Federal Agency Authorizes Benefits Cuts for Retirees Over 65
The Equal Employment Opportunity Commission last week announced that employers can legally eliminate or reduce health benefits for retirees when they reach age 65 and become eligible for Medicare while retaining benefits for retirees younger than age 65, the New York Times reports.
The ruling, published in the Federal Register, allows employers to create two classes of retirees -- those younger than age 65 and those older than 65 -- and offer different benefits to each group. In addition, the ruling allows employers to eliminate or reduce benefits provided to spouses or dependents of retirees older than 65 (Pear, New York Times, 12/27/07).
EEOC proposed the rule in response to a 2000 U.S. Court of Appeals decision that required benefits to be offered at the same level for Medicare-eligible retirees and those younger than 65 (Armour, USA Today, 12/28/07). However, according to Dianna Johnston, an EEOC lawyer, many employers and labor unions told the commission that "if they had to provide identical benefits for retirees under 65 and over 65, they would just drop retiree health benefits altogether for both groups."
The rule creates an explicit exemption from age-discrimination laws for employers that reduce benefits for retirees ages 65 and older. The preamble to the new regulation states, "The final rule is not intended to encourage employers to eliminate any retiree health benefits they may currently provide" (New York Times, 12/27/07).
According to a statement by commission Chair Naomi Earp, "EEOC seeks to preserve and protect employer-provided retiree health benefits which are increasingly less available and less generous." Earp added, "Millions of retirees rely on their former employer to provide health benefits, and this rule will help employers continue to voluntarily provide and maintain these critically important benefits in accordance with the law."
EEOC said its decision is supported by the Society for Human Resource Management, the AFL-CIO, the American Federation of Teachers, the National Education Association, the American Benefits Council, and other groups (AP/Seattle Times, 12/27/07).
The ruling was "welcomed" by some employer and labor groups, who believe it will allow employers to provide more comprehensive benefits to retirees under 65, but others "said it will deprive older people of coverage to supplement Medicare," the Wall Street Journal reports. "If the regulation did not come about, it could have very well spelled the death knell for retiree health care," Mike Aitken, director of government affairs for SHRM, said.
According to James Klein, president of the benefits council, the new rule "validates what employers and unions for years have understood to be the appropriate policy: namely to allow employers to focus health care coverage on early retirees who would otherwise not have coverage." Many experts note that some companies already have established different benefits for retirees who are eligible for Medicare (Maher et al., Wall Street Journal, 12/28/07).
AARP attorney Christopher Mackaronis said, "This rule gives employers free rein to use age as a basis for reducing or eliminating health care benefits for retirees 65 and older. Ten million people could be affected -- adversely affected -- by the rule" (New York Times, 12/27/07). David Certner, legislative policy director for AARP, said, "This policy is a civil rights and economic fiasco," adding, "It is a wrong-headed move to legalize discrimination, allowing employers to back off their health care commitments based on nothing more than age" and to shift more of the cost onto retirees and taxpayers (Rose, Chicago Tribune, 12/28/07).
The final rule is available online.
American Public Media's "Marketplace" on Thursday reported on the ruling. The segment include comments from Henry Aaron, an analyst at the Brookings Institute; Anna Burger, secretary-treasurer of the Service Employees International Union; and Klein (Marshall Genzer, "Marketplace," American Public Media, 12/27/2007).
Audio and a transcript of the segment are available online.