Related Practices

• ERISA and Employee Benefits
• ERISA Litigation

Whether part of a reduction in force initiative or a regular retirement package, many employers offer healthcare benefits to retirees.  However, as a result of a recent decision by the United States Court of Appeals for the Third Circuit, employers could find that providing such benefits may subject them to age discrimination lawsuits.

In Erie County Retirees Association v. County of Erie, the court declared “open season” on any employer offering varying retiree healthcare benefits contingent on whether the retiree is either over age 65 and eligible for Medicare or under 65 and too young to qualify for Medicare.  Unfortunately, the facts of this case will probably sound all too familiar to many employers.  

The case has its origins in a promise made by the employer, Erie County (“County”), to provide health insurance benefits to retired employees.  For retirees over 65, the County offered SecurityBlue, a Medicare supplement.  For retirees under 65 and too young to qualify for Medicare, the County offered an HMO, SelectBlue or a traditional indemnity policy.  The Medicare-eligible retirees sued the County under the Age Discrimination in Employment Act (“ADEA”) and Older Workers Benefit Protection Act alleging that they were offered inferior healthcare benefits compared to those offered to  younger retired workers.  The trial court which initially heard this matter, the United States District Court for the Western District of Pennsylvania, rejected the claim and held that the ADEA was not intended to apply to retirees who are treated differently based on Medicare eligibility.

The case was appealed to the circuit court, which reversed the trial court’s judgment.  The circuit court sided with the older retirees and held that the County was acting in contravention of the ADEA.  Despite the far-reaching implications of this ruling, the United States Supreme Court refused to hear the County’s appeal.  

The circuit court noted that the ADEA contains a “safe harbor” provision which permits an employer to offer different health insurance based on age, if the employer can demonstrate that the insurance is of either “equal benefit” to the employees or “equal cost” to the employer.  

Upon remand, however, the district court ultimately decided that the safe harbor provision was unavailable since the County failed both tests.  The trial court found an inequality of benefits existed, since the SecurityBlue monthly contribution paid by older retirees was $50 while the SelectBlue contribution paid by younger retirees was only $12.  Moreover, the County admitted that the cost of providing the SecurityBlue insurance was substantially less than the cost of providing the SelectBlue or the traditional indemnity policy.  Accordingly, the district court concluded that the County was in violation of the ADEA and could not justify its actions under the ADEA’s safe harbor provision.

Employers seeking to avoid the pitfalls of Erie County should not act rashly and eliminate either their retirement plans or the health insurance benefits associated with their retirement packages.  Such actions, if contrary to prior promises by the employer, may very well run afoul of ERISA.  However, employers do need to seek professional advice and carefully evaluate their various retirement plans to ensure equality of benefits and compliance with the ruling in Erie County.  

If you desire further information, please contact your Cohen & Grigsby attorney.