EEOC v. Jefferson County Sheriff's Dept. & Kentucky Retirement Service 6th Cir. Supplemental Brief on Rehearing Filed January 27, 2006 No. 03-6437 IN THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff-Appellant, v. JEFFERSON COUNTY SHERIFF'S DEPARTMENT, KENTUCKY RETIREMENT SYSTEMS, and COMMONWEALTH OF KENTUCKY, Defendants-Appellees. ______________________________________________________ On Appeal from the United States District Court for the Western District of Kentucky Docket No. 99-00500 Hon. Jennifer B. Coffman ______________________________________________________ SUPPLEMENTAL BRIEF OF THE EQUAL EMPLOYMENT OPPORTUNITY COMMISSION ON REHEARING EN BANC ______________________________________________________ JAMES L. LEE EQUAL EMPLOYMENT Deputy General Counsel OPPORTUNITY COMMISSION Office of General Counsel VINCENT BLACKWOOD 1801 L Street, N.W., Room 7046 Acting Associate General Counsel Washington, D.C. 20507 (202) 663-4734 CAROLYN L. WHEELER Assistant General Counsel DORI K. BERNSTEIN Attorney TABLE OF CONTENTS Page TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . ii INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . .1 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 CONSISTENT WITH THE ADEA, AS AMENDED BY THE OWBPA, KENTUCKY MAY USE ANY FACTOR THAT IS NOT BASED ON AGE TO DETERMINE ELIGIBILITY FOR AND TO CALCULATE THE AMOUNT OF DISABILITY RETIREMENT BENEFITS, AND MAY PROVIDE FOR THE PROGRESSIVE REDUCTION OF SUCH BENEFITS IN ACCORDANCE WITH ACTUARIAL ASSESSMENTS.. . . . . . . . . . . . . . . . . . .3 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . CERTIFICATE OF SERVICE TABLE OF AUTHORITIES Page CASES EEOC v. Jefferson County Sheriff's Dep't, et al., No. 03-6437 (6th Cir., Sept. 19, 2005), vacated by Order of January 4, 2006 . . . . . . . . . . . 7, 8 Hazen Paper Co. v. Biggins, 507 U.S. 614 (1993) . . . . . . . . . . . . . . . . . . . 4, 6 International Union, United Automobile, Aerospace & Agricultural Implement Workers of America v. Johnson Controls, Inc., 499 U.S. 187 (1991) . . . . . . . . . . . . . . . . . . . . .5 Lyon v. Ohio Association and Professional Staff Union, 53 F.3d 135 (6th Cir. 1995) . . . . . . . . . . . . . . . . .2 Public Employees Retirement System of Ohio v. Betts, 492 U.S. 158 (1999) . . . . . . . . . . . . . . . . .9, 10, 11 Solon v. Gary Community School Corp., 180 F.3d 844 (7th Cir. 1999). . . . . . . . . . . . . . .5, 11 STATUTES Age Discrimination in Employment Act of 1967, 29 U.S.C. §§ 621 et seq.. . . . . . . . . . . . . . . . . . .1 29 U.S.C. § 623 note. . . . . . . . . . . . . . . . . . . . 10 29 U.S.C. § 623(f)(2) . . . . . . . . . . . . . . . . . . . 11 29 U.S.C. § 623(f)(2)(B)(i) . . . . . . . . . . . . . . . 2, 6 29 U.S.C. § 623(j)(1) . . . . . . . . . . . . . . . . . . . 11 Older Workers Benefit Protection Act, 101 Pub. Law 433, 104 Stat. 978 (Oct. 16, 1990) . . . . . . .1 Page Kentucky Revised Statutes, Ky. Rev. Stat. § 16.505(15) . . . . . . . . . . . . . . . 4, 8 Ky. Rev. Stat. § 16.576(1). . . . . . . . . . . . . . . . . .4 Ky. Rev. Stat. § 16.582(2)(b) . . . . . . . . . . . . . . . .4 Ky. Rev. Stat. § 16.582(5). . . . . . . . . . . . . . .4, 6, 8 Ky. Rev. Stat. § 16.582(6). . . . . . . . . . . . . . . . . .8 Ky. Rev. Stat. § 61.510(18) . . . . . . . . . . . . . . . . .4 Ky. Rev. Stat. § 61.595(1). . . . . . . . . . . . . . . . . .4 Ky. Rev. Stat. § 61.600(1)(b) . . . . . . . . . . . . . . 4, 6 Ky. Rev. Stat. § 61.605 . . . . . . . . . . . . . . . . . . .4 RULES AND REGULATIONS 29 C.F.R. § 1625.10. . . . . . . . . . . . . . . . . . . .1, 2, 6 LEGISLATIVE HISTORY Cong. Rec. (Oct. 2, 1990). . . . . . . . . . . . . . . . . . . 10 Cong. Rec. (Sept. 24, 1990). . . . . . . . . . . . . . . 8, 9, 13 Cong. Rec. (Sept. 18, 1990). . . . . . . . . . . . . . . . . . 11 Cong. Rec. (Sept. 17, 1990). . . . . . . . . . . . . . . . 10, 11 Cong. Rec. (Sept. 14, 1990). . . . . . . . . . . . . . . . . . .9 ADMINISTRATIVE GUIDANCE EEOC Compliance Manual, Chapter 3: Employee Benefits, No. 915-003 (Oct. 2000). . . . . . . . . .2 INTRODUCTION In this action to enforce the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621 et seq., as amended by the Older Workers Benefit Protection Act (OWBPA), 101 Pub. Law 433, 104 Stat. 978 (Oct. 16, 1990), the Equal Employment Opportunity Commission (EEOC) claims that Kentucky Retirement Systems (KRS)<1> discriminates against older workers because of age in the disability retirement provisions of its employee benefit plan. The opening and reply briefs of the EEOC describe in detail the pertinent terms of the KRS plan, which are set forth in statutory provisions.<2> See EEOC Br. at 7-17; EEOC Reply Br. at 1-2. The plan, by its terms, requires KRS to use age (specifically, normal retirement age, defined as 55 or 65, depending on job classification) to disqualify older employees from disability retirement, and to calculate disability benefits in a manner that disfavors older workers. See EEOC Reply Br. at 1-2. The EEOC's initial briefs fully present its position that the text, history, and purpose of the ADEA, as amended by the OWBPA, establish that federal law prohibits KRS from denying or paying fewer disability benefits to a worker solely because he is at or near normal retirement age when disability forces him to retire, unless KRS shows the practice is cost-justified or otherwise lawful pursuant to a statutory exemption or defense. See EEOC Br. at 21-42; EEOC Reply Br. at 3-26. The EEOC's position gains further support from the administrative regulation on "Costs and benefits under employee benefit plans," 29 C.F.R. § 1625.10, now codified in the ADEA, 29 U.S.C. § 623(f)(2)(B)(i), and the interpretive guidance on employee benefits, EEOC Compliance Manual, Chapter 3: Employee Benefits, No. 915.003 (Oct. 3, 2000). See EEOC Br. at 28-36. The arguments and authorities cited in the EEOC's initial briefs and petition for rehearing, moreover, demonstrate that the Commission's interpretation of the ADEA, as applied in the context of this case, is entirely consistent with Supreme Court precedent and accords with the decisions of other federal courts of appeals. See EEOC Br. at 42- 49; Petition for Rehearing at 6-14. The holding in Lyon v. Ohio Association and Professional Staff Union, 53 F.3d 135 (6th Cir. 1995), that an employee benefit plan does not facially discriminate because of age by using normal retirement age or age-based pension eligibility to deny or pay fewer benefits to older workers, cannot be reconciled with these authorities. The EEOC therefore respectfully urges the en banc Court to overrule that precedent. The EEOC appreciates the opportunity to address, in this Supplemental Brief, the following question, posed in this Court's letter of January 4, 2006: "Assuming for the sake of argument that the Kentucky retirement system benefits policy at issue is not premise[d] on age-discriminatory motives and assuming for the sake of argument that the ADEA's affirmative defenses do not apply to this benefits policy, how may Kentucky advance this benefits policy without violating the ADEA?" ARGUMENT CONSISTENT WITH THE ADEA, AS AMENDED BY THE OWBPA, KENTUCKY MAY USE ANY FACTOR THAT IS NOT BASED ON AGE TO DETERMINE ELIGIBILITY FOR AND TO CALCULATE THE AMOUNT OF DISABILITY RETIREMENT BENEFITS, AND MAY PROVIDE FOR THE PROGRESSIVE REDUCTION OF SUCH BENEFITS IN ACCORDANCE WITH ACTUARIAL ASSESSMENTS. There is no dispute that the disability retirement provisions of the KRS plan require disparate treatment of older employees because of the age at which they become disabled from performing their jobs. The plan disqualifies otherwise eligible workers from retiring on disability from hazardous jobs at 55, and from non-hazardous jobs at 65. See Ky. Rev. Stat. §§ 16.582(2)(b), 16.505(15), 16.576(1) (hazardous); 61.600(1)(b), 61.510(18), 61.595(1) (non-hazardous). For those who are not disqualified, the plan uses an employee's age to compute his annual disability pension in a manner that favors younger over otherwise similarly situated older workers. See Ky. Rev. Stat. §§ 16.582(5), 61.605. Because these provisions require KRS to deny, or pay fewer, disability benefits to an employee because he was at or near normal retirement age when he became disabled, the plan facially discriminates against older workers based on age. Hazen Paper Co. v. Biggins, 507 U.S. 604, 610 (1993) (liability for disparate treatment "depends on whether the protected trait (under the ADEA, age) actually motivated the employer's decision," as where the employer "relied upon a formal, facially discriminatory policy requiring adverse treatment of employees with that trait"). The plan's explicit use of age to determine an employee's eligibility for disability retirement and to compute the amount of his benefits necessarily means that age is a factor motivating KRS's decisions on the disability retirement applications of individual employees. See, e.g., Jt. App. 51 (KRS letter informing Charles Lickteig that "you are not eligible to apply for Disability Retirement since you are over 55 and in a hazardous position"). The EEOC therefore understands the first assumption in the Court's question – "that the Kentucky retirement system benefits policy at issue is not premise[d] on age-discriminatory motives" – as assuming that the Kentucky legislature, in enacting the disability retirement provisions, was not motivated by age-based animus or bias against older individuals. Kentucky's motivation in adopting these provisions is of no moment in deciding whether the facial age discrimination prescribed in the plan is lawful. See International Union, United Automobile, Aerospace & Agricultural Implement Workers of America v. Johnson Controls, Inc., 499 U.S. 187, 199 (1991) ("Whether an employment practice involves disparate treatment through explicit facial discrimination does not depend on why the employer discriminates but rather on the explicit terms of the discrimination."); Solon v. Gary Community School Corp., 180 F.3d 844, 855 (7th Cir. 1999) (holding terms of early retirement incentive plans that excluded employees over 62 "explicitly establish an employee's eligibility for the early retirement incentives in terms of his age" and "are therefore discriminatory on their face . . . and independent proof of an illicit motive is unnecessary") . Under the ADEA, the determination whether KRS may lawfully pay progressively fewer disability benefits to older employees because of their age depends on whether the practice meets the requirements of a statutory defense or exemption. See Hazen Paper, 507 U.S. at 612 (the ADEA "requires the employer to ignore an employee's age (absent a statutory exemption or defense)"). KRS has asserted that the progressive age-based reduction in the amount of benefits paid to employees who retire due to disability is actuarially cost-justified. See EEOC Br. at 18. If KRS shows that "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, as permissible under [29 C.F.R. § 1625.10], " 29 U.S.C. § 623(f)(2)(B)(i), the current disability retirement policy will be declared lawful under the ADEA and KRS can continue to provide benefits pursuant to its terms. Although the viability of KRS's equal cost defense remains unresolved, see EEOC Br. at 22, this Court has asked the parties to "[a]ssume for the sake of argument that the ADEA's affirmative defenses do not apply to this benefits policy," and to address how Kentucky "may . . . advance this benefits policy without violating the ADEA." See Letter of January 4, 2006. KRS explains that its policy for providing disability retirement benefits addresses the unexpected. . . . It provides a source of income for a member who is stricken from the workforce before he or she had an opportunity to accumulate a "nest egg". Under the challenged statutes, if a member is eligible for normal retirement benefits he or she is not eligible for disability retirement benefits. Thus, the disability benefits are reserved for those members in need of a replacement for the traditional "nest egg". . . . Members receiving normal retirement benefits are not eligible for imputation of service years inasmuch as they have had ample opportunity to accumulate the necessary retirement funds during their extended period of employment. The intent of the statutory scheme is . . . to provide a much needed safety net for members prematurely taken from the workforce. KRS Br. at 7-8. These goals can be accomplished, however, without reference to the age of an employee who, due to an "unexpected" disabling condition, "is stricken from the workforce before he or she had an opportunity to accumulate a ‘nest egg'" of "necessary retirement funds". See id. A 55-year-old with 10 years of service who planned to work another 10 or 15 years but is "prematurely taken from the workforce" by a disabling car accident presumably faces a situation as "unexpected" as does his 45-year-old co-worker who is disabled in the same accident and must retire prematurely from the same job, with the same compensation and seniority. Yet only the older employee is disqualified from disability retirement because his age, 55, makes him eligible for service retirement. See EEOC Br. at 7-8 (citing Ky. Rev. Stat. §§ 16.582(2)(b), 61.600(1)(b)). Based on the age of each employee at the time of the accident, the 55-year-old will receive a monthly pension benefit for the rest of his life that is only half the amount of his younger colleague's monthly disability retirement check. See EEOC Br. at 13 Chart B, reproduced in EEOC v. Jefferson County Sheriff's Dep't, et al., No. 03-6437, slip op. at 3 (6th Cir., Sept. 19, 2005) (included as an addendum to EEOC's petition for rehearing), vacated by Order of January 4, 2006. If the accident occurs on the job and both employees are disabled in the line of duty, moreover, only the younger worker is entitled to a dependent children's benefit equal to 10% of his monthly salary for each dependent child, up to a 40% maximum dependent children's benefit. See EEOC Br. at 7 (citing Ky. Rev. Stat. § 16.582(6)). The otherwise similarly situated older employee is denied this benefit to help support his dependent children, solely because his age disqualifies him from disability retirement. See EEOC Br. at 7-8 (citing Ky. Rev. Stat. §§ 16.582(2)(b), 16.505(15)). The OWBPA legislative history reflects congressional awareness that the ADEA, as amended, would require adjustments to State-sponsored public employee benefit plans that were not designed with "deliberate discriminatory intent," but nonetheless required "unfair or arbitrary age discrimination" against older workers. See Cong. Rec. p. S13604 (Sept. 24, 1990). During the Senate debate on S. 1511, the final compromise bill adopted and overwhelmingly passed by Congress, Senator Mitchell (Me.) specifically addressed the application of the legislation to State employee benefit plans that used age-based eligibility cut-offs for disability benefits: . . . I understand the concerns of the States which will need to make adjustments in State employee benefit plans in order to comply with the requirements in this bill. . . . Like some other States, Maine State law currently denies disability benefits for any State employees who work beyond the age of 60. The State law was adopted long before the ADEA was enacted, and in some respects may have served as a rough rule of thumb in the State's apportionment of benefits. I do not believe there necessarily is any deliberate discriminatory intent in such age 60 rules; however, the effect is more than just a rule of thumb. The actual impact is a discrimination and disincentive for older workers continuing to work beyond age 60. Under this legislation, States will need to remove such restrictions on disability benefits. They will need to adjust State employee benefit plans simply to comply with Federal law. The legislation does not preempt State authority to determine the scope or level of State employee benefits. Application to the States will be much the same as other Federal laws which prohibit discrimination on the basis of race or sex. Cong. Rec. p. S13604 (Sept. 24, 1990); see also Cong. Rec. p. S13219 (Sept. 14, 1990) ("The States that have identified a need to make changes, such as Ohio, Maine, and others, have focused on age-based restrictions on eligibility for disability. That was the issue in the Betts case before the Supreme Court.") (Sen. Pryor (Ark.)).<3> The State-sponsored benefit plan at issue in Public Employees Retirement System of Ohio v. Betts, 492 U.S 158 (1999), disqualified an otherwise eligible employee from disability retirement because she was over age 60 (i.e., normal retirement age) and eligible to receive a lesser amount in service retirement benefits. Senator Glenn succinctly summarized the facts of the case that prompted Congress to enact the OWBPA: Mrs. June Betts . . . became disabled and was unable to continue her job helping mentally retarded children. She applied for a disability retirement, but because Mrs. Betts was over 60 when she retired – she was 61 – she was denied this benefit which would have paid her $355 per month. Instead, all she received was a standard age-and-service pension in the amount of $158 per month. Like many women who raise families, Mrs. Betts had returned to the work force later in life and did not have enough years of service to qualify for a higher benefit amount. Cong. Rec. p. S13292 (Sept. 18, 1990) (Sen. Glenn (Oh.)). Neither the Supreme Court decision, nor the legislative record of the OWBPA, indicates that the State of Ohio, in adopting its disability retirement policy, was motivated by age-based animus against older workers, yet there is no doubt that Congress considered the practice to be "arbitrary age discrimination" prohibited by the ADEA unless cost- justified or otherwise statutorily exempt. See Cong. Rec. p. S13240 (Sept. 17, 1990) (Sen. Metzenbaum (Oh.)). As the above example, supra at 7-8, and the facts of Betts illustrate, an employee who becomes disabled from working at or near normal retirement age has not necessarily had an "extended period of employment" which afforded her "ample opportunity to accumulate the necessary retirement funds." See KRS Br. at 8. The ADEA forbids mandatory retirement, see 29 U.S.C. § 623(f)(2), and employees are free to continue working long past "normal retirement age" and to accumulate years of service that will contribute to their "nest egg" of retirement benefits. See 29 U.S.C. § 623(j)(1) (unlawful for defined pension benefit plan to end or reduce rate of employee's benefit accrual because of age). Thus, the mere fact a person has reached normal retirement age does not mean his or her departure from the workforce due to disability is not "premature." Cf. Solon, 180 F.3d at 850 (invalidating early retirement incentive plan that "define[d] ‘early' retirement wholly in terms of an employee's age, without reference to his need or desire to work"). An employee, like June Betts, who postpones entry into the workforce until her children have grown, or one who begins a new career later in life after gaining further education or training, may plan on working for many years after he or she becomes eligible to retire. An employee, regardless of age, "who is stricken from the workforce before he or she had an opportunity to accumulate a ‘nest egg'" to support his or her premature retirement will doubtless need the "safety net" Kentucky aims to provide through its disability retirement policy. See KRS Br. at 7-8. Kentucky may "advance this benefits policy without violating the ADEA," see letter of January 4, 2005, by choosing any factor that is not based on age to determine eligibility and calculate the amount of disability retirement benefits. For example, KRS could enhance the normal retirement benefits of any worker, regardless of age, who becomes disabled from working by adding a fixed number of service credits to his actual years of service, or doubling his actual years of service. Alternatively, KRS could select a particular number (such as 20 or 25) as the constructive years of service for any employee, regardless of age, who must retire due to disability before accruing that amount of seniority. Another option would be to guarantee to any employee, regardless of age, who retires on disability a set percentage (such as 25% or 30%) of his final compensation as a disability pension, in the event that his benefits calculated based on years of service would be lower. Ultimately, of course, it is entirely Kentucky's prerogative to decide how to allocate public resources and structure its employee benefit plan, so long as it provides benefits in accordance with federal law. As Senator Mitchell recognized during the final days of debate on the OWBPA, [t]he adjustment of State employee benefit plans is left entirely to the States, so long as unfair or arbitrary age discrimination does not occur relative to specific benefits or benefit plans. * * * * State legislatures will be able to choose among different alternatives in making adjustments, including some benefit reductions. Under the equal cost, equal benefit principle, for example, States could provide for progressive reduction of disability benefits for older workers in accordance with actuarial assessments. For the same cost for each State worker, the State of Maine might choose to provide a progressively smaller disability benefit as workers get older. Cong. Rec. p. S13604-05 (Sept. 24, 1990). CONCLUSION For the foregoing reasons, and those stated in the initial briefs of the EEOC and the petition for rehearing en banc, the EEOC respectfully urges this Court to reverse the summary judgment and remand the case to the district court for further proceedings. Respectfully submitted, JAMES L. LEE General Counsel VINCENT BLACKWOOD Acting Associate General Counsel CAROLYN L. WHEELER Assistant General Counsel ___________________________ DORI K. BERNSTEIN Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION Office of General Counsel 1801 L Street, N.W., Room 7046 Washington, D.C. 20507 (202) 663-4734 CERTIFICATE OF SERVICE I hereby certify that two copies of this supplemental brief was mailed, first class, postage prepaid, on this 27th day of January. 2006, to the following: Robert D. Klausner Klausner & Kaufman, PA 10059 NW 1st CT Plantation, Florida 33324 Mitchell L. Perry Office of the Jefferson County Attorney 531 Court Place Suite 1001 Fiscal Court Building Louisville, Kentucky 40202 C. Joseph Beavin, James D. Allen, Lizabeth Ann Tully Stoll Keenon Ogden PLLC 300 W. Vine Street Suite 2100 Lexington, Kentucky 40507-1801 D. Brent Irvin Attorney General - Civil & Environmental Law Division 700 Capitol Avenue Frankfort, Kentucky 40601-3449 _________________________ Dori K. Bernstein Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION Office of General Counsel 1801 L Street, N.W., Room 7046 Washington, D.C. 20507 (202) 663-4734 ********************************************************************** <> <1> Defendants-appellees – KRS, Jefferson County Sheriff’s Department, and the Commonwealth of Kentucky – have submitted unified pleadings and briefs throughout this litigation and, for ease of reference, are referred to collectively as KRS. <2> Pursuant to this Court’s order of January 4, 2006, granting the petition for rehearing en banc, additional copies of the EEOC’s initial briefs and the joint appendix have been filed together with this Supplemental Brief. Included as addenda to the EEOC’s opening brief are copies of the relevant provisions of the Kentucky Revised Statutes (Tab A-2), the ADEA (Tab A-3), the OWBPA (Tab A-4), the EEOC’s regulation governing “Costs and benefits under employee benefit plans,” 29 C.F.R. § 1625.10 (Tab A-5), and the EEOC’s interpretive guidance on employee benefits (Tab A-6). <3> To accommodate the needs and concerns of States, the Senate added several provisions that were not in the original House bill. In particular, the Senate recognized that “a number of state and local governments provide disability benefits in a manner that would be superseded by the amendments made by the bill,” and consequently crafted “a special rule authorizing” state and municipal employers to offer existing employees the opportunity to “make a one-time election to retain coverage under the old plan for disability benefits or to be covered under new disability benefits that conform to the amendments made by this bill.” Explanation of S.1511, Cong. Rec. p. H8619 (October 2, 1990); see OWBPA sec. 105(c)(2), 29 U.S.C. § 623 note. The Senate bill also eliminated the retroactivity provisions included in the House version, and gave State and local governments “two years from the date of enactment to bring their plans into compliance,” while private employers with existing plans that were not subject to collective bargaining had “180 days to be brought into compliance.” Explanation of S.1511, Cong. Rec. p. H8619 (October 2, 1990); see OWBPA sec. 105(a) & (c)(1), 29 U.S.C. § 623 note. Finally, in response to “[s]ome States” that had “indicated a lack of familiarity with actuarial practices that are well-established in the private sector,” Cong. Rec. p. S13219 (Sept. 14, 1990) (Sen. Pryor (Ark.)), the Senate directed the EEOC and other federal agencies, upon request, to “provide to States assistance in identifying and securing independent technical advice to assist in complying” with the new legislation. Explanation of S.1511, Cong. Rec. p. H8619 (October 2, 1990); see OWBPA sec. 105(c)(3), 29 U.S.C. § 623 note.