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Meeting of July 15, 2009 – Age Discrimination in the 21st Century-Barriers to the Employment of Older Workers

Statement of Eric S. Dreiband
Jones Day Law Firm

Good morning Acting Chair Ishimaru, Acting Vice Chair Griffin, and Commissioner Barker. I thank you and the entire Commission for inviting me here this morning and affording me the privilege of appearing before you. My name is Eric Dreiband, and I am a partner at the law firm of Jones Day here in Washington, D.C.

Prior to joining Jones Day, I served as the General Counsel of the United States Equal Employment Opportunity Commission. In my capacity as EEOC General Counsel, I directed the EEOC’s litigation of the federal employment discrimination laws. I also managed approximately 300 attorneys and a national litigation docket of approximately 500 cases. One of those was Kentucky Retirement Systems v. EEOC, 128 S. Ct. 2361 (2008), a case that I argued on behalf of the Commission before the United States Court of Appeals for the Sixth Circuit. My remarks today focus on that case and provide suggestions for the Commission’s response to the Supreme Court’s decision.

The Court’s opinion in Kentucky Retirement provides scant guidance for employers about how to craft a pension system that complies with the ADEA. The Court described and applied six factors, but did not explain fully the meaning of those factors. And so it falls to the Commission to explain how and under what circumstances employers may consider age as part of disability, regular retirement, and other forms of pensions and benefits.

EEOC may remedy the confusion created by Kentucky Retirement in at least three ways. First, the Commission could exempt disability retirement plans from the ADEA’s prohibitions. This is the path the Commission chose when it enacted a regulatory exemption for retiree health benefits. See 29 C.F.R. § 1625.32. And, both the retiree health exemption and the Commission’s power to issue such an exemption withstood judicial challenge. See AARP v. EEOC, 489 F.3d 558 (3d Cir. 2007).

Second, the EEOC could engage in notice and comment rulemaking to clarify the Court’s Kentucky Retirement factors. In this way, the Commission could propose regulations that define and provide details about the meaning of Kentucky Retirement’s six factors, seek public comment, and issue final regulations that account for the public’s concerns and the Court’s decision.

Third, the Commission could clarify Kentucky Retirement through subregulatory guidance, either by means of an opinion letter, a policy statement, changes to EEOC’s Compliance Manual, or other means.

I. Age Discrimination and Pension Plans Prior to Kentucky Retirement

The Court’s decision in Kentucky Retirement may properly be understood as the culmination of: (1) Public Employees Retirement System of Ohio v. Betts, 492 U.S. 158 (1989); (2) the Older Workers Benefit Protection Act of 1990; (3) Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993); and (4) General Dynamics Land Systems, Inc. v. Cline, 540 U.S. 581 (2004).

A. Public Employees Retirement System of Ohio v. Betts

The Betts Court reviewed an Ohio plan, adopted prior to the ADEA, that paid “age-and-service retirement benefits” to employees who, at the time of retirement, had either: (1) reached the age of 60 and accrued five years of service; (2) reached the age of 55 and accrued at least 25 years of service; or (3) had 30 years of service with the company. 492 U.S. at 162. Disability retirement benefits were available to individuals who were under the age of 60, suffered a permanent disability, and had at least five years of service credit. Id. In 1976, Ohio amended its plan “to provide that disability retirement payments would in no event constitute less than 30 percent of the disability retiree’s final average salary.” Id. at 163. However, Ohio did not enact any such guarantee for normal “age-and-service” benefits. Id.

Plaintiff June Betts, an Ohio employee, became permanently disabled at age 61. She therefore did not qualify for disability retirement benefits, and she sued the Public Employees Retirement System of Ohio for alleged ADEA violations. Id.

At the time, the ADEA contained an affirmative defense, § 4(f)(2), that permitted employers to “observe the terms of . . . any bona fide employee benefits plan . . . which is not a subterfuge to evade the purposes of [the Act].” 492 U.S. at 165-66. The question, then, was whether the rule creating a benefits floor could be a “subterfuge to evade the purposes of [the Act].” EEOC’s equal cost regulation interpreted § 4(f)(2) and permitted “age-based reductions in employee benefit plans where such reductions are justified by significant cost considerations.” 29 C.F.R. § 1625.10(a)(1).

The Court rejected EEOC’s equal cost regulation and Ms. Betts’ claim. The Court held that “a post-Act plan cannot be a subterfuge to evade the ADEA’s purpose of banning arbitrary age discrimination unless it discriminated in a manner forbidden by the substantive provisions of the Act.” Id. at 176. Going forward, the employee would bear “the burden of proving that the discriminatory plan provision actually was intended to serve the purposes of discriminating in some non-fringe-benefit aspect of the employment relation.” Id. at 181.

Congress responded the following year.

B. Older Workers Benefit Protection Act

In 1990, Congress announced that “as a result of [Betts], legislative action is necessary to restore the original congressional intent in passing and amending the [ADEA], which was to prohibit discrimination against older workers in all employee benefits except when age-based reductions in employee benefit plans are justified by significant cost considerations.” 29 U.S.C. § 621 n.4. Congress then enacted the Older Workers Benefit Protection Act (“OWBPA”). Pub. L. 101-433.

The OWBPA amended the ADEA to prohibit employers from denying benefits to older employees. More precisely, the OWBPA amended the ADEA explicitly to make clear that the ADEA’s prohibitions against age discrimination apply to “all employee benefits, including such benefits provided pursuant to a bona fide employee benefit plan.” 29 U.S.C. § 630(l).

Congress also recognized that the cost of providing certain benefits to older workers may be greater than the cost of providing those same benefits to younger workers and that such costs may create a disincentive to hire older workers. Congress therefore codified the EEOC’s equal cost regulation, which Betts rejected. By doing so, Congress amended the ADEA to permit employers to reduce benefits for older persons when employers “observe the terms of a bona fide employee benefit plan” and when, “for each benefit or benefit package, the actual amount of payment made or cost incurred on behalf of an older worker is no less than that made or incurred on behalf of a younger worker.” 29 U.S.C. § 623(f)(2)(B)(i) (incorporating 29 C.F.R. § 1625.10 “as in effect on June 22, 1989,” the day before the Court issued Betts).1

C. Hazen Paper Company v. Biggins

In 1993, the Court again considered the relationship between age discrimination and pension plans. In Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993), Hazen Paper Company fired Walter F. Biggins, age 62, a few weeks before his pension benefits vested. Mr. Biggins sued the Company for alleged ADEA violations. He prevailed at trial, and the United States Court of Appeals for the First Circuit affirmed. See id. at 606-07. The Supreme Court reversed. Id. at 617.

Hazen Paper addressed whether “an employer’s interference with the vesting of pension benefits violate[s] the ADEA.” Id. at 608. The Court concluded that such interference with Mr. Biggins’ pension benefits was not age discrimination because “an employee’s age is analytically distinct from his years of service.” Id. at 611. The Court explained:

liability depends on whether the protected trait (under the ADEA, age) actually motivated the employer’s decision. The employer may have relied upon a formal, facially discriminatory policy requiring adverse treatment of employees with that trait. Or the employer may have been motivated by the protected trait on an ad hoc, informal basis. Whatever the employer’s decisionmaking process, a disparate treatment claim cannot succeed unless the employee’s protected trait actually played a role in that process and had a determinative influence on the outcome.

Id. at 610 (citations omitted). This definition of disparate treatment “captures the essence of what Congress sought to prohibit in the ADEA,” specifically, the situation in which an older employee is fired “because the employer believes that productivity and competence decline with old age.” Id. Thus, “Congress’ promulgation of the ADEA was prompted by its concern that older workers were being deprived of employment on the basis of inaccurate and stigmatizing stereotypes.” Id.

But, the Court said, when employers refrain from the kind of stereotyping the ADEA sought to eradicate, and base their judgments on factors other than age, “even if the motivating factor is correlated with age, as pension status typically is,” then an employer’s decision does not violate the ADEA. Id. at 611. In the pension context, because an employee’s age is analytically distinct from the employee’s years of service, “an employer can take account of one while ignoring the other, and thus it is incorrect to say that a decision based on years of service is necessarily ‘age based.’” Id.

Finally, the Court recognized that an employer might discriminate based on age by targeting a particular class of pensioners. Id. at 612-13. This kind of discrimination, the Court explained, may violate the ADEA: “[p]ension status may be a proxy for age, not in the sense that the ADEA makes the two factors equivalent, but in the sense that the employer may suppose a correlation between the two factors and act accordingly. ” Id. at 613 (citation omitted). Hazen Paper did not present such a case, nor did Mr. Biggins’ claim involve “the special case where an employee is about to vest in pension benefits as a result of his age, rather than years of service[.]” Id.

D. General Dynamics Land Systems, Inc. v. Cline

More recently, in General Dynamics Land Systems, Inc. v. Cline, 540 U.S. 581 (2004), the Court addressed whether the ADEA prohibits so-called “reverse” age discrimination claims. The plaintiffs in the case were aged between 40 and 49 and claimed that their employer denied them retiree health benefits because they were under the age of 50 – that is, because they were too young. Id. at 584-85. The Court rejected the plaintiffs’ claim and found no violation of the ADEA. Id. at 600.

According to the Court, the term “age” for purposes of the ADEA’s prohibition against discrimination “because of age” means “‘old age’.” Id. at 596. The Court rejected the argument that the Act’s prohibition against discrimination “because of [an] individual’s age,” means age, young or old. The Court relied upon “Congress’s interpretive clues” and a “social history [that] emphatically reveals an understanding of age discrimination as aimed against the old.” Id. at 586, 596. Accordingly, the Court viewed “the text, structure, purpose, and history of the ADEA, along with its relationship to other federal statutes, as showing that the statute does not mean to stop an employer from favoring an older employee over a younger one.” Id. at 600.

The Court recognized that Title VII permits so-called “reverse discrimination” claims; that is, Title VII protects whites from race discrimination and men from sex discrimination. Id. at 592 n.5. Title VII thus protects individuals who were not the intended recipients of Title VII’s protections. Unlike age, the terms “race” and “sex” are “general terms that in every day usage require modifiers to indicate any relatively narrow application.” Id. at 597-98. Age is different, the Court explained, because:

the prohibition of age discrimination is readily read more narrowly than analogous provisions dealing with race and sex. That narrower reading is the more natural one in the textual setting, and it makes perfect sense because of Congress’s demonstrated concern with distinctions that hurt older people.

Id. at 598.

II. Kentucky Retirement Systems v. EEOC

The Court’s decision in Kentucky Retirement is consistent with the Court’s view that the ADEA requires a “narrower reading” than Title VII.

At issue in Kentucky Retirement was a retirement plan (“the Plan”) that allowed an employee who worked in a “hazardous position,” such as a law enforcement officer or a firefighter, to become eligible for benefits in one of three ways. First, the employee could qualify for normal retirement by retiring – at any age – after 20 years of service. 128 S. Ct. at 2365. Second, an employee who retires after reaching age 55 and with five years of service is also entitled to normal retirement benefits. Id. Finally, when an employee becomes disabled but is not yet eligible for normal retirement benefits, the employee may retire at once, provided that the employee either (a) has worked for five years or (b) has not worked for five years but became disabled in the line of duty. Id.

Kentucky’s Plan calculated the benefits due to a disabled employee by use of a formula that relied on normal retirement age. Kentucky added or “imputed” years to the employee’s actual years of service that equaled “the number of years that the disabled employee would have had to continue working in order to become eligible for normal retirement benefits,” either by reaching 20 years of service or reaching age 55 with five years of service. Id. The Plan imputed only as many years as the employee had worked. So, for example, an eight-year employee could not receive more than eight imputed years. See id.

Charles Lickteig, a member of the Jefferson County Sherrif’s Department, became eligible for retirement at age 55, continued to work, became disabled at age 61, and then retired. Id. Mr. Lickteig was eligible for normal retirement benefits, but, at 61, Kentucky’s Plan deemed him too old to qualify for disability retirement benefits. Mr. Lickteig’s annual pension was calculated on the basis of his actual years of service (18 years) times 2.5% of his annual pay, without any years imputed. Id. The amount of his pension was lower than a corresponding disability retirement benefit would have been if he had qualified.

The Commission sued Kentucky and other relevant parties and alleged that the Plan violated the ADEA. Id. The Commission challenged both the Plan’s exclusion of Mr. Lickteig and others and its method of imputing years of service to employees who became disabled before they reached eligibility for regular retirement. Id. If Mr. Lickteig had become disabled before age 55, the Plan would have imputed a number of additional years, and the Commission alleged that the failure to impute years was solely because of his age. Id.

The district court and a panel of the Sixth Circuit Court of Appeals determined that the Plan complied with the ADEA. See id. at 2365-66. The Sixth Circuit en banc disagreed and determined that Kentucky’s Plan violated the ADEA’s prohibitions against age discrimination. See id. at 2366.

The Supreme Court reversed. Id. at 2364. The Court looked initially to Hazen Paper and stressed that “the plaintiff must prove that age ‘actually motivated the employer’s decision’” and that “a plaintiff alleging disparate treatment cannot succeed unless the employee’s age ‘actually played a role in [the employer’s decisionmaking] process and had a determinative influence on the outcome.’” Id. at 2366 (quoting Hazen Paper, 507 U.S. at 610) (emphasis added by Kentucky Retirement).

The Court recognized that Hazen Paper left open the possibility that “discrimination on the basis of pension status could sometimes be unlawful under the ADEA, in particular where pension status served as a ‘proxy for age.’” Id. at 2367 (quoting Hazen Paper, 507 U.S. at 613). In such a case, “age, not pension status, would have ‘actually motivated’ the employer’s decisionmaking.” Id. And, the Court recognized that the Hazen Paper scheme did not rely on age, but on years of service alone. Id. (quoting Hazen Paper, 507 U.S. at 613). According to the Court, the Kentucky Plan presented “the quite special case of differential treatment based on pension status, where pension status – with the explicit blessing of the ADEA – itself turns, in part, on age.” Id. at 2369-70.

The Court held that this category of “quite special” cases has a “clear” rule:

Where an employer adopts a pension plan that includes age as a factor, and that employer then treats employees differently based on pension status, a plaintiff, to state a disparate treatment claim under the ADEA, must adduce sufficient evidence to show that the differential treatment was ‘actually motivated’ by age, not pension status.

Id. at 2370.

The Court emphasized that “our opinion in no way unsettles the rule that a statute or policy that facially discriminates based on age suffices to show disparate treatment under the ADEA.” Id. at 2369. The Court did not explain what kind of statute or policy “facially discriminates based on age.”

The Court rejected the EEOC’s argument that the OWBPA supported a finding of an ADEA violation. The Court explained that no OWBPA amendment-related justifications were at issue, so Hazen Paper’s “actually motivated” test governed the outcome. Id. at 2370.

The Court also rejected EEOC’s Compliance Manual’s statement that “‘[b]asing disability retirement benefits on the number of years a disabled employee would have worked until normal retirement age by definition gives more constructive years of service to younger than to older employees’ and thus violated the Act.” Id. at 2371 (quoting 2 EEOC Compliance Manual § 3, p. 627:0010) (alteration in Kentucky Retirement).

The Court in Kentucky Retirement then described six factors that led to its decision. Id. at 2366-70.

First, the Court quoted Hazen Paper and stated that “as a matter of pure logic, age and pension status remain ‘analytically distinct’ concepts.” Id. at 2367. The Court did not explain whether this is a factor to be reviewed in every case going forward, or only an observation that informs the remaining five factors. The Court posited that if an employer provides pensions to employees over the age of 65 and a 70-year-old worker retires, “[n]othing in language or in logic prevents one from concluding that the employer has begun to pay the worker a pension, not because the worker is over 65, but simply because the worker has retired.” Id.

Though true that the worker has retired, he retired under a plan that sets a minimum age for eligibility, which is something the ADEA explicitly permits. See 29 U.S.C. § 623(l). But what about a plan, like Kentucky’s, that uses age to exclude people from eligibility for benefits? Given that Hazen Paper’s “analytica[l] distinct[ion]” arose from a Plan where age had no role, and the Kentucky Retirement Plan considered age, it is unclear how large a role age can play before “language or . . . logic” would allow, or even require, the analytical distinction to disappear.

Second, the Court reviewed the Kentucky Plan and stated that “several background circumstances eliminate the possibility that pension status, though analytically distinct from age, nonetheless serves as a ‘proxy for age’ in Kentucky’s Plan.” Id. The Court noted that it was considering “not a single employment decision, but a set of complex systemwide rules” that “involve, not wages, but pensions – a benefit that the ADEA treats somewhat more flexibly and leniently in respect to age.” Id. The Court also noted that every hazardous position employee had the opportunity for disability benefits “prior to the time that he is eligible for normal retirement benefits.” Id. at 2367-68.

The Court pointed to various government programs that “take[] account of age,” including a formula used by the Social Security Administration for calculating Social Security Disability Insurance benefits. Id. at 2368. The Court added that an “individual employment decision,” such as a discharge or demotion, would not receive the deference the Court affords to Kentucky’s “set of complex systemwide rules.” Id. at 2367.

The Court did not explain, however, how employers may rely upon government programs that consider age, nor did the Court explain how “complex” or “systemwide” the rules need to be to avoid ADEA liability. For instance, one can imagine a small employer that has a comprehensive bona fide pension system that “takes account of age” but is not as “complex” as Kentucky’s Plan. Whether such a plan would comply with the ADEA remains a mystery after Kentucky Retirement.

Third, the Court held that Kentucky’s Plan included “a clear non-age-related rationale for the disparity at issue here.” Id. at 2368. This made it “obvious, then, that the whole purposes of the disability rules is, as Kentucky claims, to treat a disabled worker as though he had become disabled after, rather than before, he had become eligible for normal retirement benefits.” Id. The Plan was permissible because “[a]ge factors into the disability calculation only because the normal retirement rules themselves permissibly include age as a consideration.” Id.

The Court imagined a hypothetical in which an employer provided pension benefits to day-shift workers with 20 years of service and night-shift workers with 15 years of service and that the plan calculates benefits based upon the years of service worked. Id. The Court assumed also that the plan would, like Kentucky’s, impute years of service for disabled employees. The day-shift worker who becomes disabled before benefits vest would “in many instances, end up receiving a bigger pension than a night-shift worker who becomes disabled after becoming pension eligible. Id. The disparity is not discrimination against the night-shift workers because it “is not ‘actually motivated’ by bias against night-shift workers.” Id. Like the Kentucky Plan, the hypothetical plan “is simply an artifact of Plan rules that treat one set of workers more generously in respect to the timing of their eligibility for normal retirement benefits but which do not treat them more generously in respect to the calculation of their amount of their normal retirement benefits.” Id. at 2368-69.

This factor creates at least two questions. First, when the “one set of workers [treated] more generously” is predominantly younger, given that Kentucky’s Plan barred those age 55 and older from the disability plan, to what extent may employers preferentially treat younger employees with regards to the “timing of their eligibility for normal retirement benefits”? And second, if adding years of pension eligibility for those younger employees does not affect the “calculation of the amount” of benefits, then what does affect the calculation?

The Court’s third factor also fails to identify “non-age-related rationales for the disparity.” The Court’s example of day- and night-shift workers does little to guide the public, given that there is no rationale provided for such a distinction. Thus, the public could benefit from guidance about age-related rationales that may or may not violate the ADEA’s prohibitions.

Fourth, the Court noted that while the record before it involved an older worker disadvantaged by Kentucky’s Plan, “in other cases, [the Plan] can work to the advantage of older workers.” Id. at 2369. The Court hypothesized that a 45-year-old employee with 10 years of service and a 40-year-old employee with 15 years of service would receive 10 and five imputed years, respectively, with the older employee faring better. Id. “And that fact helps to confirm that the underlying motive is not an effort to discriminate ‘because of . . . age.’” Id.

This factor raises questions about what it means to be similarly situated for ADEA purposes. Before Kentucky Retirement, two employees with different ages and different years of service may not have been considered similarly situated.

Fifth, Kentucky’s Plan “does not rest on any stereotype about the work capacity of ‘older’ workers relative to ‘younger’ workers.” Id. While this statement may not mean that reliance on a stereotype is required in every case, the Court’s opinion raises questions about whether or to what extent stereotypes about older workers are a prerequisite to a violation of the ADEA’s prohibitions.

For example, assume that a private company employs security guards and requires those guards who work in “hazardous positions” to be under 55 years old and able to lift over 300 pounds. The company, based on the inherent safety risk to those in “hazardous positions,” provides a pension plan that gives employees who work in those positions the opportunity for imputed years if they become disabled. The policy and pension plan exclude employees who are over the age of 55 and may embody a stereotype that younger employees are more likely to be able to lift 300 pounds than older employees. Would such a policy and plan involve impermissible stereotyping after Kentucky Retirement? And if so, how does it differ from the Plan at issue in Kentucky Retirement?

Sixth, the Court expressed concern about alternatives required to remedy Kentucky’s Plan. The Court stated that the difficulty of finding an alternative “that can both correct the disparity and achieve the Plan’s legitimate objective – providing each disabled worker with a sufficient retirement benefit, namely, the normal retirement benefit that the worker would receive if he were pension eligible at the time of disability – further suggests that this objective and not age ‘actually motivated’ the Plan.” Id. at 2369.

Like the Court’s first five factors, this sixth factor raises questions. Does the Court’s sixth factor mean that a benefit plan may consider age if not considering age would provide an incentive to eliminate or reduce benefits?

The Court concluded that the factors “all taken together convince us that the Plan does not, on its face, create treatment differences that are ‘actually motivated’ by age.” Id. But even this simple statement leaves issues unresolved. How many of the Court’s six factors must a benefit plan satisfy to comply with the ADEA’s prohibition against discrimination because of age? All six? What if one (or two, or four) of the factors suggest that age actually motivated the employer, but other factors do not? At what point will these factors point towards a finding of liability under the ADEA?

III. EEOC Guidance After Kentucky Retirement

ADEA Section 9 provides the EEOC with broad rulemaking and exemption power. See 29 U.S.C. § 628. The Commission may use its Section 9 authority to respond to Kentucky Retirement and to provide guidance to the public about how benefit plans may consider age and comply with the ADEA’s prohibitions against age discrimination. The Commission could issue a regulatory exemption or, alternatively, issue regulations or subregulatory guidance to clarify and define further the application of the ADEA to benefits.

A. Administrative Exemption

ADEA Section 9 authorizes the Commission to “establish such reasonable exemptions to and from any or all provisions of this chapter as it may find necessary and proper in the public interest.” 29 U.S.C. § 628; see also 29 C.F.R. § 1625.30. While “[n]o formal procedures have been prescribed for requesting such action,” 29 C.F.R. § 1625.30(b), the Commission may take such action “when found necessary and proper in the public interest in accordance with the statutory standards.” Id. An exemption may be granted if, after notice and comment, “a strong and affirmative showing has been made that such exemption is in fact necessary and proper in the public interest.” Id.

The Commission has issued a similar exemption before, namely, EEOC’s retiree health exemption. 29 C.F.R. § 1625.32. See AARP v. EEOC, 489 F.3d 558, 563 (3d Cir. 2007), cert. denied, 128 S. Ct. 1733 (2008).

In AARP, the American Association of Retired Persons challenged a proposed EEOC regulation that exempts from the ADEA’s prohibited conduct “the practice of altering, reducing or eliminating employer-sponsored retiree health benefits when retirees became eligible for Medicare or a State-sponsored retiree health benefit program.” 489 F.3d at 561 (quoting EEOC’s notice of proposed rulemaking, 68 Fed. Reg. 41,542 (EEOC July 14, 2003)).

The district court granted summary judgment to the EEOC and sustained the Commission’s retiree health exemption, and the United States Court of Appeals for the Third Circuit affirmed. 489 F.3d at 561. The Court of Appeals found that the EEOC complied with the Administrative Procedure Act, 5 U.S.C. §§ 551, et seq., when it issued the exemption. Id. at 565-67. The court also found that the exemption was a valid exercise of the Commission’s Section 9 authority. Id. at 562-65. The court explained that while the EEOC’s exemption authority is limited by Section 9’s “reasonable” and “necessary and proper in the public interest” clauses, the Commission’s observations that employer-sponsored retiree health benefits were decreasing; that employers were not required to provide any retiree health benefits, or to maintain such plans once they have been established; and the annually rising health care costs and increased demand for retiree benefits all justified EEOC’s proposed exemption as “necessary and proper in the public interest.” 489 F.3d at 564-65.

The Commission’s retiree health exemption provides a model upon which the Commission may respond to Kentucky Retirement. In fact, the retiree health exemption was the Commission’s response to the Third Circuit’s decision in Erie County Retirees Ass’n v. County of Erie, 220 F.3d 193 (3d Cir. 2000), that the ADEA’s prohibitions do not permit reduction or termination of retiree health benefits upon Medicare eligibility.

Kentucky Retirement presents a similar dilemma for employers. The Court sustained Kentucky’s Plan, unlike the court in Erie County, but the Court’s six factor test creates such uncertainty and potential liability that an employer may decide to limit or scrap entirely its disability retirement plans.

A regulatory exemption would eliminate these concerns. Such an exemption would be consistent with the Court’s concern in Kentucky Retirement that an employer may need to “cut the benefits given to disabled workers who are not yet pension eligible” if a plan violates the ADEA’s prohibitions. 128 S. Ct. at 2369. A regulatory exemption would also enable employers to achieve a “legitimate objective – providing each disabled worker with a sufficient retirement benefit, namely, the normal retirement benefit that the worker would receive if he were pension eligible at the time of disability.” Id. An exemption would permit employers to design disability retirement plans without the risk of costly and time consuming litigation if the employer fails to apply Kentucky Retirement’s six factor test properly. Indeed, even if an employer properly applies the test, an employer may have to spend several years defending itself in subsequent class litigation, and even if the employer prevails in such litigation, the enormous potential liability and litigation costs may provide sufficient incentives for employers to decline to provide such benefits at all.

B. Regulations That Explain Kentucky Retirement

If the Commission decides not to issue a regulatory exemption, the Commission may clarify Kentucky Retirement’s six factors by notice and comment rulemaking. Rulemaking would benefit both the Commission and the public and enhance compliance with the ADEA.

First, the comment process would allow all interested parties to be heard and would create a record from which the Commission could craft informed and reasoned regulatory guidance. Once the Commission issues a rule, the public would better understand ADEA compliance in the benefit context, especially with respect to how benefit plans may rely on age as a permissible factor.

Second, regulations would give employers administrative guidance that they may use to craft benefit plans and avoid ADEA liability. The ADEA specifically incorporates Section 10 of the Portal-to-Portal Act, 29 U.S.C. § 626(e), and an employer may therefore avoid ADEA liability “if [the employer] pleads and proves that the act or commission complained of was in good faith in conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation, of the [EEOC], or any administrative practice or enforcement policy of such agency with respect to the class of employers to which he belonged.” 29 U.S.C. § 259.

Finally, courts are familiar with the EEOC’s rulemaking process and will enforce appropriate regulations promulgated by the Commission. For example, in EEOC v. Seafarers Int’l Union, 394 F.3d 197 (4th Cir. 2005), the United States Court of Appeals for the Fourth Circuit affirmed the validity of an EEOC regulation that interpreted the ADEA’s prohibitions to apply to apprenticeship programs. Seafarers held that the EEOC regulation was entitled to Chevron 2 deference. Id. at 202. EEOC regulations that interpret the ADEA in light of Kentucky Retirement would also be entitled to heightened deference by the courts.

Of course, the courts do not always defer to Commission regulations. For example, in Cline, the Court rejected an EEOC ADEA regulation because “the Commission [was] clearly wrong.” 540 U.S. at 600. Still, EEOC ADEA regulations issued after notice and comment rulemaking will provide a Portal Act defense and will receive the greatest deference from the courts.

C. Subregulatory Guidance

Finally, the Commission could issue subregulatory guidance to the public about the meaning of Kentucky Retirement. The Commission has determined that opinion letters signed by the Legal Counsel and approved by the Commission may be relied upon for purposes of a Portal Act defense. 29 C.F.R. § 1626.21(a). For this reason, employers would prefer an opinion letter if the Commission decides not to issue a regulatory exemption or regulations that explain Kentucky Retirement. And, given that Kentucky Retirement declined to follow EEOC’s Compliance Manual, changes to the Compliance Manual are warranted to bring the Manual in line with the Court’s decision.

Subregulatory guidance may not receive as much deference from the courts, nor would it allow for the formal record-making process of rulemaking. Still, the public will benefit from any guidance the Commission issues about how employers may consider age and pension benefits post-Kentucky Retirement.

Like Commission regulation and rulemaking, the Supreme Court has sustained EEOC’s subregulatory guidance, at least to the extent such guidance has the “power to persuade” the Court. See, e.g., Burlington N. & Santa Fe Ry. Co. v. White, 126 S. Ct. 2405, 2415-17 (2006); Clackamas Gastroenterology Assocs., P.C. v. Wells, 538 U.S. 440, 448-49 (2003).

I look forward to your questions. Thank you.


1 The OWBPA amended the ADEA in various other ways that are outside the scope of my remarks. For example, the OWBPA added precise statutory terms and requirements about waivers of rights and claims. 29 U.S.C. § 626(f).

2Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).