Guest Article

(From the March 12, 2007 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Third Circuit Hears Oral Arguments in AARP Challenge to EEOC's Proposed ADEA Exemption for Retiree Medical Plans

Approximately two years after the AARP first sued to stop the Equal Employment Opportunity Commission (EEOC) from issuing a final Age Discrimination in Employment Act (ADEA) exemption for retiree medical plans that coordinate with Medicare, the Third Circuit Court of Appeals heard oral arguments in the case on February 27, 2007. A decision by the Third Circuit should be forthcoming sometime this year.

Background

The AARP in February 2005 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 and its supporters, 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, 2005, 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, 2005 to discuss the impact of Brand X on her March 30, 2005 order, and the parties agreed the district court would re-hear the case.

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.

Predictably, the AARP on October 12, 2005 appealed the district court's second ruling to the Third Circuit Court of Appeals. The district court's permanent injunction remains in place pending the Third Circuit's ruling.

Completing the Circle

The Third Circuit Court of Appeals started this drama started over six years ago with its Erie County decision, and it now has the opportunity to write what may be the final chapter. Given the twists and turns the case already has taken, it would be foolish to try to predict how the Court of Appeals will rule. Whatever the Court of Appeals decides, the losing party will have the option of appealing to the Supreme Court. But the Supreme Court might not accept the case unless there is a split in the federal courts on one or more of the relevant issues.

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 any 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, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Laura Morrison 202.879-5653, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2007, Deloitte.