Appellants Brief — Public Employees Retirement System of Ohio v. Betts
Supreme Court brief1989
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QUESTIONS PRESENTED
1. Must employee benefit plans which discriminate on
the basis of age be justified by age-related cost considera-
tions to qualify for exemption from the ADEA under
§ 4(f(2)?
2. May an employee benefit plan continue to discrimi-
nate on the basis of age solely because the plan predates
the passage of the ADEA?”
3. Ifemployee benefit plans which predate the ADEA
are permitted to discriminate, do they lose their exemp-
tion when substantial changes are made in the plan at a
later date?
TABLE OF CONTENTS Table of Contents Continued
Page Page
re ee i A. The islative Hi Of The 1978 Amend-
TaBae OF AMTROOMITIRS. ... ccc ccc ccce iv ments A Clear Intent To Reject This
STATEMENT oF THE CASE ............... séeamunnie 1 Court's Definition Of Subterfuge In McMann 24
SUMMARY OF ARGUMENT. ........... 66 oo cn nce 5 B. Congress Did Not Intend To “Grandfather”
RID ccc cececeneceseceectneseidieeeee 8 Unlawful Practices In Perpetuity .......... 29
lL. Emptovers Wuo Deny Drsasiurry Benerrrs
Ill. ReGarpiess Or Tue Errect Or Tue 1978
Sovecy On Tue Basts Or Ace Must SHow An
Ace-Revcatep Cost Justification To apauare
For Tue §$4(f2) Exception To Tue ;
A. PERS Failed To Meet Its Burden Of Proof
AMENDMENTS To THe ADEA On McMann Tue
: cance emwentd PLAN Is Not Exempt UNDER
32
A. Depriving Betts Of PERS Disability Benefits
Resulted In Her Involuntary Retirement In
Violation Of §4(f)(2) ............c cc eee eens 32
B. The PERS Plan Is Not A Pre-ADEA Plan
Because Of Significant Post-Act Modifications 34
CE 37
GE OGEEED covcecesceceneeenmeeenanan 8
B ~~ ive History Of § 4(f2) Of The ADEA
Vee ts 4a
~4
Intent That Benefits
To The Extent The Reduction Is Justified
Age-Related Cost i [aaa u
|
The Employer To Discriminate ..... 10
77
4
E
3
Z
?
Z
Intent That The §4(fx2) Ex ion Be
Lumited To Age- Based Cost Justi
C. The PERS Disability Plan Violates EEOC Reg-
ED cocccceccesceseeasenneaaa Is
1. The PERS Disability Plan Is In Clear Vio-
lation OF 29C.F.R. $860,120 Dai). Is
2. The EEOC lations Have Guided
y Years And Are
Il. Tue 1978 Amenoments To Tue ADEA
Reversep Tuts Courr’s Reasontne AND Dect-
ston In McMann Tuat Pre-Existine Pians
Were Not A Suesrerrvuce
iv
TABLE OF AUTHORITIES
Cases
Betts v. Hamilton Count — Retardation, 631
F.Supp. 1198 (S.D. Ohio 1986)................ 3, 4,
Betts v. Hamilton ae a Montsi Retardation, 848
F.2d 692 (6th Cir. 1988)................. 4, 7, 9, 28,
Brennan v. Taft Broadcasting Co., 500 F.2d 212 (5th Cir.
34
34
SPUN 0encssdncsensecdedcsednasentessescs 24, 25, 29
Celotex Corp. v. Catrett, 477 U.S. 317 (1986)..........
Chevron, USA, Inc. v. National Resources Defense, Inc.,
467 U.S. 837 ( EE Ob0t0ucdstedeuedsdoceskedeee
Cipriano v. Board of Educ. of City School Dist., 785 F.2d
EE SE nt dbnedce tiendecendédceesbscos
Demby v. Schweiker, 671 F.2d 507 (D.C. Cir. 1981)... ..
in, Sees Dry Goods Corp., 449 U.S. 590
EEOC v. Baltimore and Ohio R. Co., 632 F.2d 1107 (4th
Dt El Pavcenchbcenbandiediandishbadkinbinaman ce
EEOC vy. Cargill, Inc., 855 F.2d 682 (10th Cir. 1988).. 28,
ween Coney of Orange, 837 F.2d 420 (9th Cir.
ae * City of Mt. Lebanon, 842 F2d 1480 (3rd Cir.
EEOC vy. prem ., 125 F.2d 211 (3rd Cir. 1983)
cert. denied 469 U.S SUED ce Cueccbecesecees
Federal Energy Admin. v. Algonquin SNG, Inc., 426
Pe ss5sinésoucianhendensecbvuveces
General Electric v. Gilbert, 429 U.S. 125 (1976)...... 21.
Griggs v. Duke Power Co., 401 U.S. 424 (1971)....... 19,
Karlen v.City College of Chi 837 F2d 314 (7th Cir.
1988), cert denied, No. 87 71831 ieee bein eee
McMann vy. United Airlines, 542 F.2d 217(4th Cir. 1976)
Nat. Ass'n of Greeting Card Pub. v. U.S. Post. Ser., 462
Ses a6 éhenchbenccedcuheusccedeseans
New News Shipbuilding & Dry Dock v. EEOC, 462
).S. 669 ‘19830 PONERSRDEORUSHEOS SSO SOCCSeeees
NLRB vy. Boeing Co., 412 U.S. 67 (1973)..............
Phillips, Inc. v. Walling, 324 U.S. 490 (1945) .........
Piedmont & Northern R. Co. v. ICC., 286 U.S. 2991932)
Sikora v. American Can Co., 622 F.2d 1116 (3rd Cir. 1980)
eereeeoeeeeeeeeeeeoeeBeeseeoeeeeeeseeeeeseeeseeeseece
Vv
Table of Authorities Continued
Page
Smart v. Porter Paint Co., 630 F.2d 490 (7th Cir. 1980). 34
Trans World Airlines, Inc. v. Thurston, 469 U.S. 111
DP sttenencensssktinsseudennssssbiddenieen 8, 33
United Air Lines Inc. v. McMann, 434 U.S. 192
DP UAhiNG tle niendesbibibetnadbbakecines passim
U.S. v. Bd. of Com'rs of Sheffield, Ala., 435 U.S. 110
REE ean eo CREE SR ep ene 15
U v. Tamiami Trail Tours, Inc., 531 F.2d 224 (5th Cir.
TPicbcsadsddvesddiusanbabeesteakenudedkenoce 29
Western Airlines v. Criswell, 472 U.S. 400 (1985)...... 8, 29
Zinger v. Blanchette, 549 F.2d 901 (3rd Cir. 1977)...... 25
STATUTE
Ee ee ene eee 22
Age Discrimination in Employment of 1967 (ADEA). passim
ADEA § 2(b), 29 U.S.C. §621(b)................... l4
ADEA §4(f)(1)), 29 U.S.C. §623(f(1) «2.2... 29
ADEA § 4(f)(2), 29 U.S.C. § 623(f)(2)............ passim
ADEA § 4(g), 29 U.S.C. § 623(g)................. 30,31
ADEA §4(i), 29 U.S.C. § 623(i)...............45. 22, 31
ADEA $7(e), 29 U.S.C. §626(e).. 2... 6. 22
ADEA §9, 29 U.S.C. $628.................00ee. 13, 21
Discrimination in E nt Amendment of 1978,
Pub.L. 96-256, 92 Stat 189..................505- 15, 30
=e t Retirement Income Security Act of 1974
(ERISA), 29 U.S.C. §§ 1001 et seq ....... 6.0.0.5. ll
Tee a a enuee ll
oe es cu eeaueebous 21
es IID sc cc ccccccccecesucecessveces 1,8
RE ES eT 1, 35
Ohio Rev. Code § 145.39. ........... 0c. cece ec eeeee 2, 8, 32
Se IED . vcccccccucseceoceseeheceess 2, 35
REGULATIONS
29 C.F.R. § 860.120, presently codified at 29 C.F.R.
Dt <c.nicketudcugneneuennens cain 4, 13, 20, 22
29 C.F.R. §860.120(a\(1), presently codified at 29 C.F.R.
i Sr ra eae 8
vi
Table of Authorities Continued
29 C.F.R. §860.120(d), presently codified at 29 C.F.R.
Dt etebieeknbebccnudssehesacdevivecese 28
29 C.F.R. §860.120(f)(1)(iii), presently codified at 29
C.F.R. § MGRB. IOUIM IME). 2... cc eeecceeees 6, 18, 21
LEGISLATIVE MATERIALS
H.R. No. 805, 90th Cong., Ist Sess. (1967) reprinted
in EEOC Legislative History (EEOC Legislative
PT ctncecnnesescnessnescesseoueeesesess 30
pGeeececescesccceseousess 30
H.R. Rep. No. 527, Part 1, 95th Cong. Ist Sess. (1977),
EEOC
Legislative History 361 .................. 25
S. Rep. No. 493, 95th Cong. Ist Sess. (1977), EEOC
Legislative History 435. ...............s00005: 14, 25
H. R. Conf. No. 950, 90th Cong. Ist Sess. (1978),
EEOC Leclelative TT ccijcocguaanene 7, 26, 31
Age Discrimination in Employment: Hearings before the
Subcommittee on Labor of the Senate Comaniiion on
Labor and Public Welfare on S. 830 and S. 788, 90th
Cong. Ist Sess. 105-106 (Statement of Anthony J.
, U.S. Chamber of Commerce) ............ ll
Hearing to Eliminate Ma Retirement: Hearings
on H.R. 6576 Before ay a on Employ-
ment Opportunities 4 the House Committee on Edu-
cation and Labor, 97th Cong. 2d Sess 36 (1982)
(statement of Robert T. Thompson, Chamber of Com-
merce of the United States)..................05. 23
113 Cong. Ree. (1967)
ST bebGbeGaces6hteucénevecsceveceseeeeesses 12
SUP Ssaeetsadocscesevccoseecesesecacessces 11, 12
123 Cong. Rec. (1977)
PP PAChesenehebeoencsctuccsecseucessescess 15, 16
124 Cong. Rec. (1978)
SEM GHGGUSEUECHSeSecedneeceecesosceéonececees 27
DE Sbnekéucuseedéeesheeeseesacesceneseecens< 17
SME Gbacbd¥One dceveceuaesscosessenccencewenss 16
SAdohenbensenscesencduséarecenadeeescaes 17, 27
vii
Table of Authorities Continued
MISCELLANEOUS
AGE DISCRIMINATION IN EMPLOYMENT ACT: A
Compliance and Litigation Manual for lawyers and
Personnel Practitioners. (Equal Employment
Advisory Council ed. 1982)..................5.55.
2 K. oo Administrative Law Treatise $7.14 (2d ed.
Pnéhanescduedsduccuccnsceceicenescseoteess
STATEMENT OF THE CASE
A. Disability Benefits Under The Public Employees Retire-
ment System Of Ohio.
This case involves the denial of disability benefits to an
otherwise qualified individual by the Public Employees
Retirement System (“PERS”) solely on the basis of her
age. While the plan is open to all individuals under the age
of 60 with at least five years of service credit, those
individuals, such as June Betts, who apply after their
60th birthday are denied disability benefits.' Thus, a
worker disabled at age 23 may still be receiving disability
benefits at age 65, while a worker disabled at age 65 will
receive no disability benefits. The plan discriminates
against workers like June Betts who become disabled
after age 60.
Workers excluded from the disability plan after age 60
may still be entitled to age and length of service retire-
ment (“service retirement”) but they will receive substan-
tially lower benefit payments. The parties agree that
when the ADEA was passed in 1967 the calculations for
determining service retirement benefits and disability
benefits under the PERS plan were similar. [PERS Br.
p.5). However, in 1976, nine years after passage of the
ADEA, O.R.C. Section 145.36 was changed to provide
that no one receiving disability benefits should receive
less than 30% of their Final Average Salary (“FAS”). No
such minimum is available under service retirement.
Thus, workers like Betts, who are disabled after age 60,
are denied the 30% minimum available to workers dis-
abled before age 60. Disability benefits continue to be paid
' Ohio Revised Code Section 145.35 | 3-21) provides:
“Application for disability retirement may be made by a member
provided the member has at least Sve youre f total service
credit and has not attained age sirty - (emphasis added )
ea
»)
for the lifetime of the employee and, unlike many other
plans, do not convert to the lower service retirement
rates.
In addition to lower benefits, workers disabled after
age 60 are denied two other benefits due to their exclusion
from the PERS disability plan:
1. These with less than 10 years service are denied
free medical coverage for life.*
to
;
Each person excluded from the disability pian is
denied a five year leave of absence with a guaran-
teed right to return to his or her former job or its
poms ae with his or her former employer. This
right is available to all workers receiving dis-
ability benefits but not to workers on service
retirement.*
Membership in PERS is in lieu of participation in the
federal Social Security program. Thus, while most private
company employees have pensions in addition to social
security benefits, most public employees receive only
their PERS benefits.
B. June M. Betts.
June Betts (“Betts”) became ill at age 61 in 1985. Her
emplover, Hamilton County Board of Mental Retardation
and Developmental Disabilities (“Hamilton County”),
informed her that if she did not apply for length of service
retirement with PERS, Hamilton County would initiate
- Ohio Revised Code 145.58 was amended in 1981 to require a new
PERS retiree to have 10 vears Ohio service credit to qualify for free
health care benefits. This amendment did not apply to members
receiving disability benefits. The effective date was delayed five vears
and did not affect appellee.
‘Ohio Revised Code 145.39.
3
forced medical leave and she would receive neither pay
nor medical benefits. Hamilton County advised Betts that
she was not eligible for PERS disability benefits because
she was over 60 years of age. Betts was thus forced to
apply for service retirement. While PERS describes her
retirement as “voluntary,” the District Court disagreed,
stating that Betts was “presented with a choice of early
retirement or nothing.”
As a service retiree Betts received only $158.50 per
month (13.4% of FAS). Had she not been disqualified
because of her age, she would have received disability
benefits of $355.02 per month (30% of FAS). Betts was
also denied reemployment rights available to disability
retirees but not service retirees.
C. The Proceedings Below.
On June 14, 1985, Betts filed a complaint with the
United States District Court of the Southern District of
Ohio, alleging a violation of the Age Discrimination in
Employment Act (“ADEA”), in that she had been denied
disability benefits because of her age. The District Court,
on March 27, 1986, decided the case on cross-motions for
summary judgment. Betts v. Hamilton County Bd. of
Mental Retardation, 631 F.Supp. 1198 (S.D. Ohio 1986)
[A-20]. PERS, apparently conceding that the plan would
otherwise violate the ADEA, argued that under this
Court’s decision in United Air Lines, Inc. v. McMann,
434 U.S. 192 (1977), the PERS disability plan was exempt
as a “bona fide” employee benefit plan under § 4(f)(2), 29
U.S.C. § 623(f)(2), because early versions of the plan were
in existence before passage of the ADEA. Betts argued
that § 4(f)(2) did not apply because the PERS disability
plan was not based upon age-related cost justifications.
Despite having every opportunity, PERS declined to
4
introduce any evidence of cost or other economic justifica-
tion for the discriminatory treatment of employees over
60.
The District Court held that PERS was not entitled to
the § 4(f)(2) exception because the exclusion from the plan
of persons becoming disabled after age 60 was not “based
upon age-related cost factors” as set forth in the EEOC
regulations 29 C.F.R. § 860.120, which interpreted
§ 4(f)(2). The District Court also concluded that Betts was
involuntarily retired as a result of her exclusion from the
disability plan, a further violation of § 4(f)(2). Betts,
supra, 631 F.Supp. at 1205 [A-28-30].
On appeal, Betts, joined by the EEOC as amicus,
argued that no economic justification existed for provid-
ing the younger employee with disability benefits while
denying disability benefits to the older employee. The
Sixth Circuit affirmed, agreeing with the District Court
that the “critical factor” in determining whether PERS
was exempt under § 4(f)(2) was whether the age 60 cut-off
for applying for disability retirement benefits was “based
upon age-related cost factors as set forth in 29 C.F.R.
§ 860.120.” The Court also held that in amending the
ADEA in 1978, “Congress expressly repudiated the
Supreme Court’s decision and reasoning in United Air-
lines v. McMann.” See Betts v. Hamilton County Bd. of
Mental Retardation, 848 F.2d 692, 694-95 (6th Cir. 1988)
[A-4-5]..
Although this action involves only June Betts, the prob-
lem presented is much wider. Two other Ohio retirement
and disability plans have provisions identical to the PERS
plans. They are the State Teachers Retirement System
(STRS) and the School Employees Retirement System
(SERS). At the present time, two class actions raising the
5
same ADEA issues are pending in the Southern District
of Ohio against all three Ohio plans. See EEOC v. PERS,
No. C-1-87-216 and George v. State of Ohio, No.
C-1-86-635.
SUMMARY OF ARGUMENT
The PERS disability plan, which permits only those
employees who “have not attained age sixty” to apply for
disability retirement, is discriminatory on its face. PERS
claims the disability plan is exempt under § 4(f)(2) of the
ADEA which exempts a:
“bona fide employee benefit plan such as a retire-
ment, rhage toe or insurance plan, which is not a
subte to evade the purposes of this Act,. . . and
no such . mployee benefit plan shall require or
~ one the ona oluntary retirement of any individ-
ual. .
PERS is not entitled to an exception under § 4(f)(2)
because it failed to produce any evidence that the denial of
disability benefits to Betts was justified by age-related
cost considerations. This “equal benefit or equal cost”
principle has been a part of the federal regulations since
1969 and has a firm anchor in the 1967 and 1978 legislative
history to the ADEA.
The purpose of § 4(f)(2) of the ADEA of 1967 was to
permit employers to hire older workers without incurring
the higher costs of some benefit plans, such as life insur-
ance, where costs increase with age. The exception was
intended to protect older workers in hiring by permitting
employers to adjust benefits commensurate with age-
related costs. The exception was not intended to provide a
loophole for employers to discriminate against older
workers.
6
When Congress amended the ADEA in 1978, it again
focused its attention on § 4(f)(2). During the hearings, the
floor debate, and in committee reports, Congress reveat-
edly stated its intent to permit employers to reduce dis-
ability benefits only to the extent reductions could be
justified by age-related cost increases. As an exception
from remedial discrimination legislation, § 4(f)(2) must be
narrowly construed in a manner consistent with the pur-
pose of eliminating arbitrary age discrimination.
The ADEA explicitly granted the Department of Labor
(“DOL”) the power to “establish reasonable exemptions”
under the Administrative Procedures Act. The regula-
tions, first issued by the DOL in 1969, required that for a
plan to qualify for the § 4(f)(2) exception any reductions in
benefits must be justified by age-related cost considera-
tions. In 1978, Congress similarly instructed the DOL to
issue regulations in keeping with the 1978 Amendments.
The 1979 DOL regulations were more comprehensive and
expressly addressed long-term disability plans. They
were adopted by the Equal Employment Opportunity
Commission (EEOC) in 1981.
The PERS disability plan operates in clear violation of
EEOC regulation 29 C.F.R. § 860.120(f)(1)(iii). The reg-
ulation, now codified at 29 C.F.R. § 1625.10(f)(1)(ii) [53
F.R. 5973, Feb. 29, 1988], provides that where employees
at younger ages are entitled to long-term disability bene-
fits there is no justification for denying benefits altogether
to older employees.
PERS argues that its disability plan is exempt solely
because it predates the ADEA. In effect, PERS is argu-
ing that in passing the ADEA, Congress intended to
perpetuate all age-based benefits discrimination then in
effect. This is contrary to the intent of Congress in enact-
7
ing the ADEA in 1967 and is contrary to the express
intent of Congress in passing the 1978 Amendments.
PERS’ claim to perpetual exception improperly relied
upon this Court’s decision in United Air Lines, Inc. v.
McMann, 434 U.S. 192 (1977), which held that a plan in
existence when the ADEA was passed could not be a
subterfuge to evade the purposes of the Act. McMann
was rejected by Congress when it passed the 1978 amend-
ment to the ADF. A. The Conference Report, approved by
both Houses following the McMann decision stated:
“The conferees specifically disagree with the
Supreme Court's holding and reasoning in that case.
Plan provisions in effect prior to the date of enact-
ment are not exempt under section 4(f)(2) by virtue of
the fact that they antedate the act or these amend-
ments.”
H.R.Conf. Rept. No. 95-950, p.8 (1978), U.S.Code Cong.
& Admin. News 1978, p.529, reprinted in EEOC Legis-
lative History of the ADEA of 1967 (“EEOC Legislative
History”) at 519 (1981). The Sixth Circuit, below, held
that in amending the ADEA in 1978, the Congress
expressly repudiated McMann. The Court also reviewed
the law, the regulations and the legislative history and
held that the PERS plan is not exempt since it discrimi-
nated against older workers without economic justifica-
tion. Betts, supra, 849 F.2d at 694 [A-4].
Regardless of the holding in McMann, the PERS plan
is not exempt as a pre-existing plan. Substantial and
relevant modifications have been made to the plan since
1974. McMann held that plans in existence prior to pas-
sage of the ADEA could not be a subterfuge. The clear
implication was that changes to a plan after the ADEA
could be a subterfuge and the plan would no longer be
exempt. The circuit courts are unanimous in agreeing
Ss
that substantial and relevant modifications to plans after
the passage of the ADEA can be a subterfuge. PERS
made significant changes in 1976 and 1981 and is no longer
entitled to an exception as a pre-existing plan.
The decision of the Sixth Circuit should be affirmed.
ARGUMENT
I. EMPLOYERS WHO DENY DISABILITY BENEFITS
SOLELY ON THE BASIS OF AGE MUST SHOW AN AGE-
RELATED COST JUSTIFICATION TO QUALIFY FOR THE
§ 4(f(2) EXEMPTION TO THE ADEA.
A. PERS Failed To Meet Its Burden Of Proof Under § 4(f)(2).
Betts was denied both disability retirement benefits
and the accompanying right to resume service solely
because of her age.+ In order to escape liability from this
per se violation of the ADEA, PERS was required to
justify its conduct under one of the ADEA’ narrow affir-
mative defenses. Trans World Airlines, Inc. v. Thurston,
469 U.S. 111, 121-22 (1985). Acknowledging the age-
based exclusion, PERS seeks refuge in the exception for
bona fide employee benefit plans set forth in § 4(f)(2) of the
ADEA. The burden of proof under § 4(f)(2) rests with the
party invoking the defense, see Western Airlines v.
Criswell, 472 U.S. 400, 416 n. 24 (1985), and that burden
is substantial since § 4(f)(2) is to be narrowly construed as
an exception to remedial social legislation. 29 C.F.R.
§ 860. 120(a)(1); Piedmont & Northern R. Co. v. ICC., 286
U.S. 299, 311-312 (1932); Phillips, Inc. v. Walling, 324
U.S. 490, 493 (1945). Accordingly, PERS must show that
the challenged practice plainly and unmistakably meets
*Ohio Revised Code § 145.35 (exclusion of persons age 60 and
older); Ohio Revised Code § 145.39 (right to resume service at same
or similar position and salary).
9
the terms and spirit of the remedial legislation that the
ADEA represents.
In response to Betts’ motion for summary judgment, it
was PERS’ responsibility to come forward with evidence
sufficient to demonstrate a triable issue of fact regarding
the § 4(f)(2) defense, Celotex Corp. v. Catrett, 477 U.S.
317, 322-323 (1986). PERS offered no evidence and raised
no contested issues of fact in the District Court. “Despite
having every opportunity, the defendants declined to
introduce any cost figures or other economic justification
for the different treatment of employees over sixty.”
Betts, supra, 848 F.2d at 695. [A-6]. Ignoring contrary
EEOC regulations, PERS argued that cost justification
was not required by § 4(f)(2) and that its plan was exempt
as a matter of law because the plan predated the ADEA.
Betts contends that the legislative history of the ADEA
and long standing administrative regulations require that
employers justify any reduction in benefit levels for older
workers with proof that benefit costs increase with age.
These requirements apply to all plans regardless of the
date the plans were created. PERS failed to meet its
burden of coming forward with evidence of cost justifica-
tion in its response to Betts’ motion for summary judg-
ment. PERS was, therefore, correctly held liable for
violating the Act.
B. Legislative History Of § 4(f)(2) Of The ADEA And Its
Amendments Shows A Clear Congressional Intent That
Benefits May Be Reduced Only To The Extent The
Reduction Is Justified By Age-Related Cost Considera-
tions.
The legislative history of the § 4(f)(2) exception shows a
clear congressional intent that employee benefits, such as
the PERS disability benefits, were to be reduced only to
10
the extent that such reductions were justified by age-
related cost considerations. Without § 4(f)(2), an employer
that failed to provide older workers the same employee
benefits as younger workers would be in violation of the
ADEA even though the cost of benefits for the older
employee would be higher. Congress feared that, upon
passage of the ADEA, some employers might discrimi-
nate in hiring older workers because of these higher costs.
Section 4(f)(2) was intended to permit the employer to
reduce the older worker's benefits and, thus, equalize the
cost of benefits for younger and older workers without
violating the ADEA.
PERS argues that the § 4(f)(2) exception, which was
introduced to protect the older worker from hiring dis-
crimination, permits employers to save money by provid-
ing no disability benefits to the older worker. This would
provide an unintended benefit to employers who discrimi-
nate against older workers.
1. The Purpose Of The § 4(f)(2) Exemption To The
ADEA In 1967 Was To Benefit The Older Worker, Not
To Provide A Loophole For The Employer To Dis-
criminate.
The Administration bill to prohibit age discrimination
in employment was introduced in the Senate on February
3, 1967. As introduced, Section 4(f)(2) of S.830 had no
exception for employee benefit plans but instead
exempted only mandatory retirement which was not a
subterfuge to evade the purposes of the Act.
During the Senate hearings on age discrimination,
March 15-17, 1967, the U.S. Chamber of Commerce testi-
fied that if the ADEA were applied to certain employee
benefit plans, it might cause employers to discriminate in
hiring older employees. Two concerns were mentioned by
ll
this employer association. First, pension plans at the time
often required that an employee work twenty years before
he was vested in a retirement plan. The combination of
long vesting requirements and forced retirement meant
that workers hired after age 45 were usually excluded
from pension plans. Employers did not want the ADEA to
require any change in this arrangement. The second
employer concern involved health and life insurance plans
where variations in benefits for older workers were neces-
sary “by cost and actuarial considerations.”® These two
concerns were addressed specifically by Congress.
First, Congress decided not to tackle forced retirement
and vesting as part of the original ADEA legislation.
Those reforms came later. Congress limited the vesting
period for private pension plans to five years in 1974.®
Congress prohibited forced retirement in 1978.
PERS, selectively citing to legislative history, incor-
rectly argues that the purpose of the § 4(f)(2) exception
was to permit hiring of older workers without including
them in employee benefit plans. [PERS Br. 35-39]. No
such broad exclusion was ever endorsed by Congress in
1967. In fact, as set out above, the only exclusion debated
was in response to the employers who wanted to preserve
their long term vesting periods and mandatory retire-
ment.?
5 Age Discrimination in Employment: Hearings before the sub-
committee on labor of the Senate Committee on Labor and Public
Welfare on S. 830 and S. 788, 9th Cong. Ist Sess. 105-106 (State-
ment of Anthony J. Obadal, U.S. Chamber of Commerce).
® Employee Retirement Income Security Act of 1974 (ERISA), 29
U.S.C. § 1001 et seg. ERISA does not apply to state run pension and
benefit plans. See 29 U.S.C. § 1051.
7113 Cong. Rec. 31255 (Nov. 6, 1967), Legislative History 146.
(remarks of Senator Yarborough).
12
The second concern voiced by employers when the
ADEA was proposed was the impact of the Act on the cost
of benefits. Congress echoed this concern. During the
Senate hearings, sponsors of the bill stated that if employ-
ers were required to provide identical benefits to newly
hired older employees and younger employees, the higher
cost of benefits to older workers could cause the Act to
promote, rather than reduce, discrimination.
At the time the Senate voted on the Act in 1967, Sen-
ator Javits, who introduced the amendment giving
§4(f)(2) its final form, made the following statement by
way of introducing discussion of the benefit plan provi-
sions:
“The amendment relating to seniority systems and
employee benefit plans is particularly significant:
because of it an employer will not be compelled to
afford older workers exactly the same pension,
retirement, or insurance benefits as younger work-
ers and thus employers will not, because of the often
extremely high cost of providing certain types of ben-
efits to older workers, actually be discouraged from
hiring older workers.” (emphasis supplied)
113 Cong. Ree. 31,254-31,255 (Nov. 6, 1967), Legislative
History 145-146. Senator Javits’ statements about
s 4(f)(2) are entitled to great weight in defining Congress’
intent. See, e.g. Federal Energy Admin. v. Algonquin
SNG, Inc., 426 U.S. 548, 564 (1976) (a statement by one of
the legislation’s sponsors should be accorded substantial
Weight in interpreting the statute).
Section 4(f\(2) was drafted in general terms specifying
only that “employee benefit plans such as pension, retire-
ment and insurance plans” were to be exempt. From this
language it was apparent that some, but not all, employee
benefit plans were to be exempt. Congress made no
13
attempt to legislate in detail how §4(f)(2) was to be
applied to the numerous types of employee benefit plans
ranging from defined benefit pensions to profit sharing
plans, and including such diverse plans as sick leave,
disability, insurance, severance pay, and prepaid legal
services. Instead, Congress authorized the Department
of Labor (“DOL”) to issue regulations and establish rea-
sonable exemptions. Section 9 of the Act (29 U.S.C. § 628)
authorized the Secretary, in accordance with the Admin-
istrative Procedures Act, to:
“issue such rules and regulations as he may consider
necessary or appropriate for carrying out this Act,
and may establish such reasonable exemptions to
and from any or all provisions of this Act as he may
find necessary and proper in the public interest.”
(emphasis added)
It is clear that Congress intended the DOL to interpret
and apply §4(f)(2) exceptions te the multitude of
employee benefit plans in existence at the time.
The first DOL interpretations, 29 C.F.R. § 860.120,
were issued nearly contemporaneously with passage of
the ADEA. [24 F.R. 9709, June 21, 1969]. The cost and
benefit section of the regulations provided that an
employer was not required to grant older workers identi-
cal benefits as younger workers. The section also stated
that a plan would be in compliance where either the actual
payment made or the cost incurred was the same as for a
younger worker (equal benefits or equal cost). The regula-
tion met the concern of Congress by removing the mone-
tary incentive to discriminate in the hiring of older
workers. At the same time, the regulations met the pur-
pose of the ADEA “to prohibit arbitrary age discrimina-
tion in employment” and “to help employers and workers
l4
find ways of meeting problems arising from the impact of
age on employment.” Section 2(b), 29 U.S.C. §621(b).
2. The Legislative History Of The 1978 Amendment
Confirms The Congressional Intent That The
§ 4(f)(2) Excepiion Be Limited To Age-Based Cost
Justifications.
In 1976 and 1977, Congress held hearings on the ADEA
to eliminate mandatory retirement, raise the age cap on
private employment to 70, and eliminate the age cap
entirely for most federal employees. On October 12, 1977,
Senator Williams, of the Senate Committee on Human
Resources, submitted the committee report to accom-
pany H.R. 5383. The report addressed concerns that
raising the upper age cap to 70 and eliminating mandatory
retirement might have an adverse effect on the cost of
employee benefit plans:
Concerns were expressed regarding potential
increased costs for employee walle benefit plans
such as disability, health, life and other forms of
insurance for employees. Presently some employers
reduce coverage for older workers under these plans
or increase the required employee contribution as
workers advance in age. This bill would not alter
existing law with respect to these practices. Existing
principles of law, including the § 4(f)(2) bona fide
employee benefit plan exemption, as modified by
these amendments, would be the standard by which
these practices will be evaluated. (emphasis added)
S.Rep.No. 95-493, 95th Cong. Ist Sess. 5 (1977), U.S.
Code Cong. &"Admin. News 508, EEOC Legislative His-
tory 438. Congress clearly recognized that employers
were adhering to the cost-based principles of the DOL
regulations. When a Congress that reenacts a statute
voices its approval of an administrative interpretation,
Congress is treated as having adopted that interpreta-
-
15
tion, and courts are bound thereby. U.S. v. Bd. of Com’rs
of Sheffield, Ala., 435 U.S. 110, 134 (1.78).
Senator Williams, in reporting to the Senate, reiterated
the committee’s intention that DOL continue to use its
rulemaking powers to interpret and implement the
§ 4(f)(2) exceptions. 123 Cong. Rec. 34295 (Oct. 19, 1977),
EEOC Legislative History 482.
In United Air Lines, Inc. v. McMann, 434 U.S. 192,
201, n.7 (1977), this Court noted that legislative observa-
tions 10 years after passage of the ADEA are in no sense
part of the legislative history of the Act. At the time of
that observation, the 1978 amendments had not yet been
passed. However, committee reports and statements by
sponsors immediately preceding passage of the ADEA
Amendments of 1978, Pub. L. 95-256, 92 Stat. 198, are
very relevant to an understanding of the 1978 Amend-
ments.
Senator Williams, in introducing H.R. 5385, stated the
present intent of the 1978 amendments to § 4(f){2):
“The purpose of this exception is to facilitate the
hiring of older workers by permitting their employ-
ment without necessarily requiring an employer to
provide equal benefits to them under retirement,
insurance or disability benefit plans. Of course, there
must be some reason other than age which justifies
the unequal benefits.” (emphasis added)
122 Cong. Rec. 34295 (Uct. 19, 1977), Legislative History
482. Senator Williams added that “Section 4(f)(2) was
intended to permit and will continue to permit varying
coverage of workers in different age groups to reflect
those differences so long as they are based on valid
assumptions and applied in a nondiscriminatory mainer.”
16
(emphasis added) /bid., at 34295, EEOC Legislative His-
tory 482.
Following this Court’s decision in McMann and just
prior to passage of the 1978 Amendments, Congressman
Waxman spoke on the need for employers to have actu-
arial data to support different benefit levels. PERS has
quoted several snippets from Congressman Waxman’s
speech | Brief 43-44] distorting his intent. They are shown
below in full context:
I am hopeful, however, that employers do not ter-
minate capable and healthy older oo ers from bene-
fit plans solely on the basis of age. In the absence of
actuarial data which clearly demonstrates that the
costs of this service are uniquely burdensome to the
employer, such a policy constitutes discrimination
and a conscious effort to evade the i
8 ef urposes of the
act. 4
While the conference committee did not specifi-
cally address the status of health benefits to older
workers protected under this act, it is the intent of
this Congress to prevent both open and subtle forms
of age discrimination. Exceptions should only be
applied in the strictest sense and only with full justi-
fieation and cause. (emphasis added)
124 Cong. Ree. 7888 (Mar. 21, 1978), EEOC Legislative
History 535.
_ Congressman Pepper. chairman of the House Select
Committee on Aging and one of the principal authors of
H.R. 5383. urged his colleagues to approve the conference
report. stating:
The exception under section 4(f\(2) of the act is just
‘hat—an exception—and as such must be viewed in
the narrowest sense.
~ a =
17
For example, employers may offer health and life
insurance benefits to older workers that are different
from those of other employees. The original reason
for this exception was to promote the hiring of older
aoe. Passage of this act should not be construed
y any employer, or any court, to permit the sudden
total and unilateral termination of a capable and
healthy worker from a health, insurance or other
welfare benefit plan solely on the basis of age and
without full economic justification. (emphasis
added)
124 Cong. Rec. 7886 (Mar. 21, 1978), EEOC Legislative
History 532.
Senator Javits responded to employers’ concerns that
the 1978 amendments, which prohibited involuntary
retirement and raised the upper age from 65 to 70, might
increase costs for employee welfare benefit plans, such as
life, health, and disability programs. He noted that “some
plans currently reduce coverage for older workers” and
emphasized that:
[T]hese amendments do not change present law
regarding these practices.
* * *
The purpose of section 4(f)(2) is to take account of
the increased cost of providing certain benefits to
older workers as compared to younger workers.
Welfare benefit levels for older workers may be
reduced only to the extent necessary to achieve
approximate equivalency in contributions for older
and younger workers.
124 Cong. Rec. 8218, (March 23, 1978) EEOC Legislative
History 539. He added that the DOL intended to “promul-
gate comprehensive regulations in order to provide guid-
ance in this regard for sponsors of employee benefit
plans.” 124 Cong. Rec. 8219, EEOC Legislative History
18
d40. As set out below the agency regulations that have
guided employers covered by the Act have always
required cost based justifications in order to reduce bene-
fits as a worker grows older.
C. The PERS Disability Plan Violates EEOC Regulations.
1. The PERS Disability Plan Is In Clear Violati ;
C.P.R. § 860.120(f)(1 (iii), paereees
The PERS disability plan, which totally excludes work-
ers who become disabled after age 60, clearly violates 29
C.F.R. §860.120(f)(1)(ii) which deals exclusively with
long-term disability plans:
(W)here employees who are disabled at younger ages
are entitled to long-term disability benefite, there is
no cost-based justification for denying such benefits
altogether, on the basis of age, to employees who are
disabled at older ages... . Reduction on the basis of
age before age 70 in the level or duration of benefits
available for disability are justifiable on/ y on the
hasis of age related cost considerations as set forth
elsewhere in this section. (emphasis added)
The regulation permits age-based reductions in the
level of benefits under long-term disability plans only ~
where justified by age-related cost considerations. The
regulation also provides two additional approaches for
reducing benefits where such reductions can be justified
by age-related costs. The first method requires con-
°> C.F. R. $860). 120(f\ 1 iii), which was in effect when Betts was
denied disability benefits, was first issued by the DOL June 21 1979
34 FR. 9709). This regulation was redesignated 29 C FR.
* 1625. 10F\1 iii) by the EEOC in 1987 (52 FR. 23812, June 25,
wee au. f\ 1 iii) was revised to include
pe Rene on . A. i, — was redesignated 29 C.F_R.
19
tinuation of benefits for older workers but permits reduc-
tion in the level of benefits. The alternative is to pay full
benefits but for a reduced duration. The regulations also
provides for other patterns of reduction if supported by
cost data.
The PERS disability plan fails to comply with any of the
several methods provided by the regulations. Instead, the
PERS plan denies disability benefits altogether for those
disabled after age 60. This is in clear violation of
§ 860. 120(f)(1)(iii) which specifically prohibits cutting off
benefits altogether because of age.
2. The EEOC Regulations Have Guided Employers For
Twenty Years And Are Entitled To Great Deference.
Consistent and contemporaneous construction of a stat-
ute by the agency charged with its enforcement is entitled
to great deference. NLRB v. Boeing Co., 412 U.S. 67,
74-75 (1973), Chevron, U.S.A., Inc. v. Natural Resources
Defense Counsel, Inc., 467 U.S. 837 (1984); Griggs v.
Duke Power Co., 401 U.S. 424, 433-434 (1971). “Moreover,
such a contemporaneous construction deserves special
deference when it has remained consistent over a long
period of time.” EEOC v. Associated Dry Goods Corp.,
449 U.S. 590, 600 n.17 (1980). Courts give extra
authoritative weight to interpretative rules which are
made contemporaneously with the enactment of the stat-
~ute, which have been followed consistently over a long
period, or which were outstanding at the time of statutory
reenactment. 2 K.Davis, Administrative Law Treatise
§ 7.14 (2d ed. 1979); Skidmore v. Swift & Co., 323 U.S.
134, 140 (1944). For over 20 years the DOL/EEOC regula-
tions have consistently held that employee benefit plans
may reduce benefits to older employees only to the extent
20
the reductions can be justified by cost considerations and
the regulations have survived reenactment of the Act.
The regulations are entitled to deference because they
were issued contemporaneously both with the Act and
again with its Amendments. They have consistently artic-
ulated the “equal benefit or equal cost” principle since
first issued in 1969. Shortly after passage of the ADEA,
the DOL issued 29 C.F.R. § 860.120 [34 F.R. 9709, June
21, 1969] which interpreted § 4(f)(2). The cost and benefit
section, 29 C.F.R. §861.120(a), provided:
“Thus, an employer is not required to provide older
workers . . . the same pension, retirement or insur-
ance benefits as he provides to younger workers, so
long as any differential between them is in accor-
dance with the terms of a bona fide benefit plan. For
example, an employer may provide lesser amounts of
insurance a under a group insurance plan to
older workers than he does to younger workers,
where the plan is not a subterfuge to evade the pur-
poses of the Act. A retirement, pension, or insurance
plan will be considered in compliance with the stat-
ute where the actual amount of payment made, or
cost incurred, in behalf of an older worker is equal to
that made or incurred in behalf of a younger worker,
even though the older worker may thereby receive a
lesser amount of pension or retirement benefits, or
insurance coverage.” (emphasis added)
In 1978, when it amended the ADEA, Congress made it
clear that the DOL should issue more comprehensive
guidance with respect to § 4(f)(2), particularly because of
the increase in number of older workers expected as a
result of raising the coverage to age 70 and the prohibition
of mandatory retirement.
On September 22, 1978, the DOL published its pro-
posed amendment to § 860.120 and invited public com-
21
ment [43 F.R. 43264]. After considering numerous
written comments as well as testimony at a hearing on the
proposed amendment to § 860.120, the DOL revised its
original proposal and published its final regulation [44
F.R. 30658, May 25, 1979]. The regulation on long-term
disability plans, § 860.120(f)(1)(iii), was consistent with
the 1969 regulations in that it prohibited a complete cutoff
of benefits because of age and permitted only reductions
which could be justified by age-related costs.
The regulations are also entitled to deference because
Congress delegated to the DOL the authority to “to issue
such rules and regulations as it may consider necessary or
appropriate for carrying out this Act, and may establish
such reasonable exemptions to and from any or all provi-
sions of this Act as it may find necessary and proper in the
public interest.” Pub.L. 90-202, §9, 81 Stat. 602 (29
U.S.C. §628). The power granted to the DOL was far
more extensive than the authority to issue “procedural
rules” which Congress granted to the EEOC under Title
VII. 42 U.S.C. § 2000e-12. General Electric v. Gilbert 429
U.S. 125, 140-146 (1976). Moreover, even regulations
issued under the limited authority of Title VII are entitled
to great deference when issued contemporaneously with
the Act. Griggs, supra.
The regulations are further entitled to deference
because Congress has amended the ADEA to change the
effect of certain of these regulations while leaving
untouched the long term disability regulations. In 1982,
Congress disagreed with EEOC regulation § 860. 120-
(f)(1)(ii),? pertaining to health care benefits and amended
the ADEA “by requiring an employer to offer his employ-
% § 860. 120(f)(1)(ii) was removed following the 1986 amendments to
§ 4(g), 29 U.S.C. § 623(g). (53 FR. 5791, Feb. 29, 1988).
22
ees age 40 or over but under age 70 the
benefits offered the employer's heat. = “tee.
tion 4(i), 29 U.S.C. § 6230). P.L. 97-248, 1982 U.S. Code
Cong. & Ad. News 792-793. In 1986, Congress added § 4(i)
b.L. 99-509, § 9201 to make it unlawful to reduce pen
sion benefits because of age. The pension benefits a.
ment was prompted by an announcement by the EEOC
that it intended to rescind a subsection in 29 C.F_.R
§ 860. 120 which pertained to pension benefits and to issue
a new interpretation. U.S. Code Cong. & Admin. News
Legis. History 4023 (1982). Again, although Congress
was well aware of the EEOC regulations relating to di
ability plans, it made no changes in them paren:
Finally, the regulations are entitled to
because employers have relied upon aenal i
extent obeyed them, for over twenty years. Section tle) of
the ADEA, 29 U.S.C. §626(e), incorporates 29 U S.C
§ 259 of the Portal-to-Portal Act which states that em lo
om are = = to liability if they acted in me i
y written administrativ
wes Strative regulation, ruling, or inter-
C During the 1982 Senate hearings, the U.S. Chamber of
— recognizing the importance of the EEOC reg-
: ations in providing guidance to industry, went so far as
a — re a the then current regulations
| g to “bona fide employee benefit plans”
ing them part of the ADEA itself. stating: —
“The legislative history and t
— sulletin] have Hm to be enecading ding v hel “
-. In easing compliance by business with an = of
the 1978 amendments which could have —e
_ disruptive to employee benefit srvenqumen 4
spite their salutary effect, they do not offer —s
23
tainty since the 1.B. is not incorporated in the
ADEA.”
Hearing to Eliminate Mandatory Retirement: Hearings
on H.R. 6576 Before the Subcommittee on Em ployment
Opportunities of the House Committee on Education and
Labor, 97th Cong., 2nd Sess. 36 (1982) (Statement of
Robert T. Thompson, Chamber of Commerce of the
United States). Congress did not incorporate the regula-
tions into the Act. Instead, in 1982, the committee again
stated that it expected the DOL to establish regulations in
keeping with the amendments. U.S.Code Cong. &
Admin. News. Legis. History 793 (1982). Even, the Equal
Employment Advisory Council (“EEAC”), an employer
group which has filed an Amicus brief supporting PERS
in this case, has advised employers to rely on these reg-
ulations:
“(sjince the 1978 Amendments to the ADEA
extended ADEA protection to age 70, employers
may no longer engage in the common practice of
completely cutting off long-term disability benefits
for all disabled employees and long-term coverage for
all active employees at age 65. however, employers
may lawfully reduce long-term disability benefits for
older employees who are under 70 when such reduc-
tions are cost justified.” (emphasis added)!”
In summary, the regulations meet all of the tests for
deference. They are consistent with the legislative his-
tory, they were issued contemporaneously with the Act
and its amendments, and employers have relied upon
them for over 20 years.
10 AGE DISCRIMINATION IN EMPLOYMENT ACT: A Com-
pliance and Litigation Manual for Lawyers and Personnel Practi-
tioners p.339. Published by the Equal Employment Advisory Council
(1982).
24
Il. THE 1978 AMENDMENTS TO THE ADEA OVERTURNED
THIS COURT’S REASONING AND DECISION IN
McMANN THAT PRE-EXISTING PLANS WERE NOT A
SUBTERFUGE.
PERS argues that its disability plan is beyond the reach
of the ADEA solely because the plan was in existence
when the ADEA was passed. [PERS Br. pp.16-21]. It
relies upon this Court’s decision in McMann, which held
that a conceded “bona fide employee benefit plan” estab-
lished before passage of the ADEA which permitted
involuntary retirement could not be a subterfuge to evade
the Act. PERS argues that this Court's definition of “sub-
terfuge” makes its disability plan exempt under § 4(f)(2)
even though it would otherwise be in violation of the
ADEA. In effect, PERS argues that in passing the
ADEA, Congress intended to perpetuate all age-based
benefits discrimination then in effect.
A. The Legislative History Of The 1978 Amendments Shows
A Clear Intent To Reject This Court’s Definition Of Sub-
terfuge In McMann.
The legislative history of the 1978 Amendments to the
ADEA makes it abundantly clear that Congress not only
overturned this Court's decision in McMann but rejected
its definition of “subterfuge” as well. Congress specifically
stated that plan provisions in effect prior to enactment of
the ADEA were not exempt by virtue of the fact that the
plan predated the Act.
In 1977, when Congress was considering amendments
to the ADEA, it was aware of the three mandatory retire-
ment cases with conflicting reasoning and results; Bren-
nan Vv. Taft Broadcasting Co. , 500 F.2d 212 (5th Cir. 1974),
McMann v. United Airlines, 542 F.2d 217 (4th Cir. 1976)
25
and Zinger v. Blanchette, 549 F.2d 901 (3rd Cir. 1977).!!
In Taft Broadcasting, the Fifth Circuit ruled that a retire-
ment plan “effectuated far in advance of the enactment of
the law” could not be a subterfuge for evasion of the Act.
500 F.2d at 215. In contrast the Fourth Circuit, in
McManzn, ruled that forced retirement pursuant to a pre-
Act plan would be considered a “subterfuge” to evade the
purposes of the Act absent an employer's showing of a
legitimate business purpose for the age-based action. 542
F.2d at 220.
The Senate Report, accompanying the bill to amend
§ 4(f)(2), H.R. 5383, expressly rejected the Fifth Circuit's
reasoning in Taft Broadcasting that a pre-existing plan
could not be a subterfuge stating:
“The /Taft] court found the language of the section
unambiguous and refused to consider the legislative
history. /t concluded, erroneously in the committee's
view, that a plan could not be a subterfuge within the
meaning of the section 4(f)(2) if it was operative
before the effective date of the act. (emphasis added)
S.Rep. No. 95-493, (Comm. on Human Resources) 95th
Cong., lst Sess. 10 (1977), EEOC Legislative History
443.
In 1977, both Houses passed H.R. 5383 to amend
§ 4(f)(2) to prohibit involuntary retirement and sent the
bill to the Conference Committee to resolve differences in
other parts of the bill. While the bill was still in the
Conference Committee, this Court decided McMann,
holding that a bona fide retirement plan could not con-
11H.R. Rep. No. 95-527, Part I, 95th Cong. Ist. Sess. 5 (1977),
EEOC Legislative History 365 and S. Rep. 95-493, 95th Cong. Ist
Sess. 10 (1977), Legislative History 443.
26
stitute a subterfuge to evade the Act if the plan predated
the Act.
The Conference Committee, in its report to both
houses, disagreed with this Court’s reasoning in
McMann. The Conference Report, which was voted on
and approved by both Houses, stated that the amend-
ments were intended to overturn McMann:
“In McMann v. United Airlines, 98 S.Ct. 244
(1977), the Supreme Court held to the contrary,
reversing a decision reached by the Fourth Circuit
Court of Appeals, 542 F.2d 217 ((1976). The conferees
specifically disagree with the Supreme Court's hold-
ing and reasoning in that case. Plan provisions in
effect prior to the date of enactment are not exempt
under section 4(f)(2) by goo | the fact that they
antedate the act or these amendments.” (emphasis
supplied)
H.R. Conf. Rept. No. 95-950, p. 8 (1978), U.S. Code Cong.
& Admin. News p.529, EEOC Legislative History 519.
Since the Conference Report represents the final state-
ment agreed to by both houses of Congress, next to the
statute itself, it is the most persuasive evidence of con-
gressional intent. Demby v. Schweiker, 671 F.2d 507, 510
(D.C. Cir. 1981). See also, Nat. Ass'n of Greeting Card
Pub. v. U.S. Post Ser., 462 U.S. 810, 832 n.28 (1983)
(conference committee reports are entitled to great
weight). Congress, in approving the Conference Commit-
tee Report, made it abundantly clear that pre-existing
plans were not to be exempt because they predated either
the ADEA or the 1978 Amendments.
On the day the House agreed to the conference report,
Congressman Hawkins, one of che House Managers,
reported to the House:
27
“The conferees specifically disagree with the
Supreme Court's holding and reasoning in that case
[McMann], particularly its conclusion that an
employee benefit plan which discriminates on the
basis of age is protected by section 4( f)(2) because it
predates the enactment of the ADEA.” (emphasis
added)
124 Cong. Rec. 7881 (Mar. 21, 1978), EEOC Legislative
History 528.
The Senate also expressed its disapproval of this
Court’s decision in McMann. See remarks of Senator
Javits, 124 Cong. Rec. 8218 (Mar. 23, 1978) EEOC Legis-
lative History at 539 (“As stated in the conference report,
the ‘conferees specifically disagree with the Supreme
Court’s holding and reasoning in that case.’”) Following
debate, the Senate agreed to the conference report on
March 23, 1978, and the President signed the bill on April
6, 1978.
PERS’ argument [PERS Br. pp. 16-23], that Congress
intended only to overrule the result in McMann as to
involuntary retirement, is without merit. In circum-
stances similar to these, this Court has held invalid both
the reasoning and the holding of a decision “overtuned” by
Congress. In Newport News Shipbuilding & Dry Dock v.
EEOC, 462 U.S. 669 (1983), the Court construed the
Pregnancy Discrimination Act of 1978 which was passed
for the express purpose of overturning the decision in
General Electirc Co. v. Gilbert, 429 U.S. 125 (1975). In
Newport News, the Court rejected the argument that
Congress intended only to overrule Gilbert's result and
held that “Congress . . . unambiguously expressed its
disapproval of both the holding and the reasoning of the
court in the Gilbert Decision, 462 U.S. at 678 (emphasis
added).
28
Congress’ repudiation of the “holding and reasoning” of
McMann is entitled to the same effect here. As the House
and Senate Conference Committee Report recites in no
uncertain terms, “(p]lan provisions in effect prior to the
date of enactment are not exempt under § 4(f)(2) by virtue
of the fact that they antedate the act or these amend-
ments.”
. The Sixth Circuit, below, held that Congress, in pass-
ing the 1978 Amendments, repudiated this Court’s rea-
soning in McMann. Betts, supra, 842 F.2d at 694 {[A-4].
The Ninth and Tenth Circuits have ruled to the contrary.
Both circuits admitted that the legislative history of the
1978 Amendments demonstrates congressional intent to
overturn McMann. They claim that Congress failed to
accomplish that result, however, by not specifically draft-
ue ecm of subterfuge that would remove protec-
ion for pre-existing plans. EEOC v. County o
837 F.2d 420, 422 (9th Cir, 1988) and EEOC 2 Comite
Inc., 855 F.2d 682, 686 (10th Cir. 1988). This argument
disregards the fact that the DOL issued a specific defini-
tion of subterfuge as applied to employee benefit plans in
1979. 29 C.F.R. §860.120(d) [44 F.R. 30658, May 25
1979]. The 1979 DOL definition of subterfuge, 29 C.F.R.
§ 860.120(d), which is still in effect today at 29 C.FR.
§ 1625. 10( d), requires that lower benefits for older work-
ers be Justified by age-related cost considerations. See
EEOC v. City of Lebanon, 842 F.2d 1480, 1488-90 (3rd
Cir. 1988); Karlen v. City College of C hicago; 837 F.2d
314, 319 (7th Cir. 1988), cert denied, No. 87-1831. Relying
on the 197s ADEA amendments, however, the DOL reg-
ulations gave no protection to plans in effect prior to
passage of the ADEA. Further, Congress, fully aware of
the subterfuce regulation, has repeatedly amended the
ADEA hut nas not amended that DOL definition of sub-
terfuge.
29
This analysis of the two circuits also disregards the fact
that when this Court decided McMann, both houses had
already passed H.R. 5383 with similar wording as to
§ 4(f)(2) and the bill was in conference committee for reso-
lution of differences in other sections. The conference
managers, being limited to the matters in dispute, would
have exceeded their authority had they revised § 4(f)(2) to
include a definition of subterfuge.
PERS suggests that the legislative history of the 1978
Amendments should be ignored since Congress did not
specifically define subterfuge in the text of the 1978
Amendment. [PERS Br. p.22] The PERS position con-
flicts with the analysis by this Court of a similar problem
under § 4(f)(1) of the ADEA, 29 U.S.C. §623(f)(1) which
establishes a bona fide occupational qualification (BFOQ)
defense. See Western Airlines v. Criswell, 472 U.S. 400
(1985). Section 4(f)(1) of the ADEA had not been amended
in the 1978 Amendments. Nonetheless, this Court
reviewed the 1978 legislative history and noted that Con-
gress had endorsed an approach to BFOQ issues
developed by the Fifth Circuit in Usery v. Tamiami Trail
Tours, Inc., 531 F.2d 224 (5th Cir. 1976). Id. at 415. Those
same sources of legislative history relied upon by this
Court in Criswell establish Betts’ position here: that Con-
gress refuted the “reasoning” of the Fifth Circuit in Taft
Broadcasting Co. and of the Supreme Court in McMann,
and that it endorsed the decision of the Fourth Circuit in
McMann, which held that all employee benefit plans,
regardless of their temporal origin, must demonstrate a
legitimate business purpose to satisfy the “subterfuge”
standard of § 4(f)(2).
B Congress Did Not Intend To “Grandfather” Unlawful
Practices In Perpetuity
If Congress failed to overturn the reasoning of
McMann, as PERS argues, then plans existing at the
30
time Congress outlaws a practice are granted perpetual
immunity, and only new employers or employers with new
plans are required to obey the law.
This is clearly contrary to the intent of Congress. The
1967 Committee Reports of both houses expressly state:
“It is Important to note that [§ 4(f)(2)] applies to new and
existing employee benefit plans, and to both the establish-
ment and maintenance of such plans.”!2 See McMann 434
U.S. at 219 n. 13 (Marshall, J., dissenting).
When Congress makes a practice illegal but wishes to
“grandfather” existing practices, it does so explicitly and
with an expiration date. This is precisely what Congress
did in 1978 and 1986. In 1978, it provided that bargaining
agreements would not be affected by the 1978 amendment
to § 4(f)(2) until January 1, 1980 or the expiration date of
the agreement, whichever first occurred. Pub. L. 95-256,
92 Stat. 189. Bargaining agreements were likewise
“grandfathered” from compliance with the 1986 amend-
ments to §4(g)(1) (group health plans) until January 1,
1990. Pub. L. 99-592. There is nothing in the remainder of
the 1978, 1982, 1984 or 1986 amendments nor in their
legislative history to indicate that empioyee benefit plans
in existence at the time of the amendments effective dates
were to be exempt other than as noted above.
As noted above, in 1978, 1982, 1984 and 1986, Congress
amended the ADEA to prohibit practices which pre-
viously had been legal. In 1978, it amended Section 12: 29
U.S.C. $631 to prohibit discrimination against employees
aged 65-69. Pub.L. 95-256, 92 Stat. 189, 190. In 1982, it
‘H.R. Rep. No. 805, 90th Cong. Ist Sess. p.4 (1967), EEOC
Legislative History 74; S. Rep. Ne. 723, 90th Cong. Ist Sess. p. 4
(1967) EEOC Legislative History 105, U.S. Code Cong. & Admin.
News. 1967, p. 2217.
31
added Section 4(g); 29 U.S.C. 623(g) to provide that
employees age 45-69 were to be entitled to the same group
health plan coverage as younger employees and in 1984
Section 4(g) was amended to extend the same coverage to
spouses of employees age 65-69. Pub. L. 97-248, 96 Stat.
353 and Pub. L. 98-369, 98 Stat. 1063. In 1986, Congress
amended the Act to remove the age 70 cap and to prohibit
certain discriminatory pension plan practices. Section
4(i), 29 U.S.C. 623(i); $11, 29 U.S.C. §631, Pub.L.
99-592, 100 Stat. 3342 and Pub. L. 99-709, 100 Stat. 1973.
If the McMann reasoning that pre-existing plans are
exempt under § 4(f)(2) has not been overturned, as PERS
claims, then not only are pre-1967 employee benefit plans
free to discriminate but employee benefit plans existing
when the 1978, 1982, 1984, and 1986 amendments were
passed are exempt from those changes in the ADEA as
well. Companies with pre-existing plans that would be
permitted to discriminate would have a competitive edge
over companies with newer plans who would have to com-
ply with the ADEA. Furthermore, there would be no
incentive to modify or improve their plans since pre-
existing plans would then lose their exception.
Congress clearly did not intend such absurd results. In
1978, it stated that “[p]lan provisions in effect prior to the
date of enactment are not exempt under § 4(f)(2) by virtue
of the fact they antedate the act or these [1978] amend-
ments.” H.R. Conf. Rep. No. 950, p. 8 (1978), EEOC
Legislative History 519. It is obvious that in enacting
subsequent amendments in later years, Congress
expected existing plans to conform.
Other employers and benefit plan administrators across
the country have been conforming pre-existing plans to
these amendments and the EEOC regulations. PERS
should be required to do so as well.
32
ll. REXRDLESS OF THE EFFECT OF THE 1978 AMEND-
MENTS TO THE ADEA ON McMANN, THE PERS
DISABILITY PLAN IS NOT EXEMPT UNDER § 4(f)(2).
A. Depriving Betts of PERS Disability Benefits Resulted
In Her Involuntary Retirement In Violation of § 4(f)(2).
By denying Betts disability retirement benefits
because of her age, PERS forced her into involuntary
retirement.
Under Ohio law, a person receiving disability benefits is
still considered an employee with important reemploy-
ment rights. A disability recipient is placed on a leave of
absence for five years. The recipient has a guaranteed
right to return to his job if he should recover within that
period.'*A person on service retirement has no such
guaranteed reemployment rights. Thus, forcing Betts
into service retirement instead of granting her access to
the disability plan terminated her from employment. On
disability, Betts would still be an employee today, on leave
of absence status, with mandatory reemployment rights
should she recover.
In 1978, Congress amended the ADEA to specifically
prohibit involuntary retirement by adding to § 4(f)(2):
“except that no such employee benefit plan. . . shall
require or permit the involuntary retirement of any
individual specified by section 631(a) of this title
because of the age of such individual.”
Section 2(a) of the ADEA Amendments of 1978, Pub. L.
95-256, 92 Stat. 189, 29 U.S.C. §623(f)(2). Thus, the
'SO.R.C. § 145.39 provides: “A disability retirant shall retain his
membership status. Also, he shall be considered on leave of absence
from his position of employment during his first five years on the
retired list, notwithstanding any contrary provisions in this chapter.”
33
§ 4(f)(2) defense is not available to PERS because the
disability plan caused or permitted Betts involuntary
retirement.
This Court, in Trans World Airlines, Inc. v. Thurston,
469 U.S. 111 (1985), applied the 1978 amendment and held
that by depriving TWA pilots over age 60 of the option of
transferring to flight engineer, an option that was avail-
able to younger pilots, the TWA seniority system forced
involuntary retirement in violation of § 4(f)(2). Likewise,
by depriving Betts of participation in the disability plan
which included the right to return to her old job, an option
that was available to younger employees, the PERS dis-
ability plan forced her into retirement in violation of
§ 4(f)(2). See also, EEOC v. Westinghouse Corp. (West-
inghouse I), 725 F.2d 211, 223 n.8 (3rd Cir. 1983), cert.
denied 469 U.S. 820 (1984) (Denial of layoff benefits to
employees age 55 or older which resulted in loss of recall
rights might constitute involuntary early retirement).
Writing in an Amicus, the California State Teachers’
Retirement System has cited to legislative history which
suggests that the 1978 amendment to the Act was
designed only to prevent the forced retirement of able-
bodied workers, those who were otherwise able to per-
form their duties. Congress wanted to make sure that the
ADEA did not prevent employers from removing incom-
petent workers from the job. That is not the issue here.
June Betts does not challenge her termination from her
status as a full-time employee. Rather, she contests her
forced termination from employment status altogether,
specifically from the leave of absence status she should |
have had as a participant in the disability plan. She was
fully qualified for a leave of absence under the PERS
disability benefits plan which would have given her five
years of reemployment rights. She was denied those ben-
34
efits because of her age, however, and forced to take
service retirement. This type of forced retirement is pro-
hibited by § 4(f)(2).
As the District Court below recognized, “plaintiff was
presented with a choice of early retirement or nothing (a
livelihood or none)” and therefore “plaintiff was forced
into retirement because of her age.” Betts, supra, 631
F.Supp. at 1205 [A-30]. The Sixth Circuit agreed, describ-
ing the effect of the disability plan as “forcing length of
service retirement.” Betts, supra, 848 F.2d at 694 [A-5].
B. The PERS Plan Is Not A Pre-ADEA Plan Because Of
Significant Post-Act Modifications.
PERS argues that because its plan was in existence
years before the ADEA it is permitted to continue its
discriminatory practices, citing this Court's decision in
McMann. [PERS Br. pp.16-21]. As set out above, that
argument is incorrect in light of congressional actions
overturning McMann. Moreover, that argument has no
relevancy to the facts in this case because the Ohio legis-
lature made significant and relevant changes to the PERS
disability and retirement plans in 1976 and 1981.
While McMann held that a plan in existence prior to
the passage of the ADEA could not be a subterfuge to
evade the purposes of the Act, the clear implication was
that significant changes to a plan after passage of the
ADEA could be a subterfuge. The circuits are unanimous
in agreeing that a Pre-ADEA plan that is modified after
passage of the ADEA can be a subterfuge if the change is
relevant.'4 The Sixth Circuit, below, did not reach this
'4 See, Cipriano v. Board of Educ. of City School Dist., 785 F.2d
51, 58 (2nd Cir. 1986), Sikora v. American Can Co., 622 F.2d 1116,
1124 (3rd Cir. 1980), EEOC v. Baltimore and Ohio R. Co., 632 F.2d
1107, 1112 (4th Cir. 1980), Smart v. Porter Paint Co., 630 F.2d 490,
495 (7th Cir. 1980), EEOC v. Orange County, 837 F.2d 420, 423 (9th
Cir. 1988), and EEOC vy. Cargill, 855 F2d 682, 686 n.4, (10th Cir.
1988).
35
issue because it ruled that Congress had overruled
McMann.
After ADEA became law in 1967, it was amended in
1974 to bring state and local governments under its ambit.
Since 1974, PERS has made changes to the plans nearly
every year, several of which have significantly disadvan-
taged employees who become disabled after age 60.
Prior to 1976, the calculations of benefits for disability
retirement and service retirement were similar. [PERS
Br. p.5). However, in 1976, the Ohio legislature amended
§ 145.36 to put a floor under disability benefits so that no
one with 5 years service who became disabled would ever
receive benefits of less than 30% of their Final Average
Salary (FAS).'5 No similar floor was added to service
retirement. When Betts became disabled she was denied
this 30% minimum solely because she was 61 years old.
She received $158.50 per month on service benefits as
opposed to the $355.02 per month she would have received
on disability benefits.
There can be no doubt that the 1976 change to the
PERS disability plan was relevant and significant. It is
that very change that causes Betts to be paid nearly $200
per month less than workers with identical service years
who became disabled before age 60.
The second modification occurred in 1981 when the
service retirement plan was amended to require 10 years
of service credit in order for service retires to be eligible
for group hospital and medical benefits.'® This 10 year
service credit requirement did not apply to employees
‘5 Ohio Revised Code § 145.36 with the 1976 changes is printed in
full on A-1 of Appellee'’s Motion to Affirm.
‘6 Ohio Revised Code § 145.58. The effective date of this change
was delayed five years and did not adversely affect appellee.
36
eligible for disability benefits. Thus, the disabled, who are
in greatest need of hospital and medical benefits, are
denied these indispensable services because of their age if
they become disabled after age 60 and have less than 10
years of service credit. The 1981 amendment to O.R.C.
§ 145.58 coupled with the age disqualification of the dis-
ability plan combine to deprive disabled members of hos-
pital and medical benefits solely on the basis of their age.
These two changes following passage of the ADEA,
deprive many public employees who become disabled
after age 60 of the 30% minimum benefit and of hospital
and medical benefits.
If, in fact, the PERS disability plan was exempt
because it was in existence when the ADEA was passed in
1967, this exception was lost when PERS made signifi-
cant changes in 1976 and 1981 which adversely affect
benefits for employees who became disabled after age 60.
37
CONCLUSION
This Court should affirm the decision of the United
States Court of Appeals for the Sixth Circuit.
Respectfully submitted,
RosBertT F. LAUFMAN
Counsel of Record
Laufman, Rauh & Gerhardstein
1409 Enquirer Building
617 Vine Street
Cincinnati, Ohio 45202
(513) 621-9100
ALPHONSE A. GERHARDSTEIN
Laufman, Rauh & Gerhardstein
1409 Enquirer Building
617 Vine Street
Cincinnati, Ohio 45202
(513) 621-9100
Attorneys for Appellee
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