On March 24, 2008, the U.S. Supreme Court declined to review the decision rendered by the Third Circuit Court of Appeals in American Association of Retired Persons v. Equal Employment Opportunity Commission, 49 F.3d 558. By ending this litigation, the Court concluded the protracted legal battle over whether employers, including school districts, can offer retirement incentives which are tied to an employee’s attaining Medicare eligibility without violating the Age Discrimination in Employment Act (“ADEA”). This is welcome news for school districts which had been left in limbo for some time regarding offering certain retirement packages.
It had long been the practice of certain employers, including school districts, to offer retirement incentives to employees which would provide them with health care or other benefits until such time as the employee reached the age of Medicare eligibility. Because employees who could elect such to participate in such incentives varied in age and the amount of benefits to which they would be entitled would differ based on how close they were to reaching the age of Medicare eligibility, some took the position that these kinds of retirement incentives violated the ADEA. In Erie County Retirement Ass’n v. County of Erie, the Third Circuit Court of Appeals agreed with that contention and held that retirement incentives which used Medicare eligibility as a cut-off for benefits could be violative of the ADEA. This ruling had an immediate impact on the provision of retirement incentives including health care.
In response to the Erie County case, the federal administrative agency charged with enforcing the ADEA, the Equal Employment Opportunity Commission (EEOC) prepared regulations which would exempt these kinds of retirement incentives from the ADEA. The American Association of Retired Persons (AARP) filed suit in the Eastern District of Pennsylvania federal court and contended that the EEOC’s regulation was impermissible because the issue had already been addressed in the statute as interpreted by the court in Erie County. The District Court initially agreed, but then reversed itself following a U.S. Supreme Court decision which broadened the circumstances where administrative agencies can issue regulations.
The Third Circuit affirmed the District Court and found that the EEOC was within its authority when it adopted a regulation which exempted from the ADEA retirement programs which “alter, reduce or eliminate employer-sponsored retiree health benefits when retirees become eligible for Medicare or a State-sponsored retiree health benefits program.” The Court stated that the EEOC was able to demonstrate that its regulation was a “reasonable, necessary and proper exercise of its…authority, as over time it will likely benefit all retirees.” The Court noted that various groups, including several labor and industrial groups, had filed friend of the court briefs in support of the EEOC’s regulation because the contrary interpretation set forth in the Erie County case and advanced by the AARP had diminished the number and kind of retirement incentives offered by employers, who were afraid of running afoul of the ADEA. The Court also found that the EEOC’s regulation was not arbitrary or capricious as the intended impact would be to encourage employers to offer post-retirement health care coverage to large groups of retiring employees who would not otherwise receive it.
Thus, one very large stumbling block placed in the way of school districts and other employers who may wish to offer retirement incentives has been removed by the federal courts, and the state of the law prior to the Erie County decision in 2000 has been restored. School districts considering retirement incentives for employee groups may once again design these incentives to provide health care coverage until Medicare eligibility or similar fixed date without regard to whether this will provide a different level of benefits to retirees based on their age.