Employers Cheery Over Latest in 'Erie County' Retiree Benefits Controversy

September 28, 2005 (PLANSPONSOR.com) - Employer groups are applauding a ruling Tuesday by a federal judge in Philadelphia clearing the way for new federal rules allowing companies to provide retiree health benefits to those ineligible for Medicare.

Because of a US Supreme Court case earlier this year providing greater judicial deference to rule interpretations by federal agencies, US District Judge Anita Brody of the US District Court for the Eastern District of Pennsylvania reversed her March 2005 decision barring the Equal Employment Opportunity Commission (EEOC) from pursuing new rules on retiree health care coverage (See  Federal Judge Tosses EEOC Retiree Health Benefit Exemption ).

Based on a challenge by the AARP, which claimed employers who only provided benefits for those not old enough to qualify for Medicare violated federal age employment discrimination bars, Brody originally prohibited the EEOC from implementing a rule permitting employers to differentiate their retiree health coverage by age.

In  Tuesday’s ruling , however, Brody relied on the Supreme Court case in  National Cable and Telecommunications Association versus Brand X Internet Services , which she noted “dramatically altered the respective roles of courts and agencies under (previous Court precedent).”

While Brody may have handed the government a narrow technical victory based on the Supreme Court case, she ordered that the effect of Tuesday’s ruling be delayed until AARP can pursue its challenge in the US 3 rd Circuit Court of Appeals.

In reacting to Brody’s latest decision:

  • the HR Policy Association said it “applauds” the move. It had urged the judge to uphold the rule “to prevent the further erosion of retiree health benefits.”
  • Mark Ugoretz, president of The ERISA Industry Committee (ERIC), a trade group representing major employer health and retirement plans, called the decision “an important victory in the effort to ensure continuation of many retiree health plans.”
  • “The American Benefits Council is greatly encouraged by yesterday’s reversal in the AARP v. EEOC case,” said Council President James Klein, in a statement. “We hope this decision means that we are getting closer to the publication by the Equal Employment Opportunity Commission (EEOC) of much needed regulations on age discrimination and retiree health plans. It is vitally important that we remove the legal limbo surrounding these plans and allow employers to continue providing benefits for all of their retirees – both those eligible for Medicare and those who are not.”

In 2000, the 3rd Circuit ruled in the Erie County case that an employer who provides early retirement medical benefits violates the ADEA if it provides a lower level of health benefits to retirees after they become eligible for Medicare. Because of soaring health care costs, employers argued that the most feasible way for most to comply is by reducing or eliminating benefits to pre-Medicare retirees, as Erie County did for its retirees following the decision.

In April 2004, the EEOC exercised its statutory authority to provide exemptions to the ADEA and permitted employers to coordinate retiree health benefits with eligibility for Medicare.