Termination of Retiree Medical Benefits not Age Discriminatory

December 4, 2008 (PLANSPONSOR.com) - The U.S. District Court for the District of Kansas has determined that Embarq Corp. and its former wireless company owner Sprint Nextel Corp. did not violate the Age Discrimination in Employment Act (ADEA) when Embarq dropped medical and pharmacy benefits for Medicare-eligible retirees.

In granting Embarq's motion to dismiss the ADEA claim in the lawsuit, the court noted that Section 9 of the ADEA expressly grants the Equal Employment Opportunity Commission (EEOC) "authority to establish reasonable exemptions which are necessary and proper in the public interest." The court cited a federal appeals court ruling that upholds an Equal Employment Opportunity Commission (EEOC) rule allowing employers to reduce health care benefits when retirees become eligible for Medicare which the U.S. Supreme Court declined to review (See EEOC Rule on Retiree Health Care Reductions Stands ).

However, according to the ruling, former employees' charge that Embarq violated the ADEA when it reduced life insurance benefits for retirees was not dismissed, as the court said the defendants did not give a reason the former employees could not prevail on their ADEA claim.

The Fight Continues

Embarq and other defendants in the case must continue their fight on other charges.

The court noted that under the Employee Retirement Income Security Act (ERISA), unless an employer or other plan sponsor contractually agrees to grant vested benefits, it is generally free to adopt, modify or terminate welfare benefit plans at any time for any reason. "A promise to provide vested benefits must be stated in "clear and express language" and be incorporated into the formal written ERISA plan in some fashion," the opinion said.

The court pointed out that the 10th Circuit has found that subsequent writings can create a new employee benefit plan for purposes of ERISA, and the defendants made at least two representations in writing that the retirees medical and pharmacy benefits would be for life.

In addition, the court said the former employees point to plan language which indicates that coverage will continue until the employee either dies or fails to pay his or her share of the cost. This potentially conflicting language may render the plans ambiguous, in which case the court can consider extrinsic evidence to determine the parties' intent.