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Final EEOC Rule Allows Employers to Cut Retiree Health Benefits At Age 65

    Client Alerts
  • January 04, 2008

Late last month, the Equal Employment Opportunity Commission (“EEOC”) issued its final rule governing how employers may design and adopt retiree health plans that coordinate with Medicare without violating the Age Discrimination in Employment Act (“ADEA”).

 

The final rule creates a narrow exemption under the ADEA that allows employers and unions to provide retiree health coverage only to those retirees not yet eligible for Medicare or to supplement retirees’ Medicare coverage without demonstrating that those benefits are equivalent to the benefits offered to younger retirees.  The rule responds to concerns about a 2000 Third Circuit Court of Appeals decision, which held that an employer violated the ADEA if it reduced or eliminated retiree health benefits when retirees became eligible for Medicare unless the employer could prove that both Medicare-eligible and younger retirees received equivalent benefits.  While employers are not legally required to provide retiree benefits, the EEOC’s formal adoption of this ruling created an additional incentive for employers to reduce or completely eliminate employer-sponsored health benefits for both groups of retirees.

 

The final rule creates a narrow exemption from the prohibitions of the ADEA for the coordination of employer-sponsored retiree health benefits with Medicare or comparable State health benefits programs.  The exemption affects only retiree health benefits and does not extend to other non-health retiree benefits, nor does it affect any other aspect of ADEA coverage or any other obligation that employers have to provide health benefits under Medicare or any other law.  For example, the exemption does not apply to health benefits provided to active employees, regardless of age.  Finally, the exemption does not turn on whether a retiree actually enrolls in Medicare or a comparable state program, and it also applies to benefits that are provided to a retiree’s spouse or dependants. 

 

Although employers have eliminated retiree health benefits for many reasons during the last several years, this final rule may help preserve the remaining retiree health benefit plans.