EEOC Issues Regulation Affecting Retiree Health Benefits

1/7/08

On December 26, 2007, the EEOC finalized a regulation providing that employers may reduce or eliminate retiree health benefits for retirees or their spouses or dependents as those individuals become Medicare-eligible without violating the Age Discrimination in Employment Act (ADEA).

 

This common practice has been under scrutiny for the last several years and challenged by various groups advocating for older Americans.  Initially, the Third Circuit Court of Appeals held that an employer would violate ADEA by providing lesser health coverage to Medicare-eligible retirees than it does to retirees not yet eligible for Medicare.  In response, the EEOC crafted a regulation which provided that the practice does not violate ADEA.  It reasoned that affording flexibility to employers on this issue would serve to retain the existing incentives for employers to provide health benefits to retirees.  In contrast, and particularly in light of the rising cost of providing health benefits, prohibiting such practices might have caused employers to discontinue offering health benefits to retirees since employers are generally not required to provide such benefits.  The EEOC was initially enjoined from making the regulation final after an injunction was sought in court by the advocacy groups.  The injunction has since been reversed, and the regulation is now finalized.

 

Importantly, this regulation has no effect on requirements governing benefits provided to active employees.  In addition, courts may reach a conclusion different than that of the EEOC.  Employers who wish to implement a practice which provides for a different level of health benefits for retirees who are Medicare-eligible are still strongly encouraged to review such a practice to ensure compliance with other applicable laws as well as any collective bargaining-related implications it may have.