Although claims against pension plans are unique and involve challenging issues, the EEOC has shown no reluctance in filing systemic suits alleging that provisions in public employers’ retirement plans are discriminatory. The most recent activity in the EEOC’s series of systemic suits involves EEOC v. Baltimore County, et al., No. 07-CV-2500 (D. Md. Oct. 16, 2012). In EEOC v. Baltimore County, the EEOC alleged that the County’s pension plan, known as the Employee Retirement System (“ERS”), required older employees to pay more toward their retirement than younger employees, for the same retirement benefits. For example, an employee who became a member of the plan at age 25 was required to contribute 2.75% of his salary, whereas an employee who joined at age 45 was required to contribute 4% of his salary. Id. at 2. After extensive litigation in the district and appellate courts, both parties filed motions for summary judgment. Last week, Judge Benson Everett Legg of the U.S. District Court for the District of Maryland granted the EEOC’s motion for partial summary judgment and held that the County’s ERS violated the ADEA.
The EEOC brought this lawsuit on behalf of two retired corrections officers and a class of similarly-situated employees at least forty years of age. At the time the EEOC initiated the lawsuit, the ERS provided that the County’s employees “retire at age 65 with a pension benefit of approximately 1/70 of the average final compensation of the member, multiplied by the number of years of service rendered prior to the date of retirement.” Id. (internal citations omitted). The fact most important to the case is that the County provided a generous early retirement option to general employees with full benefits after thirty years of service, irrespective of their age. The EEOC alleged that the County’s ERS violated the ADEA because it required that employees contribute to the plan at different rates based on the age at which they joined. Id. at 2. The County claimed that there was a cost justification in requiring older employees to pay more than younger employees because when an older employee is hired, their pension fund contributions have less time to accumulate interest and provide an annuity at the time of retirement.
In 2009, the U.S. District Court for the District of Maryland agreed with the County and granted it summary judgment. The Court relied on Kentucky Retirement v. EEOC, 554 U.S. 135 (2008), and reasoned that the disparate contribution rates were justified by a permissible financial consideration — the time value of money. Id. at 3. The EEOC appealed and the Fourth Circuit remanded the case to the District Court to reconsider whether the County’s ERS is supported by permissible financial considerations.
The Court’s Ruling
On remand, the Court found that the County failed to bring forward non-age related financial considerations that justify the disparity in contribution rates between older and younger workers. The Court noted that the County “was given an opportunity to conduct full discovery, including a comprehensive 30(b)(6) deposition of Buck Consultants, the actuarial firm that ha[d] been responsible for ERS since its creation.” Id. at 5. The Court reasoned that the County did not provide any evidence “demonstrating why two workers with the same number of years until retirement eligibility should be required to contribute to the ERS at different rates” or why the County did not adjust the contribution rates to take account of the plan’s early retirement option. Id. Thus, the Court held that requiring higher contributions from older workers was not financially justified.
The Court also considered whether the ERS’s contribution rates expressly rely on age in violation of the ADEA. The Court reasoned that although the EEOC did not offer evidence of the County’s discriminatory motives in creating the plan, it nonetheless violated the ADEA because of ERS had a discriminatory effect on the County’s employees. The Court held that because “the different contribution rates charged to different employees [is] explained by age rather than pension status[,] age is the “but-for” cause of the disparate treatment, and the ERS violated the ADEA. Id. at 9. Thus, the Court granted the EEOC’s motion for partial summary judgment.
Implications For Employers
Many employers thought that the Supreme Court’s decision in Kentucky Retirement v. EEOC, 554 U.S. 135 (2008), rang the death knell for pension plan age discrimination lawsuits. The Supreme Court’s decision in Kentucky Retirement - a favorable ruling for employers - stated that that the mere fact that a retirement plan requires age as a proxy for pension eligibility does not indicate that the plan is discriminatory in violation of the ADEA. The ruling in EEOC v. Baltimore County, however, sends the message that the EEOC’s claims against pension plans are still viable. Employers will be well-served to review and consider their justifications for retirement plans that have variable contribution rates for employees based on age.
Readers can also find this post on our EEOC Countdown blog here.