In American Association of Retired Persons v. Equal Employment Opportunity Commission (June 4, 2007), the United States Court of Appeals for the Third Circuit upheld a proposed regulation of the United States Equal Employment Opportunity Commission ("EEOC") which would exempt certain retiree medical plans from federal age discrimination claims. The EEOC's exemption would permit an employer's retiree health plan to coordinate retirement benefits with, among other things, Medicare benefits — i.e., the exemption would permit employers to alter, reduce or eliminate retirees' health coverage when they become eligible for Medicare or similar state-sponsored retiree medical programs.
On July 14, 2003, the EEOC issued a proposed regulation that would "exempt from the prohibitions of the [federal Age Discrimination in Employment Act ("ADEA")] 'the practice of altering, reducing or eliminating employer-sponsored retiree health benefits when retirees become eligible for Medicare or a state-sponsored retiree health benefits program.'" On February 4, 2005, the American Association of Retired Persons ("AARP") commenced an action in the United States District Court for the Eastern District of Pennsylvania claiming that the proposed regulation violated the federal Administrative Procedure Act ("APA") and the ADEA. At first, the District Court granted summary judgment in favor of the AARP and permanently enjoined the EEOC from publishing or implementing the proposed regulation. The District Court relied on an earlier decision of the Third Circuit in Erie County Retirees Association v. County of Erie, in which the Third Circuit held that, "as Medicare eligibility is age-dependent, the ADEA did not permit reduction or termination of retiree health benefits upon Medicare eligibility unless the employer met the 'equal benefits or equal cost' defense set forth in Section 4 of the ADEA."1
On June 27, 2005, while the EEOC's appeal of the District Court's decision was pending, the United States Supreme Court issued a decision that provided wider latitude for agency interpretations of federal statutes.2 The EEOC therefore moved for relief from judgment in the District Court, arguing that its proposed regulation was consistent with the ADEA. The District Court granted the motion, vacated its prior decision and granted summary judgment in favor of the EEOC. The AARP appealed the District Court's new decision to the Third Circuit.
On appeal, the Third Circuit reviewed whether the EEOC had the authority to issue the exemption under Section 9 of the ADEA.3 Section 9 of the ADEA authorizes the EEOC to "establish such reasonable exemptions to and from any or all provisions of [the ADEA] as it may find necessary and proper in the public interest." The Third Circuit held that this section "clearly and unambiguously grants to the EEOC the authority to provide, at least, narrow exemptions from the prohibitions of the ADEA" "so long as they are 'reasonable' and 'necessary and proper in the public interest.'" The Third Circuit held that the proposed regulation satisfied this requirement because it has the "necessary and proper purpose of encouraging employers to provide the greatest possible health benefits for all retirees." The EEOC had in fact issued the proposed regulation because, "[r]ather than maintaining retiree benefits at pre-Medicare eligibility levels for all retirees in order to avoid discrimination under the ADEA, some employers chose to reduce all retiree health benefits to a lower level." Although "the proposed exemption may allow employers to reduce health benefits to retirees over the age of sixty-five while maintaining greater benefits for younger retirees," the Third Circuit held that the narrow exemption is reasonable, necessary and proper "as over time it will likely benefit all retirees."