no reduction to be made in Benefit "B."  This "trade-off" would not result in a reduction in health benefits.  The "trade-off" may therefore be made.  The details of the "trade-off" depend on data on the relative cost to the employer of the two benefits.  If the data show that Benefit "A" and Benefit "B" cost the same, Benefit "B" may be reduced up to 20% if Benefit "A" is unreduced.  If the data show that Benefit "A" costs only half as much as Benefit "B," however, Benefit "B" may be reduced up to only 15% if Benefit "A" is unreduced, since a greater reduction in Benefit "B" would result in an impermissible reduction in total benefit costs.

[1]  On June 21, 1969, the Department of Labor (DOL) issued interpretive rules under § 4(f)(2).  After § 4(f)(2) was amended in 1978, DOL revised its 1969 interpretations, published as "Interpretative Bulletin" (the I.B.) on May 25, 1979, 44 Fed. Reg. 30648 (now codified at 29 C.F.R. § 1625.10).  Although the Commission has not adopted the I.B. as a formal Commission regulation, on June 29, 1979 the Commission published a transition notice, at 44 Fed. Reg. 37924, indicating that the DOL position would remain in effect unless or until replaced by Commission interpretive rules.  Sections of the DOL rules pertinent to this discussion remain in effect.

[2]  The "benefit-by-benefit" approach involves a cost analysis of one "specific form of benefit for a specific event or contingency," while a "benefit package" approach involves a cost analysis of two or more benefits considered together.  See 29 C.F.R. § 1625.10(d)(2).

[3]  An example of the analysis to be made is contained in § (f)(2)(v) of the I.B. (attached).§ (f)(2)(v) of the I.B. (attached).