Appellate Court Backs EEOC Retiree Health Rulemaking

June 5, 2007 ( - In a move sure to be seen as an employer victory, a federal appellate court on Tuesday stripped away a prohibition on the government's allowing employers to coordinate retiree health coverage with Medicare benefits without facing age discrimination charges.

In considering a series of rulings by U.S. District Judge Anita B. Brody of the U.S. District Court for the Eastern District of Pennsylvania, the 3 rd U.S. Circuit Court of Appeals said there was no legal reason to block the Equal Employment Opportunity Commission (EEOC) from allowing the retiree health coverage/Medicare coordination practice to legally move forward.    

At issue is an EEOC regulation that would exempt from the Age Discrimination in Employment Act (ADEA) employer coordination of retirement benefits with Medicare benefits. AARP challenged the regulation as contrary to the terms of the ADEA (See AARP Appeals Ruling on Retiree Health Care ) and sought to block the EEOC from implementing it (See  AARP Sues Over EEOC Retiree Health Coverage Policy ).

The legal battle kicked off in July 2003 when the EEOC published a notice of proposed rulemaking to exempt from the prohibitions of the ADEA “the practice of altering, reducing or eliminating employer-sponsored retiree health benefits when retirees become eligible for Medicare or a State-sponsored retiree health benefits program (See EEOC Approves ‘Erie County’ Exemption ).”

At first, Brody ruled for the AARP, asserting that the proposed rule would violate the 3 rd Circuit’s opinion in a 2000 case, in Erie County Retirees Ass’n v. County of Erie. In the initial order, Brody permanently barred the EEOC from “publishing or otherwise implementing the regulation at issue.” The EEOC appealed (See EEOC Appeals Retiree Health Benefit Exemption Ruling ).

In June 2005, while the first appeal was pending, the Supreme Court decided National Cable and Telecommunications Ass’n v. Brand X Internet Services. Brand X held that prior judicial interpretation of a statute bars subsequent agency interpretations only where the precedent “unambiguously forecloses the agency’s interpretation, and therefore contains no gap for the agency to fill.”

Brody threw out her original ruling for the AARP and came down instead for the EEOC before ordering the whole matter sent to the appellate court (See AARP Appeals Ruling on Retiree Health Care ) (See Employers Cheery Over Latest in ‘Erie County’ Retiree Benefits Controversy ).

According to Restani's appellate decision, the EEOC originally issued the proposed regulation in response to its finding that employer-sponsored retiree health benefits were decreasing. Rather than maintaining retiree benefits at pre-Medicare eligibility levels for all retirees in order to avoid discrimination under the ADEA, some employers chose to reduce all retiree health benefits to a lower level.

Further, in addition to rising health care costs and increased demand for retiree benefits, the EEOC noted that employers are not required to provide any retiree health benefits, or to maintain such plans once they have been established. Retiree benefits often face elimination under these constraints and the EEOC issued the proposed exemption to "permit[] employers to offer [retiree] benefits to the greatest extent possible," the appellate ruling said.

"Therefore, it is clear that the EEOC's proposed regulation was supported by the agency's full consideration of the relevant factors, potential effects, and possible alternatives to such a policy, and was not arbitrary or capricious, Restani wrote.

The representative of one employer trade group was jubilant Tuesday after the decision was released. "The court's ruling sends a message to employers who offer retiree health benefits that their plans are in compliance with the law and they may continue to provide these valuable benefits to their retirees," said American Benefits Council President James A. Klein. "That's a victory for everyone."

The latest 3rd Circuit ruling is here .   The 3rd Circuit ruling was written by Chief Judge Jane A. Restani of the United States Court of International Trade who received a special appointment to sit on the case.