<nobr>Mar 30, 2005</nobr>

District Court Ruling Will Accelerate Employer Retreat From Retiree Health Plans

March 30, 2005 -- Today's ruling by U.S. District Court Judge Anita B. Brody in AARP, et al., v. Equal Employment Opportunity Commission (EEOC) will accelerate the retreat from employer-provided retiree health benefits, according to Mark Ugoretz, President of The ERISA Industry Committee (ERIC), a Washington, DC based association of major employers.

The decision follows a determination by the Third Circuit Court of Appeals in Erie County Retirees Assn. v Erie County in which the court held that coordination of health care benefits with Medicare by the County violated the Age Discrimination in Employment Act (ADEA). The EEOC, concerned that the holding would result in the loss of benefits by retirees, exercised its authority under the ADEA to allow coordinating benefits with Medicare. The AARP, an organization that represents Americans over 50 years of age, sued to block the EEOC action and require that the benefits received by retirees who were eligible for Medicare were equal to those offered pre-Medicare retirees receiving so-called bridge benefits.

"It is employees who will suffer," Ugoretz said. "This ruling will effectively force employers who still offer retiree health benefits as a bridge between retirement and Medicare eligibility to either drop them or significantly reduce the benefits for the younger retirees in order to comply. Quite simply, if employers are not permitted to control their total health benefits costs by coordinating their health benefits with Medicare, they will do what Erie County did as a result of the original decision and either reduce the benefit to pre-Medicare retirees or simply not offer the benefit at all, thus justifying the EEOC's worst fears."

Ugoretz noted that "those who retire before they are eligible for Medicare are likely to be most harmed from the ruling since employers, faced with double digit health care cost inflation, are likely to curtail benefits for the relatively younger employees. The AARP appears to assume that employers will dig deeper into the well and come up with more money to equalize the benefits that were intended in many cases only as a bridge between early retirement and Medicare."

Judge Brody's March 30 ruling prohibits the EEOC from issuing its exemption, under the ADEA, permitting employers to coordinate retiree health benefit plans with Medicare or a comparable state-sponsored health benefit.

In her 14-page decision, Judge Brody acknowledged that the EEOC had "argue[d] persuasively that without this exemption, employers will reduce or eliminate health benefits for all retirees, no matter what their age. This is because retiree health benefits are becoming so expensive that employers cannot afford to give the same level of health benefits to all of their retirees. With the EEOC's exemption, employers could afford to offer greater health benefits to its retirees under age 65."

"Unfortunately for the EEOC," Judge Brody continued, " the Third Circuit Court of Appeals has already ruled that allowing employers to give retirees 65 or older health benefits that are inferior to the health benefits given to retirees who are younger than 65 is illegal under the ADEA."

According to Ugoretz: "The irony of AARP's strategy is that younger retirees and its members will suffer as employees curtail retiree health bridge benefits and all future retirees will suffer as employees continue to eliminate the benefit as costs spiral out of control."

The EEOC has indicated its intention to appeal the district court decision and Ugoretz said his organization and other employer groups -- which had filed an amicus brief supporting the EEOC in February -- would be discussing next steps over the next few weeks.

For additional information or an interview with Mark Ugoretz or Edwina Rogers, Vice President Health Policy, contact Rita Zeidner, Director of Communications (202) 789-1400; rzeidner@eric.org.

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The ERISA Industry Committee (ERIC) is a non-profit association committed to the advancement of employee retirement, health, and welfare benefit plans of America's largest employers and represents exclusively the employee benefits interests of major employers. ERIC's members provide comprehensive retirement, health care coverage and other economic security benefits directly to some 25 million active and retired workers and their families. ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.

Text Files:

Amended Memorandum and Order from Eastern District of Pennsylvania

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