Essentially, the ruling means that employers can spend more on benefits for retirees under 65 years of age than those over 65 without risk of breaking age discrimination laws. What’s more, retirees in both age groups will be eligible to receive the same benefits, but employers can shift part or even all of the cost to the government once a retiree becomes eligible for Medicare.
EEOC Chairwoman Naomi C. Earp says, “Implementation of this rule is welcome news for America’s retirees, whether young or old.” Earp notes “By this action, the EEOC seeks to preserve and protect employer-provided retiree health benefits which are increasingly less available and less generous. Millions of retirees rely on their former employer to provide health benefits, and this rule will help employers continue to voluntarily provide and maintain these critically important benefits in accordance with the law.”
The EEOC says the rule was proposed in response to a decision in 2000 by the U.S. Court of Appeals for the 3rd Circuit that held that the Age Discrimination in Employment Act requires employers to spend the same amount on health insurance benefits provided Medicare-eligible retirees as those received by younger retirees.
According to the EEOC, after the 2000 decision, labor unions and employers alike maintained that complying with the decision would result in companies reducing or eliminating the retiree health benefits they were providing, which left millions of retirees under 65 with reduced health insurance, or none at all.
"In fact, that is what happened when the Erie County (PA) case was settled in March 2002," the EEOC said. “The county’s plan gives older retirees the same benefit they had prior to the litigation, but requires younger retirees to pay more for health benefits that offer fewer choices.”
The same federal appeals court that brought the original decision in 2000, ruled last June that the EEOC was authorized to issue exemptions to a strict interpretation of the age discrimination law would be contrary to the public interest.
The court said, “We recognize with some dismay that the proposed exemption may allow employers to reduce health benefits to retirees over the age of 65 while maintaining greater benefits for younger retirees.” Still, the court found the EEOC had shown that the exemption was “a reasonable, necessary and proper exercise” of its authority.