Jan 07, 2008

EEOC Allows Employers to Cut Benefits to Retirees Eligible for Medicare

After several years of wrangling with AARP, the EEOC has at last issued its final regulation allowing employers to offer lesser health benefits -- or even cut off benefits -- to retirees who are eligible for Medicare. The EEOC's rule creates an exemption to the Age Discrimination in Employment Act (ADEA) for benefit plans that reduce, eliminate, or otherwise change the health benefits available to retirees once they become eligible for Medicare. Because eligibility for Medicare is based on age, plans like this would otherwise be prohibited as age discrimination. The EEOC's rule carves out an exception for these plans. The exception does not apply to benefits offered to current employees, only retirees.

The EEOC says that it adopted the rule to remove an incentive for employers to stop offering retiree health benefits altogether. No law requires employers to offer health benefits to retirees -- or to current employees, for that matter. Requiring employers to offer the same benefits to retirees even if they are eligible for benefits from another source (Medicare) makes the benefit program more expensive. In the face of this expense, many employers were simply eliminating retiree health benefits altogether.

The EEOC first proposed this rule in an interim regulation, in 2004. AARP sued right away to prevent the rule from going into effect. After a few years of litigation, the U.S. Court of Appeals for the 3rd Circuit found that the EEOC had properly issued the rule and gave it permission to finalize the regulation, which it now has done.

Lisa Guerin