By demonstrating that a retirement plan’s disability benefits provision facially discriminates on the basis of age, the EEOC has established a prima facie case of age discrimination, according to a divided en banc 6th Circuit ruling reversing its original panel’s decision. (Equal Employment Opportunity Commission v. Jefferson County Sheriff’s Department, 03-6437) The full 6th further ruled that no evidence of discriminatory animus is required, since discriminatory intent was directly evidenced by the facially discriminatory nature of the plan. Perhaps somewhat less clear was the court’s rejection of its precedent in Lyon v. Ohio Education Assn and Professional Staff Union, by which earlier proceedings in Jefferson County had felt bound.
Prior to July 2000, a participant under the Kentucky Retirement System was ineligible to receive disability retirement benefits unless the individual was less than normal retirement age at disablement. After the current litigation commenced, an amendment modified the key condition to exclude from disability retirement any member who was eligible for an unreduced retirement allowance. The en banc panel found this plan design to be facially discriminatory on the basis of age in at least two ways: (1) Employees who remain in active service beyond a specified age are excluded from a particular employment benefit because of age; and (2) Even members who do become entitled to disability benefits receive lower benefits under the plan than similarly situated younger members.
Lyon‘s definition of a prima facie ADEA claim can no longer stand.
Previous rulings for this case had followed much the same path considered by the en banc panel, but had followed Lyon precedent, which had held the opposite of the two key rulings in the current case under arguably similar circumstances. Retracing steps all the way back to the origins of ADEA itself, the 6th now seems to see it differently, stating, “We believe that [OWBPA's] legislative history is compelling evidence that when revising the ADEA in response to Betts, Congress intended to prohibit the very sort of age-based discrimination that the original panel [in the current case], bound by Lyon, condoned in this plan.” Yet although concurring with the majority opinion, Circuit Judge Rogers observes inter alia not only that it is unnecessary to overrule Lyon except to the extent that former precedent is inconsistent with the current holding, but that this decision leaves us with a fair degree of uncertainty, wryly quipping, “I would leave to future litigants the task of going through Lyon and identifying what survives and what does not.”
Dissenting opinion found relevant distinction between the Kentucky Retirement System design and the landmark Betts template, the crucial distinction being that Betts’ Ohio plan provided younger workers with a specific benefit that was withheld from older workers, whereas the Kentucky system’s design provides disability benefits that are intrinsically no different than normal retirement benefits. Perhaps the point at which one ought to commence Rogers’ task, then, might be to speculate which long-accepted normal retirement benefit designs could now come under renewed scrutiny, with an ever-evolving light?
Earlier this week, the EEOC announced settlement of age discrimination allegations relating to an early retirement incentive program under which the employer “reduced the amount of the early retirement incentive payment for each year as the employee grew older.” [Stillwater School District to Pay $1.12 Million for Age Bias Against Class of Retired Employees, 8/21/06]
Such are the times I’m content to only be closely acquainted with actuarial matters as opposed to actually practicing that dark mysterious science. To my simplistic mathematical mind, offering a 55-year-old worker the same incentive to retire early as you’re offering one of your workers who has hung on in the workplace until 70 is quite meaningless: the septuagenarian will be out taking cruises with what the younger retiree needs to penny-pinch just to hang on until Social Security kicks in. Or from the employer’s perspective, age-neutral incentives simply are going to cost too much for the older workers to be of any value in encouraging retirement among the younger workers.
Now true, as the Employee Benefits section of the EEOC’s Compliance Manual points out in V.B.1., in general pension benefits cannot use ADEA’s equal cost defense, such as would be available to support similar cost justification arguments if we were dealing with retiree medical benefits or disability benefits. Even so, my aging rusted memory could have sworn that the natural age bais of early retirement incentive programs was openly acknowledged and accepted by Congress during 1990 enactment of the Older Workers Benefit Protection Act, that there was rather specific congressional intent enunciated somewhere that might have better illuminated OWBPA 103(1)’s addition of ADEA 4(f)(2)(B)(ii), stating, “It shall not be unlawful for an employer . . . to observe the terms of a bona fide employee benefit plan . . . that is a voluntary early retirement incentive plan consistent with the relevant purpose or purposes of this Act.” Whereas in 1990 it seemed completely evident and untouched by OWBPA that prevailing universal practice was for an early retirement incentive plan to grant those who would have longer periods of retirement a larger incentive than those with shorter periods — that is, essentially relating the value of the incentive to the period of expected retirement, rather than to the attained age of the worker — apparently “consistency” with OWBPA’s purpose is a fluid concept that may have lost its original intent.
So will early retirement incentive plans go the way of the dinosaurs, with employers less and less inclined to pay windfalls to the oldest workers just to be able to scrape together enough of an incentive to be anywhere near meaningful to younger ones in the targeted group? Perhaps not. Presumably the Stillwater settlement is not reversing anything in the Early Retirement Incentives section of the EEOC’s Compliance Manual, which among other potential defenses to an age discrimination claim does still accept an early retirement incentive that provides the “subsidized portion” offset (i.e., the portion of retirement benefit necessary to bring a retiree’s benefit up to an unreduced level) or that provides Social Security supplements, either of which would provide higher incentives to younger workers than to older workers. In fact, despite the general ban against applying cost justification to pension benefits, the EEOC Compliance Manual does offer employers the opportunity to attempt an equal cost demonstration of age-distinct incentives; although the EEOC opines that such a demonstration “is unlikely to be successful,” one might imagine an incentive package that includes a portion aimed at supporting retiree healthcare costs as a possible illustration of one that might stand the chance. Without additional details on the Stillwater incentives, it’s not clear where the employer went astray; but barring any EEOC shift not yet expressed in its Compliance Manual, traditional early incentive programs should not necessarily be threatened, even though younger workers will quite commonly receive significantly higher incentives under those traditional programs than their elder counterparts.
This week has taken on age discrimination bookends. We started out on Monday with the 7th Circuit’s reversal of the district court, with the appellate court finding no age discrimination in cash balance plan accruals. We close the week out with the EEOC publishing brief proposed regulations reflecting the Supreme Court’s 2004 Cline ruling that ADEA does not ban discrimination against younger protected workers. [FR Doc E6-13138] See Benefitsblog for background on Cline, where the Supreme Court disagreed with the EEOC and claimants that the company had violated EEOC’s prohibition against discrimination on the basis of age when it eliminated retiree health benefits except for those over age 50.
As long as we think of “benefit accrual” as referring to what the employer imputes to the account–an understanding reinforced by the use of the word “allocation” in the subsection addressing defined-contribution plans–there is no statutory difference between the treatment of economically equivalent defined-benefit and defined-contribution plans.
In the central case at the heart of the most hotly debated controversy surrounding cash balance plans, the 7th Circuit Court of Appeals has ruled that the IBM cash balance plan did not violate age discrimination law, overturning a key district court ruling. [Cooper v. IBM, 05-3588]
The Pension Protection Act of 2006, passed by Congress last week and expected to be signed into law soon, provides prospective protection against age discrimination claims for cash balance plans and other hybrid pension plans. Although stipulating that there is to be no inference drawn from the new law with respect to prior law, PPA left earlier years up to further litigation. But with several other recent district courts also rejecting the IBM district court reasoning, this appellate court ruling will no doubt clear a fair bit of smoke from the hybrid plan room!!