On December 26, 2007, the Equal Employment Opportunity Commission (“EEOC”) published a final rule allowing employers to coordinate retiree health plans with Medicare (or a comparable state health program) without violating the Age Discrimination in Employment Act of 1967 (“ADEA”). Under the new regulation, an employer can design its retiree health plan to provide health benefits for retired participants that are altered, reduced, or even eliminated when the retired participant becomes eligible for Medicare (or for a comparable state health program) whether or not the retiree actually enrolls in Medicare (or the state health program). The final regulation further provides that an employer may alter, reduce, or eliminate retiree health benefits for spouses or other dependents of retirees when the dependents are eligible for health benefits under Medicare (or a comparable state health program), whether or not the retirees’ own health benefits are similarly altered, reduced or eliminated. The new regulation is broad, effective immediately, and applies to existing and newly-created plans. In issuing the final regulation, the EEOC specifically notes that the exemption does not apply to any other aspect of ADEA coverage or employee benefits (other than retiree health benefits). The exemption does not apply to health plans covering active employees who are at or over the Medicare eligibility age.

The final rule is welcome comfort to those employers offering or planning to offer retiree medical benefits. The practice of reducing or changing benefits for retirees over age 65 to coordinate with Medicare has been the topic of much debate both in and out of the courts for the last eight years. The history of the issue was last highlighted in our Winter 2006 Employment & Labor Newsletter when a decision by the U.S. Court of Appeals for the Third Circuit brought the issue back to the forefront of discussion. By virtue of the EEOC’s recent final regulation, it is now law that the practice does not violate ADEA and this exemption can be relied upon. Although the AARP has asked the U.S. Supreme Court to review the Third Circuit’s decision, unless the U.S. Supreme Court were to do so and ultimately decides to reverse the Third Circuit, the EEOC’s final regulation settles the matter in employers’ favor.