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Does "defined contribution" with age banded premiums violate ADEA?


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If employer says "I'll contribute $300/month/employee towards the small group age banded premium" won't that violate the ADEA regs which say it's OK to require all employees to pay the same percentage of their actual premium but a violation to charge older folks a higher dollar amount?

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I agree but I cannot put my hands on a cite immediately.

This is also one of the issues raised in the EEOC cases against Wellness programs.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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  • 6 months later...

What if an employer says its nonelective contribution toward all health and welfare benefits is 10% of salary?

(Assume that no benefit is "self-funded"; rather, each is provided by a regulated insurance company.)

Would the fact that the contribution is set in relation to another measure of each employee's value to the employer support an argument that the contribution does not discriminate against increasing age?

Would this hypothetical plan be meaningfully different, in an employee's perspective, from what would result if the employer provided a 10% salary increase and made all health and welfare benefits employee-pay-all?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Your guess would be as good as anyone's, unless someone has some case law about it. But here's the citation, interpret it how you will:

(ii) As a condition of participation in a voluntary employee benefit plan. An older employee within the protected age group may be required as a condition of participation in a voluntary employee benefit plan to make a greater contribution than a younger employee only if the older employee is not thereby required to bear a greater proportion of the total premium cost (employer-paid and employee-paid) than the younger employee. Otherwise the requirement would discriminate against the older employee by making compensation in the form of an employer contribution available on less favorable terms than for the younger employee and denying that compensation altogether to an older employee unwilling or unable to meet the less favorable terms. Such discrimination is not authorized by section 4(f)(2). This principle applies to three different contribution arrangements as follows:
(A) Employee-pay-all plans. Older employees, like younger employees, may be required to contribute as a condition of participation up to the full premium cost for their age.
(B) Non-contributory (“employer-pay-all”) plans. Where younger employees are not required to contribute any portion of the total premium cost, older employees may not be required to contribute any portion.
© Contributory plans. In these plans employers and participating employees share the premium cost. The required contributions of participants may increase with age so long as the proportion of the total premium required to be paid by the participants does not increase with age.
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To add to the ambiguities and confusions:

The 1969 (amended 1979 and later) interpretive bulletin partially quoted above, although reprinted in the Code of Federal Regulations, is not necessarily a regulation or a rule. And reasonable minds can differ about how much authority Congress delegated. For these and other reasons, it is unclear how much deference a court would give to the interpretive bulletin.

Until the questions described above are litigated, we tell a client about the range of possible interpretations and arguments.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Note that the Interpretive Bulletin etc are from 1969 (amended 1967 and later) are before ADEA, HIPAA, ACA and other changes an therefore probably are not applicable.

Remember that, under ACA, for applicable employers, there is the 9.56% affordability requirement;

http://www.irs.gov/pub/irs-drop/rp-14-37.pdf

Then there are the section 125 and/or section 105 (if self insured) non-discrimination rules and testing.

Then there is the possible effect on those over 40 and the ADEA and any related state law:

http://assets.aarp.org/www.aarp.org_/articles/money/employers/age_discrimination.pdf

http://www.shrm.org/templatestools/hrqa/pages/offeringdifferentbenefitsfordifferentemployees.aspx

And of course, the EEOC position:

http://www.eeoc.gov/eeoc/foia/letters/2001/adea_benefits.html

http://www.eeoc.gov/policy/docs/benefits.html#I.%20Introduction%20%28T7%29

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Some states have non-discrimination laws in effect that prohibit discriminating both in favor of younger employees and against younger employees (in English, they prohibit age discrimination both against older employees and against younger employees). Given the ERISA preemption angle, this would not be as likely to survive preemption. In addition, to the extent the employee is age 65 or older (and therefore Medicare eligible) ADEA specifically permits the provision of less employer-provided medical for Medicare eligible employees without violating the age discrimination prohibition against discriminating against older employees. This is because they are eligible for and deemed to have elected to be covered under Medicare.

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