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In a ruling that directly affects millions of retirees, a federal judge has struck down a proposed regulation adopted last year by the Equal Employment Opportunity Commission that would have allowed employers to reduce health care benefits for retirees as soon as they become eligible for Medicare. In her 14-page opinion in AARP v. EEOC, U.S. District Judge Anita B. Brody found that the proposed regulation directly conflicted with a 2000 decision by the 3rd U.S. Circuit Court of Appeals that explicitly barred such a practice. In Erie County Retiree Association v. County of Erie, the 3rd Circuit held that allowing employers to give retirees who are 65 or older health benefits that are inferior to the health benefits given to younger retirees violates the Age Discrimination in Employment Act. Ironically, the EEOC had participated in the Erie County case as an amicus and urged the 3rd Circuit to rule the way it did. But after the decision was announced and the EEOC began to enforce it, the commission says it learned that the ruling was having the unintended consequence of discouraging employers from providing any retiree health benefits — which employers are not required by law to provide — so as not to run afoul of the ADEA. That concern led the EEOC to propose a regulation that would create an exemption to allow employers, without restriction, to reduce or terminate retiree health benefits when the retiree reaches age 65. But before the rule was published, the AARP and four of its members filed suit under the Administrative Procedure Act. Attorneys Stephen G. Console of Philadelphia, along with Christopher G. Mackaronis and Michael J. Schrier of Bell Boyd & Lloyd in Washington, D.C., and in-house AARP attorney Laurie McCann, argued that the EEOC had no power to propose a regulation that directly conflicts with a statute and an appellate court’s ruling. By filing suit in the Eastern District of Pennsylvania, the plaintiffs were assured that the court would be bound to follow the 3rd Circuit’s decision in Erie County. In a motion for summary judgment, the AARP argued that the challenged regulation is contrary to the plain language of the ADEA. But the government argued that under Section 9 of the ADEA, the EEOC has the power to issue exemptions from provisions of the ADEA if they are “reasonable” and “necessary and proper in the public interest.” Brody disagreed, finding that a regulation is entitled to deference from the courts only if it fills a gap in the law or clears up an area that was left ambiguous in the statute. “If congressional intent is clear and unambiguous, then that intent is the law and must be given effect,” Brody wrote. The 3rd Circuit, Brody said, “has already determined that Congress expressed a clear and unambiguous intent with regard to the precise question at issue.” The Erie County case was a challenge to provisions of the health benefits plan offered by the County of Erie to its employees. Under the plan, the health coverage options for retirees were reduced once the retirees became Medicare-eligible. The 3rd Circuit analyzed the plan under the ADEA and the Older Workers Benefit Protection Act and held that it was clear from the plain wording of the statutes that Congress intended for the ADEA’s prohibitions against age discrimination to apply to the practice of reducing retiree health benefits when retirees become eligible for Medicare. The court found that Medicare-eligibility is an “age-based criterion” and that Erie County’s policy of reducing health care benefits when retirees became eligible for Medicare violated the ADEA unless any of the ADEA’s “safe harbors” was applicable. Finally, the appeals panel concluded that Erie County’s policy violated the ADEA unless it met the “equal benefit or equal cost” defense. In its motion for summary judgment before Brody, the EEOC argued that without the exemption, employers will reduce or eliminate health benefits for all retirees, no matter what their age, because retiree health benefits are becoming so expensive that employers cannot afford to give the same level of health benefits to all. With the exemption, the EEOC said, employers could afford to offer greater health benefits to its retirees under age 65. Since those over 65 are eligible for Medicare, it argued, they have less need for employer-provided health benefits. But Brody found that the EEOC was taking too broad a reading of its power to create exemptions. “An administrative agency, including the EEOC, may not issue regulations, rules or exemptions that go against the intent of Congress,” Brody wrote. Instead, Brody found that exemptions, like all other regulations, are allowed only when “Congress has explicitly left a gap for the agency to fill.” The EEOC, Brody said, “has the power to issue rules, regulations and exemptions within these explicit, or implicit, gaps that Congress left in the ADEA. In the case of the challenged exemption, however, the 3rd Circuit held that Congress did not allow for ambiguity with regard to the applicability of the ADEA to retiree health benefits.”

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