Guest Article

(From the October 3, 2005 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

EEOC Has Authority to Issue Retiree Medical ADEA Exemption, District Court Rules

A federal district court has changed its mind about the Equal Employment Opportunity Commission's (EEOC) proposed Age Discrimination in Employment Act (ADEA) exemption for retiree medical plans that coordinate with Medicare. The U.S. District Court for the Eastern District of Pennsylvania on March 30, 2005 ruled the EEOC did not have the authority to issue the exemption. The court has since reconsidered, and on September 27, 2005 it ruled the EEOC can issue the exemption. But the exemption is still on hold because the district court decided to continue blocking the EEOC's final rule until the appeals process is completed.

Background

The AARP in February sued to stop the EEOC from issuing the exemption, which would apply to retiree medical benefits "that are altered, reduced or eliminated when the participant is eligible for Medicare health benefits or for health benefits under a comparable State health benefit plan." The AARP argued the EEOC does not have the authority to issue the exemption, and that the exemption would be against the public interest because it would clear the way for employers that currently provide equal benefits to all retirees to reduce benefits for Medicare-eligible retirees.

The EEOC, backed by an unusual alliance of business groups and labor unions, countered that the ADEA specifically gives EEOC the authority to issue "reasonable" exemptions that are "necessary and proper in the public interest." 29 U.S.C. § 628. According to the EEOC, the exemption is "reasonable" and "in the public interest" because it prevents employers from having to reduce retiree medical benefits for pre-Medicare eligible retirees, or eliminate retiree medical benefits for all retirees, in order to comply with the ADEA.

The district court initially sided with the AARP, and permanently enjoined EEOC from implementing the proposed exemption. According to District Court Judge Anita Brody, the EEOC's authority to issue ADEA exemptions is available only to fill explicit or implicit gaps left in the statute by Congress. Judge Brody went on to conclude there is no gap to fill because, "The Third Circuit held that Congress did not allow for ambiguity with regard to the applicability of the ADEA to retiree health benefits."

The EEOC filed a notice of appeal with the Third Circuit Court of Appeals on May 31, 2005. Then, on June 27, the Supreme Court ruled, "Only a judicial precedent holding that the statute unambiguously forecloses the agency's interpretation, and therefore contains no gap for the agency to fill, displaces a conflicting agency construction." National Cable & Telecommunications Association et al. v. Brand X Internet Services et al., 545 U.S. ____ (2005) ("Brand X"). Judge Brody convened a conference call with the EEOC and AARP on June 28 to discuss the impact of Brand X on her March 30 order, and the parties agreed the district court would re-hear the case.

Brand X Marks the Spot

Judge Brody reached a different conclusion the second time around, based on her interpretation of the Supreme Court's ruling in Brand X. According to Judge Brody's opinion, "Brand X states that the only court decision that forecloses a later, contrary interpretation of a statute by an agency is a decision that determines the only permissible reading of the statute, not merely the best of several alternatives." Even though Judge Brody appears to believe the Third Circuit Court of Appeals' decision in Erie County represents the best interpretation of the ADEA (i.e., that the ADEA generally prohibits retiree medical plans from coordinating with Medicare eligibility), she concluded it does not represent the "only permissible interpretation of the ADEA." As a result, Judge Brody ruled the Erie County decision does not foreclose the EEOC's proposed exemption.

Next Steps

Even though Judge Brody's decision is good news for the EEOC and retiree medical plan sponsors, it is by no means the end of this story. The AARP likely will appeal her latest decision to the Third Circuit Court of Appeals, and from there the case could make its way to the U.S. Supreme Court. In the meantime, Judge Brody's original order blocking EEOC's proposed rule permitting benefit changes for those receiving Medicare remains in place. But a much needed final resolution of this issue is now one step closer.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Diane McGowan 202.220.2077, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2005, Deloitte.