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EEOC Changes Retiree Benefits

The Equal Employment Opportunity Commission approved a final regulation in April that allows employers to reduce or end benefits when a retiree becomes eligible for Medicare or comparable state retiree health benefits without fear of violating the Age Discrimination in Employment Act.

TPAs will want to become informed with this regulation in the event clients may inquire about plan design to incorporate this change in the law. Employers no longer have the specter of an Age Discrimination in Employment Act (ADEA) violation hovering over them if they decide to change their plan design. The change came about to address a concern that the age discrimination act may be might be construed to crate an incentive for employers to eliminate or reduce retiree health benefits.

The regulation, which can be found on the EEOC website at, implements a policy change that the agency adopted unanimously nearly three years ago in response to a 2000 decision by the U.S. Court of Appeals for the Third Circuit in Erie County Retirees Assn’n v. County of Erie, and which was issued as a proposed regulation last July. SPBA reported this change in Update on July 25, 2003. The final rule is largely unchanged from the proposed rule.

The final rule permits employers and labor organizations to offer retirees a wide range of health plan designs that incorporate Medicare or comparable state health benefit programs without fear of violating the ADEA. It is not intended to encourage employers to eliminate any retiree health benefits that they may currently provide. Rather, in order to ensure that all retirees have access to some health care coverage, employer and union are encouraged to provide retiree health coverage for retirees who are not yet eligible for Medicare. They are also encouraged to supplement a retiree’s Medicare coverage without having to demonstrate that the coverage is identical to that of non-Medicare eligible retirees.

The regulation provides that the exemption will apply to existing and newly created employer plans and to dependent and or spousal health benefit plans that are included as part of coverage for retired participants. The EEOC opines in their regulation that dependent and spousal benefits would not need to be identical to the coverage provided to retirees.