Federal Judge Tosses EEOC Retiree Health Benefit Exemption

March 31, 2005 (PLANSPONSOR.com) - A federal judge has blocked a federal agency from implementing a controversial rule allowing employers to cut back or eliminate retiree health benefits for workers reaching age 65 and becoming Medicare eligible.

US District Judge Anita Brody of the US District Court for the Eastern District of Pennsylvania struck down the    April 2004 rule  by the Equal Employment Opportunity Commission (EEOC)  as unconstitutional and barred the anti-workplace discrimination agency from enforcing it. According to one estimate quoted by news reports, 10 million retirees could have had benefits cut under the rule.

Brody’s ruling  late Wednesday came in a lawsuit filed by the AARP (See  AARP Sues Over EEOC Retiree Health Coverage Policy )  in which the retiree lobbying group claimed that the rule allowing the retiree benefits reduction or cutoff violated the federal  Age Discrimination in Employment Act (ADEA) .

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In her ruling Brody made clear that she was bound by an August 2000 decision from the US 3 rd Circuit Court of Appeals in a retiree health coverage case. In that matter,  Erie County Retirees Association versus The County of Erie, Pennsylvania , appeals judges ruled that letting employers provide “inferior” health benefits to retirees 65 years old or older violated the ADEA.

“Because the Third Circuit held in (the Erie County decision) that Congress intended the ADEA to apply to the exact same behavior that the EEOC would exempt, the EEOC’s challenged exemption is contrary to congressional intent and the plain language of the ADEA,” Brody wrote.

Even though Brody termed as “persuasive” EEOC arguments that employers will cut all retiree benefits without the rule, she still rejected arguments from agency lawyers that the EEOC had legal authority to exempt certain behaviors from the ADEA. The commission, she said, was trying to “issue a blanket exemption for illegal behavior,” not confined to a few individual cases. “An administrative agency, including the EEOC, may not issue regulations, rules or exemptions that go against the intent of Congress,” she added.

Ruling Reaction

Late Wednesday, EEOC Chair   Cari Dominguez issued a statement saying that she would ask US Justice Department lawyers to appeal Brody’s ruling to the 3 rd Circuit.

“The agency remains confident on both policy and legal bases in its authority to implement the rule,” Dominguez said in the statement. “We are also confident that the Court of Appeals will correct the District Court’s misunderstanding of the EEOC’s authority under the ADEA and allow the rule to go into effect.”

Also Wednesday, the American Benefits Council (ABC), an industry trade group, blasted Brody’s ruling.   “Should today’s decision stand, it would hurt all retirees who participate in these plans and further erode employers’ ability to offer these benefits,” said ABC Health Care Legal Counsel Susan Relland, in a statement. “The EEOC rule is a sensible one that validates a long-standing practice supported by unions and employers alike.”