U.S. Supreme Court to Hear Retirement Plan ADEA Case

September 26, 2007 (PLANSPONSOR.com) - The U.S. Supreme Court agreed to hear a case so that it can define what constitutes a facial age discrimination violation under the Age Discrimination in Employment Act in the context of a retirement plan.

The Equal Employment Opportunity Commission (EEOC) originally brought the suit against Kentucky Retirement Systems, the Jefferson County Sheriff’s Department and the Commonwealth of Kentucky charging that the eligibility requirements and how disability retirement benefits are calculated under the state retirement plan violate the Age Discrimination in Employment Act (ADEA).

According to the original complaint, defendants discriminated since October 16, 2002, against a class of individuals 40 years or older on the basis of age by maintaining “a program which denies benefits or pays reduced benefits, because of age.” The EEOC argued that the retirement plan was discriminatory because age was considered as a factor in the plan.

According to the plan, a member who is eligible for normal retirement benefits based on attained age plus a minimum service requirement, or based on service alone, is not eligible for disability retirement benefits.

Because age may be a factor in determining eligibility for normal retirement, it is an indirect factor in determining eligibility for disability retirement. The calculation of disability retirement benefits is based upon actual years of service plus the number of years remaining before the member reaches retirement age or eligibility based on years of service alone; age may be an indirect factor in determining the amount of disability retirement benefits.

The United States District Court for the Western District of Kentucky disagreed with the EEOC holding: “finding a retirement policy facially discriminatory merely because age is a factor in the plan is illogical.” The court noted several reasons why the Kentucky plan includes age as a factor.

The District Court further said thatholding “a retirement policy discriminatory because it calculates retirement eligibility based on age and years of service does nothing to further the purpose of the ADEA, which is to prevent employers from making employment decisions (including provision of benefits) based on denigrating stereotypes about age.”

The U.S. 6 th Circuit Court of Appeals affirmed the district court’s opinion.However, the EEOC filed a Petition for Rehearing En Banc with the appeals court.

The en banc panel reversed the previous opinions, saying the retirement plan was facially discriminatory because the plan excludes still-working employees over age of 55 from a particular employment benefit because of their age” and because “employees who become disabled when they are still ‘young enough’ to be eligible for disability-retirement benefits receive reduced benefits compared to otherwise-similar but even younger disabled employees for’ no reason other than their age.”

The EEOC sought “back benefits with prejudgment interest [dating back to 1992] and recalculated future benefits.”