The Equal Employment Opportunity Commission (EEOC) issued a new regulation on December 26, 2007 that allows employers to coordinate retiree health benefit plans with Medicare or comparable state plans without risking violation of the Age Discrimination in Employment Act (ADEA). Specifically, employers may alter, reduce or eliminate retiree health benefits when retirees become eligible for health benefits under Medicare or a comparable state plan. The new regulation can be found at 29 C.F.R. §1625.32.

The EEOC determined this new regulation to be “necessary and proper in the public interest” after previously having taken a contrary view and then witnessing the gradual erosion of retiree health benefit plans. Studying this trend, the EEOC concluded that along with other factors, the threat of an ADEA violation had been creating an incentive for employers to reduce or eliminate all retiree health benefits. As a result, the EEOC changed course and created the new regulation, which has received widespread support among labor unions, benefits consultants, state and local governments, and private employers.

A legal challenge, however, by the American Association of Retired Persons (AARP) delayed finalization of the regulation. Ultimately the Third Circuit held, in AARP v. EEOC, 489 F.3d 558 (3d Cir. 2007), that the then-proposed regulation fell within the authority of the EEOC, thereby paving the way for the regulation to become final. The AARP has asked the US Supreme Court to review the Third Circuit’s decision, but this request has not yet been ruled on.

From a practical standpoint, the EEOC’s final regulation protects employers who already coordinate retiree health care coverage with Medicare or state plans from ADEA claims. It also provides an opportunity for employers to implement or amend retiree health benefit plans, although some employers may choose to wait until the Supreme Court decides whether to review the decision in AARP.