Amicus Curiae Brief — Public Employees Retirement System of Ohio v. Betts

" Boprerea Court, us.

ErLiop

DEC 14 1988

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO,

Appellant,

V.

JUNE M. BETTs,

Appellee.

On Appeal from the United States Court of Appeals

for the Sixth Circuit

BRIEF FOR THE NATIONAL PUBLIC

EMPLOYERS LABOR RELATIONS ASSOCIATION

AS AMICUS CURIAE SUPPORTING APPELLANT

Of Counsel: GLEN D. NAGER

JAMES BAIRD (Counsel of Record)

SEYFARTH, SHAW, ANDREW M. KRAMER

FAIRWEATHER & GERALDSON M. LANE HOWELL

55 East Monroe Street JONES, DAY, REAVIS & POGUE

Suite 4200 1450 G Street, N.W.

Chicago, Illinois 60603 Washington, D.C. 20005-5701

(312) 346-8000 (202) 879-3939

~ Counsel for Amicus

WILSON - Eres PRINTING Co.. INC. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Whether a retirement program’s denial of disability

retirement benefits to employees age 60 and over ‘and

provision instead of only early or regular retirement

benefits) must be justified by age-related cost factors in

order to qualify for protection under the “bona fide

employee benefit plan” exemption of § 4/f)‘2) of the

Age Discrimination in Employment Act of 1967, 29

U.S.C. § 623/f) 12).

r-—.

TABLE OF CONTENTS

TABLE OF AUTHORITIES ........... séisieclsiaandndmnmemacbeaanta

INTEREST OF THE AMICUS ..............<........2..<ccc<es00s--

TP ATTRRNG IG Eo occccoccevecsiscsscsnsssewsssmnecesaminncneneamseuniaiaaamaan

SUMMARY OF ARGUMENT .......0022..2........2ceceeccceeeeeeeees

ARGUMENT

AN AGE-BASED VARIANCE IN EMPLOYEE

BENEFITS NEED NOT BE JUSTIFIED BY

AGE-RELATED COST FACTORS IN ORDER TO

QUALIFY FOR PROTECTION UNDER THE

“BONA FIDE EMPLOYEE BENEFIT PLAN”

EXEMPTION OF § 4(f) (2) OF THE ADEA........

A. An Age-Related Cost Justification Limitation

Cannot Be Derived From Or Reconciled With

Tre Stetutery EARNED q..cudciceneen

B. An Age-Related Cost Justification Limitation Is

Inconsistent With The Legislative History Of

And The Legislative Purpose For The § 4(f) (2)

ERO IID asiscnnexiicconcesenscnnicnsse dunes scesinassiiadada

CONCLUSION

(iii)

Page

iv

TABLE OF AUTHORITIES

CASES Page

Alford v. City of Lubbock, 664 F.2d 1263 (5th

Cir.), cert. denied, 456 U.S. 975 (1982) ............ 9, 10

American Tobacco Co. v. Patterson, 456 U.S. 63

I in asciestiesietonentisetncasiananbnsannonoomaneseoucaneoees 16

Bodnar v. Synpol, Inc., 843 F.2d 190 (5th Cir.),

cert. denied, 57 U.S.L.W. 3280 (U.S. Oct. 13,

I 5 as i dacnsaeebienbisenpenatonmpeenmeesccmanennesiians 14

Brennan v. Taft Broadcasting Co., 500 F.2d 212

I II ca sccelsatiascaeneiunagedeesuseomncniamianeiunetes 9

Burns v. Aleala, 420 U.S. 575 (1975) |.............-..--- 7

California Brewers Ass’n v. Bryant, 444 U.S. 598

IIR oa cccascsiaasnnslindnnntivtntsinesnaremecdinassincosentenmareoes 8

Crosland v. Charlotte Eye, Ear & Throat Hosp.,

686 F.2d 208 (4th Cir. 1982) ................................. 15

Donovan v. Anheuser-Busch, Inc., 666 F.2d 315

I I os ccncecirnsceninnasaeosesnopesnrwnoecen~seomee 9

EEOC v. Borden’s Inc., 724 F.2d 1390 (9th Cir.

Re ae eagimedidanioniinenconenns 10

EEOC v. Cargiti, Inc., 855 F.2d 682 (10th Cir

eek aes ssapnpnbiantesingsninantonaates 15

EEOC v. City of Mt. Lebanon, 842 F.2d 1480 (3d

te cenasiannnnapensevrennneneee 16

EEOC v. County of Calumet, 686 F.2d 1249 (7th

I eceeemspnouensaniaawen 15-16

EEOC v. County of Orange, 83 37 F.2d 420 (9th

a ehaninsiniiaenpepnetene 15

EEOC v. Fox Point-Bavside School Dist., 772 F.2d

ee en WI OUD ss setecrcsnnesnnseearsacensons 16

EEOC v. Home Ins. Co., 672 F.2d 252 (2d Cir.

een 5 cinedeaienibbepenbennecooueenont 14

EEOC v. Westinghouse Elec. Corp., 725 F.2d 211

(3d Cir. 1983), cert. denied, 469 U.S. 820

Re 2, Ge SES Reet, 9, 30

Fort Halifax Packing Co. v. . Coyne, 107 S. Ct. 2211

eee hat ASS Oe 8, 9-10, 11

Germann v. Levy, 553. F. Supp. TOO (N.D. Mil.

a paicantensandabsdeniaunnennneteoeenns 16

i lta AE Ne! ae

= V

TABLE OF AUTHORITIES—Continued

Page

Graczyk v. United Steelworkers, 763 F.2d 256

(7th Cir.), cert. denied, 474 U.S. 970 (1985)... 16

Griggs v. Duke Power Co., 401 U.S. 424 (1971)... 16

Harrison v. PPG Indus., Inc., 446 U.S. 578

aS Se a tase aE Ce a rot FRE ene 7

Henn v. National Geographic Soc’y, 819 F.2d 824

(7th Cir.), cert. denied, 108 S. Ct. 454 (1987)... 14

Karlen v. City Colleges, 837 F.2d 314 (7th Cir.),

cert. denied sub nom. Cook County College

Teachers Union, Local 1600 v. City Colleges of

Chicago, 108 S. Ct. 2038 (1988) .........0000 13-14

Lorillard v. Pons, 134 U.S. 575 (1978) leceueee BPS

Perrin v. United States, AAA U.S. 37 (1979) . rare 7

— v. New York Shipping Ass'n, 804 F.2d

235 (2d Cir. 1986), cert. denied, 107 S. Ct. 1955

(1987) . iy slaadliuaad 15

Shea v. Vialpando, ‘416 US. “251 (1974) .. at a 7

Trans World Airlines, Inc. v. Hardison, 432 U.S.

Sr a 16

Trans World Airlines, Inc. v. Thurston, 469 U.S.

x REET SOMES 2 EEE RRR A AA IT ... 13-14

United Air Lines, Inc. v. McMann, 434 U.S. 192

ENE eS a Pa Oe Pe See STAT passim

STATUTES AND REGULATIONS

Age Discrimination in Employment Act of 1967

(“ADEA”), § 4(a) (1), 29 U.S.C. § 623 (a) (1).-4, 6, 10

ADEA, § 4(f) (2), 29 U.S.C. § 623(f) (2) —....passim

Davis-Bacon Act of 1931, 40 U.S.C. § 276a(b) ....... 12

Employee Retirement Income Security Act of

1974 (“ERISA”), 29 U.S.C. §§ 1001 et seq. ...... 8

ERISA, 29 U.S.C. § 1002(1) ..........0..0.0000.00..cc.. 11

ERISA, 29 U.S.C. § 1002 (2) (A) ...00 oe. 10-11

ERISA, 29 U.S.C. § 1002(3) ..2......222..002.0002 10

Fair Labor Standards Act of 1939, 29 U.S.C.

a a SI RE Se TSE A A 12

Fair Labor Standards Act Amendments of 1966,

P.L. No. 89-601, 80 Stat. 830 ..............000..0000000.. 19-20

vi

TABLE OF AUTHORITIES—Continued

Page

Service Contract Labor Standards Act of 1965,

GE UE FAKS, Ge BR, SR GP CED occ vecicccicccccecececcsnsiccenesess 12

Welfare and Pension Plans Disclosure Act of

1958 (“WPPDA”), 29 U.S.C. §$§ 301-309 (re-

pealed), reprinted in 1958 U.S. Code & Admin.

a III: III, ako cocinstensesntacncssadsderetabvctndcievssess 12

WPPDA, 29 U.S.C. § 303 ..................... cenaitataatiie’ 12

WPPDA, 29 U.S.C. § 303 (a) (1) -..0022202.- ee. 12

42 U.S.C. § 2000e-14 (repealed) _................22.......22.... 18

29 C.F.R. § 860.120, 34 Fed. Reg. 9709 (June 21,

BIT oy Te MEE RSE Be ALEe Weee Ae ees a een 14

et BR G8.) eee rennet nee 9

SE EEE a es Pee See 10-11

LEGISLATIVE MATERIALS

S. 1103, 90th Cong., Ist Sess. (1967) 0.0000. 23-24

H.R. Rep. No. 805, 90th Cong., Ist Sess. (1967),

reprinted in EEOC Legislative History of the

Age Discrimination in Employment Act of 1967

(“EEOC Legislative History”), at 74 ............... 25, 26

S. Rep. No. 723, 90th Cong., Ist Sess. (1967),

reprinted in EEOC Legislative History, at 105.. 26

A Review of Measures Taken to Aid the Older

Americans and Recommendations for Legisla-

tion to Provide Further Aid, 113 Cong. Rec.

1089-90, 90th Cong., Ist Sess. (1967), reprinted

in EEOC Legisiative History, at 60 000000... a 20

Age Discrimination in Employment: Hearings on

H.R. 2651, ALR. 2768, and H.R. 4221 Before the

General Subcommittee on Labor of the House

Committee on Education and Labor, 90th Cong.,

Ist Sess. (Aug. 1, 2, 3, 15, 16 and 17, 1967) _...... 24-25

Age Discrimination in Employment: Hearings on

S.830 and S.788 Before the Subcommittee on

Lahor of the Senate Committee on Labor and

Public Welfare, 90th Cong., 1st Sess. (March

PS, TEE bocctensdincminscbciebickadiadditeassesadaslanbl 20-21, 22, 24

vii

Page

The Older American Worker: Age Discrimination

in Employment, Report of the Secretary of La-

bor to the Congress Under Section 715 of the

Civil Rights Act of 1964 (1965), reprinted in

EEOC Legislative History, at 16... 18, 19-20

Research Materials Accompanying the Secretary

of Labor’s Report (1965) .................................. 19

113 Cong. Rec. 2794 (Feb. 7,-1967), reprinted in

EEOC Legislative History, at G8 20

113 Cong. Rec. 7076 (March 16, 1967), reprinted

in EEOC Legislative History, at 71 23

113 Cong. Rec. 7077 (Marck 16, aes reprinted

in EEOC Legislative History, at 72 .............7... 23

113 Cong. Rec. 31255 (Nov. 6, 1967), reprinted in

FEOC Legislative History, at 116 27

113 Cong. Ree. 341710 (Dec. 4, 1967), reprinted in

EEOC Legislative History, at 151... 27-28

115 Cong. Ree. 34745 (Dec. 4, 1967), reprinted in

EEOC Legislative History, at 156 28

113 Cong. Ree. 31750 (Dee. 4, 1967), reprinted in

EEOC Legislative History, at 161. 28

MISCELLANEOUS

Basic Patterns: Collective Bargaining Negotiations

and Contracts (BNA) No. 1968, at 48:2 (May 8,

gt SR AEE TENS BLT A ENR EL he oO MENG 30

Basic Patterns: Income Maintenance, Collective

Bargaining Negotiations and Contracts (BNA)

No. 1067, at 43:4 (Apr. 21, 1986) 30

Fiundamenials of Employee Benefit Programs 2

(Employee Benefit Research Institute, 3d ed.

1967) 7-8

M. Greene, The Role of Employee Ben ne efit Strue-

tures in Manufacturing Industry (19641)... 8

M. Wermel & G. Beideman, Employee Benefit Pro-

grams (1957) ce SRR 2d EM ON A a 8

Major Collective Bargaining Agreements: Sever-

ance Pay and Layoff Benefit Plans, U.S. Dept.

of Labor, Bulletin No. 1125-2 (1965), at 23... 39

Vili

TABLE OF AUTHORITIES-—Continued

Note, Federal Age Discrimination in Employment

Act: The Pension Plan Exception After Me-

Mann and the 1978 Amendments, 54 Notre

Re eee

Successful Employee Benefit Plans (Prentice-Hall,

Sn A a eleneieetianeliiidenigmemsenaie

The Total Approach to Employee Benefits (A.

SCID: ITTDD sccscrccnserscsassiansnecseiansinsiiiaateiindadimentneentinn

Websters Il Riverside University Dictionary

(1984) ........ a Oe

Page

ees - ote nee Om

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No. 88-389

PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO,

" Appellant,

JUNE M. BETTs,

Appellee.

On Appeal from the United States Court of Appeals

for the Sixth Circuit

BRIEF FOR THE NATIONAL PUBLIC

EMPLOYERS LABOR RELATIONS ASSOCIATION

AS AMICUS CURIAE SUPPORTING APPELLANT

INTEREST OF THE AMICUS!

The National Public Employers Labor Relations Asso-

ciation (“NPELRA”), a non-profit association organized

under the iaws of Illinois, represents 2,300 labor rela-

tions and personnel professionals who work on behalf of

states, counties, cities, and special governmental districts

throughout the United States. Many of these govern-

mental entities maintain, and many of NPELRA’s mem-

bers are involved in administering, regular and early

retirement plans, disability retirement plans, and other

' Counsel for both parties have consented to the filing of this

amicus brief. Their consents have been filed with the Clerk of this

Court.

2

types of employee benefit plans. Some of these benefit

plans are negotiated with representatives of employee

groups; others are created by state and or local law and

regulation. Thus, the resolution of the issue presented in

this case—involving whether a_ retirement program’s

denial of disability retirement benefits ‘but not early or

regular retirement benefits) to employees age 60 and

over must be justified by age-related cost factors to qual-

ify for protection under § 4(f)(2) of the Age Discrimi-

nation in Employment Act of 1967 (“ADEA”), 29

U.S.C. §623:1f)(2)—is of significant interest to

NPELRA and its members.

STATEMENT

1. The Public Employees Retirement System of Ohio

(“PERS”) entitles public employees who satisfy certain

eligibility conditions to receive monthly retirement bene-

fits upon the termination of their employment. J.S. App.

AS’, A%. A regular retirement pension is available to

any employee who has attained the age of 70; an early

retirement pension is available to any employee who is

age 60 or over and has five or more years of service.

J.S. App. A31-A32. A disability pension is available to

any employee who has at least five years of credited

service and has become physically unable to perform the

requirements of her job. J.S. App. A3, A9. An employee

is ineligible for the disability pension, however, if she is

age 60 or over, or is receiving another disability retire-

ment benefit from any Ohio state or municipal program.

J.S. App. A9. The statutory age limitation on receipt of

disability retirement benefits under PERS has existed

since 1933. J.S. App. A3. In 1976, Ohio amended the

statute to provide that the disability pension would equal

or exceed 30° of an employee’s final average salary.

J.S. App. A24.

2. In June 1985, June Betts, a 61-year-old employee

of the Hamilton Ceunty Board of Mental Retardation

3

and Developmental Disabilities ‘“HCBMRDD”), became

disabled and could no longer perform work-related duties.

J.S. App. A21, A23. HCBMRDD advised Betts that, un-

less she elected reguiar retirement, it would be forced to

place her on unpaid medical leave. J.S. App. A23. Betts

applied to PERS for the mere valuable disability retire-

ment benefits,” but PERS told her that she was ineligible

for those benefits because of her age. Ibid. Betts then

elected both to receive early retirement benefits ‘plus

health benefits) and te file suit under the ADEA, claim-

ing that the State had compelled her to retire by denying

her disability retirement benefits. bid.

3. On cross-motions for summary judgment, the dis-

trict court held for Betts. J.S. App. A20-A34. Although

it agreed that the plan was “eminently just” since it pro-

vide’ benefits to persons who would “otherwise have no

source of income during their disability,” it found that

the plan discriminated against older workers on the basis

of age. J.S. App. A25-A26. Moreover, it rejected PERS’

argument that the “bona fide employee benefit plan”

exemption in §4/f1'‘(2) of the ADEA, 29 U.S.C. § 623

(f' (2), protected the disability retirement provision,

finding that the age limitation on eligibility for disability

retirement benefits was not justified by significant age-

related cost considerations and, therefore, that the pro-

gram was not the “type of plan” contemplated in the

exemption. J.S App. A29. The court went on to hold

that, by limiting Betts to a choice between regular re-

tirement and unpaid medical leave HCBMRDD and

PERKS had constructively discharged, and thus involun-

tarily retired, her in violation of § 4(f) (2)’s express pro-

hibition. J.S. App. A30.

* Because it had to equal at least 30°) of Betts’ final average

salary, the disability retirement benefit for Betts would have

equalled $355.02 per month. The early retirement benefit, which

included no minimum benefit guarantee, equalled only $158.50 per

month. J.S. App. A24.

4

4. A divided panel of the Sixth Circuit affirmed.

J.S. App. A2-A19. It began by noting that, under § 4

(a) (1) of the ADEA, 29 U.S.C. § 623(a)(1), an em-

ployer “may not use age as a basis on which to discrim-

inate against an employee in the compensation, terms,

conditions, or privileges of employment.” Jd. at A4. It

further noted that, “[w]hen there is direct evidence that

a benefit plan discriminates on the basis of age, the plan

is unlawful unless it falls within the bona fide employee

benefit plan exception of 29 U.S.C. § 623(f)(2)” and

that, in amending this exception in 1978, “Congress ex-

pressly repudiated [this] Court’s decision and reasoning

in United Airlines v. McMann, 434 U.S. 192 (1977),

which held that a bona fide benefit plan that treated

older employees differently and predated the Act need

not be justified by any busi..ess purpose.” J.S. App. A4.

The court then concluded that, “[i]n light of this legis-

lative intent,” it had to “agree” with the district court

that “ ‘the critical factor in [the] determination of

whether defendants’ plan is the type of plan exer »ted

is whether it is based upon age-related cost factors’ ”

(ibid. (citation omitted) ).

Citing federal regulations and two courts of appeals’

decisions, the court explained that, “[u|nder the Act, an

age-based benefit plan which denies disability retirement

to older employees in favor of forcing length of service

retirement is unlawful unless it can be justified by a

substantial business purpose.” J.S. App. A5. The court

then found that the plan could not be justified by any such

business purpose, because, “{d]espite having every op-

portunity, the defendants declined to introduce any cost

figures or other economic justification.” J.S. App. A6.

Thus, without addressing the district court’s constructive

discharge and involuntary retirement findings, the court

affirmed.

5

SUMMARY OF ARGUMENT

The court below held that, in order to qualify for the

exemption of § 4/f) (2) of the ADEA, an age-based vari-

ance in employee benefits must be justified by age-related

cost considerations. This age-related cost justification lim-

itation on § 4/f) (2) cannot be squared with the language

or legislative history of the statute.

The language of § 4/f)(2) indicates that Congress

intended the exemption to cover the gamut of employer-

sponsored fringe benefit programs. In terms of. ordi-

nary English usage, industrial practice, and legisla-

tion in existence at the time of enactment, the phrase

“any bona fide employee benefit plan” plainly refers to

any and all ongoing administrative programs for the

provision of non-wage and non-salary compensation. The

“such as” phrase that modifies the phrase “any bona fide

employee benefit plan” merely provides examples of such

employee benefit plans. The “subterfuge” phrase that

modifies the phrase “any bona fide employee benefit

plan” requires inquiry into the employer's subjective in-

tent. and thus cannot be the statutory touchstone for an

objective, age-related cost justification limitation on

$4(f1 (2).

The legislative history confirms this understanding of

the statutory language. It shows that Senator Javits

proposed the enacted language both because he believed

that a broad exemption was necessary to encourage the

hiring of older workers and because he believed that

regulation of employee benefit plans was a complicated

subject meriting an entirely distinct and comprehensive

statutory scheme. Indeed, he brought to his colleagues’

attention the fact that he had recently introduced a bill

to create such a distinct and comprehensive statutory

scheme, and this bill defined the phrase “emplovee benefit

plan” to encompass the gamut of employer-sponsored

fringe benefit plans. The legislative history further indi-

cates that Congress understood the meaning, purpose, and

6

intended breadth of Senator Javits’ proposal, and that,

on this understanding, Congress chose to enact Senator

Javits’ proposal, rather than the express age-related cost

justification limitation proposal of Senator Smathers, or

the case-by-case “arbitrariness” approach of the John-

son Administration.

ARGUMENT

AN AGE-BASED VARIANCE IN EMPLOYEE BENE-

FITS NEED NOT BE JUSTIFIED BY AGE-RELATED

COST FACTORS IN ORDER TO QUALIFY FOR PRO-

TECTION UNDER THE “BONA FIDE EMPLOYEE

BENEFIT PLAN” EXEMPTION OF § 4(f)(2) OF THE

ADEA

Section 4(a)(1) of the ADEA makes it unlawful for

an employer to “discriminate against any individual with

respect to his compensation, terms, conditions, or privi-

leges of employment, because of such individual’s age.”

29 U.S.C. § 623(a) (1). Section 4(f) (2) of the statute,

however, qualifies § 4(a)(1)’s prohibition, by providing

that it shall not be unlawful for an employer:

to observe the terms of a bona fide seniority sys-

tem or any bona fide employee benefit plan such as

a retirement, pension, or insurance plan, which is not

a subterfuge to evade the purposes of this chapter,

except that no such employee benefit plan shall ex-

cuse the failure to hire any individual, and no such

seniority system or employee benefit plan shall re-

quire or permit the involuntary retirement of any

individual specified by section 63l(a) of this title

because of the age of such individual |. |

29 U.S.C. §$ 623(f)(2). The court below held that, in

order to qualify for § 4(f)(2)’s protection, an age-based

variance in employee benefits must be justified by age-

related cost considerations. In so holding, it is unclear

whether the court ruled (as the district court ruled) that

$ 4(f)(2) applies only to those types of “plans” where

the cost of providing a benefit varies according to age.

or whether it ruled ‘as the federal regulations and the

7

court of appeals’ decisions it cites ruled) that an age-based

differential in benefits is a “subterfuge” to evade the pur-

poses of the ADEA unless the differentiation is specifically

attributable to age-related costs. In either event, the

court below was wrong: an age-related cost justification

limitation on $ 4/f) (2) cannot be squared with the lan-

guage, legislative history, or purposes of § 4(/f) (2).

A. An Age-Related Cost Justification Limitation Cannot

Be Derived From Or Reconciled With The Statutory

Language

This Court has long held that, “unless otherwise de-

fined, words |used in a statute] will be interpreted as

taking their ordinary, contemporary, common meaning.”

Perrin v. United States, 444 U.S. 37, 42 (1979). See

also Burns v. Alcala, 420 U.S. 575, 580-581 (1975). On

that view, § 4/(f) (2) must apply to all ongoing adminis-

trative programs for the provision of non-wage compensa-

tion---including those without age-related cost justifica-

tions ‘such as disability retirement, severance pay, sick

leave, unemployment compensation, and retirement incen-

tive plans)—that were not conceived to accomplish dis-

crimination in terms or conditions of employment or in

— not conferred through employee benefit

plans.

1. On its face, $4/f) (2) applies to “any bona fide

employee benefit plan.” 29 U.S.C. §$ 623(f)(2). The

term “any” signifies that Congress intended the exemp-

tion to be comprehensive in scope. See, e.9.. Harrison +.

PPG Indus., Inc., 446 U.S. 578, 588-89 (1980): Shea

v. Vialpando, 416 U.S. 251, 260 (1974). The phrase

“bona fide” simply means that a plan must be authentic-

that is, it must “‘exist!] and pay!) benefits.’” Uyited

Air Lines, Ine. v. McMann, 434 U.S. 192, 194 (1977)

(citation omitted). The phrase “employee benefit” refers

to “virtually any form of compensation provided: (1) in

a form other than direct wages; and (2) paid for in

whole or in part by the employer”—i.e., to any “fringe

8

benefit.” Fundamentals of Employee Benefit Programs 2

(Employee Benefit Research Institute, 3d ed. 1987): see

also Websters I] Riverside University Dictionary 115

(1984). Finally, the term “plan” refers to any “detailed

scheme, program, or method worked cut beforehand for

the accomplishment of an object.” Jd. at 898; see also

Fort Halifax Packing Co. v. Coyne, 107 S. Ct. 2211, 2217-

219 (1987) (defining term “plan” in Employee Retire-

ment Income Security Act of 1974 (“ERISA”), 29 U.S.C.

$$ 1001 et seq.). Thus, when viewed in terms of its or-

dinary English meaning, the language of $4(f11(2) ex-

empts every ongoing administrative program that pro-

vides non-wage compensation to employees and that is

not a “subterfuge” to evade the purposes of the ADEA.

The conclusion that Congress intended § 4(f)(2) to

have this broad coverage is bolstered by the meaning

given to the phrase “employee benefit plan” in the in-

dustrial relations practice that pre-existea the ADEA’s

enactment in 1967 and that continues to exist today. Cf.

California Brewers Ass'n v. Bryant, 444 U.S. 598, 604

(1980) (interpreting the term “seniority system” in Title

VII by reference to industrial relations practice and na-

tional labor policy). In that practice, the phrase “em-

ployee benefit plan” was and is understood to refer to,

among other things, credit union plans, short- and long-

term disability benefit plans, disability retirement plans,

home financing plans, insurance plans, disability insur-

ance plans, pensions plans, profit-sharing plans, savings

plans, scholarship plans, stock purchase plans, termina-

tion incentive and severance allowance plans, and certain

vacation, sick leave, and holiday benefit plans. See The

Total Approach to Employee Benefits 83-124, 506

(A. Deric ed. 1967); M. Greene, The Role of Employee

Benefit Structures in Manufacturing industry 13, 20-23,

103-110 (1964); M. Wermel & G. Beideman, Employee

Benefit Programs 1-4, 17-19, 23-31 (1957); Successful

Employee Benefit Plans 74-91 (Prentice-Hall, Ine. ed.

9

1952). Nothing in the statutory language suggests that

Congress intended in any way to depart from this broad

understanding of the phrase “emp!oyee benefit plan.”

Accord 29 C.F.R. § 1625.10(2)(b) (“[a]n ‘employee

benefit plan’ is a plan, such as a retirement, pension, or

insurance plan, which provides employees with what are

frequently referred to as ‘fringe benefits.’ ”’).

That Congress modified the phrase “any bona fide em-

ployee benefit plan” with the phrase “such as a retire-

ment, pension, or insurance plan” does not, as some courts

have suggested, provide support for an age-related cost

justification limitation on § 4(f) (2)’s plain meaning. See,

e.g.. EEOC v. Westinghouse Elec. Corp., 725 F.2d 211,

224 (3d Cir. 1983), cert. denied, 469 U.S. 820 (1984).

For one thing, at the time the statute was first adopted,

many retirement, pension, or insurance plans—such as

defined contribution pension plans, profit-sharing retire-

ment plans, and many disability retirement plans—did

and still do not have age-related cost justifications; thus,

the age-related cost-justification limitation cannot be de-

rived from the “types” of plans listed in the “such as”

phrase. Accord Alford v. City of Lubbock, 664 F.2d 1263

(Sth Cir.), cert. denied, 456 U.S. 975 (1982) (defined

contribution pension plan); Brennan v. Taft Broadcast-

ing Co., 500 F.2d 212 (5th Cir. 1974) (profit-sharing

retirement plan). Second, the “such as” phrase merely

provides examples of the plans included in the phrase

“any bona fide employee benefit plan.” It does not pur-

port to define or qualify that phrase, as an age-related

cost justification limitation would do. See id. at 215;

see generally Donovan v. Anheuser-Busch, Inc., 666 F.2d

315, 327 (8th Cir. 1981). Finally, the “such as” phrase

purports only to illustrate the kinds of plans that § 4

(f' (2) covers, and the concept of a “plan” does not in

any conceivable sense relate to the variables affecting the

cost of providing particular benefits. See Brennan v.

Taft Proadcasting Co., 500 F.2d at 216-217: see generally

Fort Halifax Packing Co. v. Coyne, 107 8. Ct. at 2217-

10

219 (distinction between statutory terms “plan” and

“benefits” is significant).

Nor can § 4(a)(1)’s prohibition on age discrimination

in employee “compensation” provide the necessary touch-

stone for an age-related cost limitation on § 4(f) (2) or,

for that matter, for any other restriction on § 4(f) (2).

Section 4(f) (2) is a limitation on § 4(a)(1), not vice

versa. Because of § 4(f) (2), $4(a)(1)’s prohibition

only applies to employee “compensation” thai is not con-

ferred through an employee benefit plan. Thus, while

$ 4(a) (1) applies to age discrimination in employee “‘pay-

roll practices” (see Alford v. City of Lubbock, 664 F.2d at

1272 & n.11), and to age discrimination in benefits that

do not require the maintenance of an ongoing admihis-

trative program—i.e., a “plan” (see EEOC v. Borden’s,

Inc., 724 F.2d 1390, 1396 (9th Cir. 1984)), it does not,

because of § 4(f) (2), generally apply to age discrimina-

tion in ongoing administrative programs that provide non-

wage, non-salary compensation.

Significantly, the distinction between employee “com-

pensation’”—covered by § 4(a)(1)—and employee com-

pensation conferred through “employee benefit plans”—

protected by § 4(f) (2)—is well established in law as well

as in industrial relations practice. In particular, ERISA

regulates only employee compensation conferred through

“employee benefit plans.”” ERISA defines the phrase ‘“em-

ployee benefit plan” to have the broad meaning that was

and is today well-established in industrial relations prac-

tice." Consistent with the traditional view of that phrase,

* ERISA defines the phrase “employee benefit plan” to encompass

both “employee pension benefit plan{s|” and “employee welfare bene-

fit plan{s}.” 29 U.S.C. §1002(3). The phrase “employee pension

benefit plan” is defined as any plan that:

(i) provides retirement income to employees, or

(ii) results in a deferral of income by employees for periods

extending to the termination of covered employment or

beyond[. | f Continued}

11

the Department of Labor (“DOL”) has found that ERISA

does not regulate employer “payroll practices.” See 29

C.F.R. § 2510.3-1 ‘excluding from definition of “employee

benefit plan” such items of compensation as: payment for

work performed, including overtime pay, shift premiums,

holiday premiums, and weekend premiums; payment out of

the employer's general assets for time not worked, such

as for medical reasons, or while on vacation, military

duty, jury duty, training, or sabbatical; an on-premises

facility for dining, such as a cafeteria, or a first aid

room; holiday gifts; and special sales to employees). And

this Court has made clear that the statutory phrase ‘“em-

ployee benefit plan” does not encompass benefits where

their provision does not require the maintenance of on-

going administrative programs—i.e., programs for deter-

mining the eligibility of claimants, calculating benefit

levels, making disbursements, monitoring the availability

of funds for benefit payments, and keeping appropriate

records. See Fort Halifax Packing Co. v. Coyne, 107

S. Ct. at 2217-219.

Of course, Congress enacted ERISA in 1974 and, there-

fore, its definitional provisions do not provide any direct

insight into the intent of the framers who enacted

* | Continued |

29 U.S.C. § 1002(2)(A). The phrase “employee welfare benefit

plan” includes:

any plan, fund, or program ... established or maintained .. .

for the purpose of providing for its participants or their bene-

ficiaries, through the purchase of insurance or otherwise,

(A) medical, surgical, or hospital care or benefits, or benefits

in the event of sickness, accident, disability, death or unemploy-

ment, or vacation benefits, apprenticeship or other training

programs, or day care centers, scholarship funds, or prepaid

legai services, or (B) any benefit described in section 186(c)

of this title (other than pensions on retirement or death, and

insurance to provide such pensions).

29 U.S.C. § 1002(1).

12

$4/f) (2) of the ADEA in 1967. But other legislation

in existence at the time Congress enacted § 4(f) (2) pro-

vides the necessary evidence that the phrase “employee

benefit plan’’ was also then understood broadly to cover

all programs for providing non-wage, non-salary com-

pensation. Specifically, nine years prior to the ADEA’s

enactment, Congress enacted the Welfare and Pension

Plans Disclosure Act of 1958 (“WPPDA”), 29 U.S.C.

$$ 301-309 (repealed), reprinted in 1958 U.S. Code Cong.

& Admin. News, 72 Stat. 1172, which defined the phrase

“employee benefit plan” to include all “employee pension

benefit plan|s|” and “employee welfare benefit plan[s]”’.

See 29 U.S.C. § 303. The WPPDA further provided that:

The term “employee welfare benefit plan” means any

plan, fund, or program ... for the purpose of pro-

viding . . . through the purchase of insurance or

otherwise, medical, surgical, or hospital care or ben-

efits, or benefits in the event of sickness, accident,

disability, death, or unemployment.

29 U.S.C. § 303(a) (1). Numerous pre-ADEA laws en-

acted both before and after the WPPDA in 1958 simi-

larly embodied this broad understanding of the phrase

“employee benefit plan’. Accordingly, since Congress can

4 See, e.g., 29 U.S.C. § 207(e)(4) (Fail Labor Standards Act of

1939 specifies that, in calculating an employee’s “regular rate” of

wages, an employer should exclude employee benefits, including “con-

tributions .. . for providing old-age, retirement, life, accident, or

health insurance or similar benefits for employees”); 40 U.S.C.

$ 276a(b) (Davis-Bacon Act of 1931 defines “bona fide fringe bene-

fits” to include plans or programs for the provision of medical or

hospital care, pensions on retirement or death, compensation for

injuries or illness, unemployment benefits, life insurance, disability

and sickness insurance, accident insurance, vacation and holiday

pay, and other bona fide fringe benefits) ; 41 U.S.C. $§ 351, 351(a)(2)

(Service Contract Labor Standards Act of 1965 defines “fringe

benefits” to include medical or hospital care, pensions on retirement

or death, compensation for injuries or illness, unemployment bene-

fits, life insurance, disability, sickness and accident insurance, vaca-

tion and holiday pay, costs of apprenticeship and other bona fide

fringe benefits).

13

be presumed to use words in their ordinary legal sense,

the phrase “any bona fide employee benefit plan” must be

read as prima facie protection for the gamut of employee

fringe benefit programs, including those without age-

related cost justifications (such as disability retirement,

severance, sick leave, and unemployment compensation

plans). See Lorillard v. Pons, 434 U.S. 575, 585 (1978).

2. That the phrase “any bona fide employee benefit

plan” was intended to cover all ongoing administrative

programs that may vary non-payroll compensation items

on the basis of age—including those without age-related

cost justifications—does not mean that all such programs

are lawful under the ADEA. Section 4(f) (2) withholds

its protection from any bona fide employee benefit plan

which is a “subterfuge to evade the purposes of [the

ADEA].” 29 U.S.C. § 623(f)(2). But, as this Court

held in United Air Lines, Inc. v. McMann, 434 U.S. at

203, the “subterfuge” language indicates only that Con-

gress intended to prevent employers from using § 4/f) (2)

to circumvent one of the statute’s prohibitions. And, as

explained above, § 4(f)(2) itself makes clear that the

ADEA does not prohibit an employer from observing the

terms of a plan that varies employee benefits on the basis

of age. Thus, a.“subterfuge” cannot be found simply be-

cause the employer creates or follows an employee bene-

fit plan that varies benefits on the basis of age, or be-

cause the plan does not have an age-related cost jus-

tification.

Rather, a “subterfuge” may be found only where an

employer has designed and used a plan specifically to

discriminate against older workers with respect to either

their terms and conditions of employment or their com-

pensation that does not require and is not conferred

through an employee benefit plan. That is. to be a “sub-

terfuge,” the plan must be specifically designed involun-

tarily to deprive older workers of terms and conditions

of employment that younger persons enjoy--for ex: mple,

a plan that is purposefully designed and used as a cover

14

for the involuntary retirement of older persons. See

Trans World Airlines, Inc. v. Thurston, 469 U.S. 111,

124-125 (1985): Karlen v. City Colleges, 837 F.2d 314,

8319-320 (7th Cir.), cert. denied sub nom. Cook County

College Teachers Union, Local 1600 v. City Colleges of

Chicago, 108 S. Ct. 2038 (1988). Alternatively, the plan

must be specifically conceived to evade the statutory pro-

hibition against age discrimination in the payment of

wages or benefits that do not require an ongoing adminis-

trative scheme—by, for example, using an employee ben-

efit plan to continue what previously had been a discrimi-

natory payroll practice. Cf. EEOC v. Home Ins. Ce., 672

F.2d 252, 257-263 (2d Cir. 1982). Without proof of an

intent to evade a statutory prohibition unrelated to the

payment of fringe benefits, however, the variance in ben-

efits under the plan would constitute nothing more than

the discrimination that § 4(f) (2) expressly permits.”

That the intent of a plan’s designers must be to evade

one of the statute’s prohibitions means that, in certain

circumstances, a “subterfuge” cannot possibly be found.

First, as the DOL initially suggested in 1969, where bene-

fits variances are justified by age-related costs, no “sub-

terfuge” can exist; it would be unreasonable to find an

intent to drive older employees from the workforce where

an employer incurs equal costs on behalf of similarly-

situated employees of different ages. See 29 C.F.R.

¢ 860.120, 34 Fed. Reg. 9709 ‘June 21, 1969). Second,

as this Court held in United Air Lines, Inc. v. McMann,

434 U.S. at 203, no “subterfuge” can be found where a

discriminatory benefit provision pre-dates the enactment

of the ADEA; no employer is so prescient that it could

5 Even where an intent exists to induce older persons to leave

the work force, the employer may be acting entirely lawfully and

consistent with the purposes of the ADEA—as in the case of a

voluntary retirement incentive program. See Bodnar v. Synpol, Inc.,

843 F.2d 190, 192 (5th Cir.), cert. denied, 57 U.S.L.W. 3280 (U.S.

Oct. 18, 1988); Henn v. National Geographic Soc’y, 819 F.2d 824,

827 (7th Cir.), cert. denied, 108 S. Ct. 454 (1987).

15

have designed a plan to evade a statutory prohibition

that was not yet in existence.® Finally, while there is

no per se requirement that an age-based benefit distinc-

tion have an economic or business purpose, undisputed

proof of such a purpose would dispel any possible infer-

ence of “subterfuge”; the specific intent necessary to

deny the protection of § 4(f) (2)—i.e., a purpose to drive

older persons from the workforce or to vary their wage

or salary compensation on the basis of age—cannot be

found where the undisputed evidence shows a_non-

arbitrary, business-related purpose for the distinction.

See, e.g., Potenze v. New York Shipping Ass'n, 804 F.2d

235, 238-239 (2d Cir. 1986), cert. denied, 107 S. Ct. 1955

(1987); Crosland v. Charlotte Eye, Ear and Throct

Hosp., 686 F.2d 208, 212-216 (4th Cir. 1982).7

° To be sure, as Justice White argued in McMann, maintaining

a plan (or readopting a discriminatory provision when making other

changes to a plan) after the enactment of the ADEA requires a

deliberate decision on an employer’s part. See 434 U.S. at 207

(White, J., concurring). But, whether this point is valid or not, a

majority of this Court rejected it at the time, and, until overruled

by Congress, the majority’s holding on the “subterfuge” issue is

binding.

The court below suggested that (J.S. App. A4), in amending the

ADEA in 1978, Congress overruled this aspect of the McMann deci-

sion. But Congress did not modify or redefine the “subterfuge”

language in response to the McMann majority's rejection of Justice

White’s argument; it simply amended the statute to prohibit invol-

untary retirement. Moreover, as both Appellant and the Common-

wealth of Pennsylvania as amicus curiae explain (App. Br. at 39-48;

Penn. Br. at 20-21, 25-26), while the legislative history indicates that

Congress disagreed with the result of the McMann decision, its

focus was entirely on the lawfulness of involuntary retirement pro-

visions; the application of the “subterfuge” clause to other plan

provisions was simply not addressed. In these circumstances, Con-

gress cannot be deemed to have overruled the McMann majority's

interpretation of the “subterfuge” clause. Accord EEOC v. Cargill,

Ine., 855 F.2d 682, 686 (10th Cir. 1988); EEOC v. County of

Orange, 837 F.2d 420, 422 (9th Cir. 1988).

7 While an agreement arising from coliective bargaining is not

completely immune from ADEA challenge, see EEOC v. County of

16

Concomitantly, the “subterfuge” language cannot prop-

erly be used to import an age-related cost justification lim-

itation into §4/(f)(2). “In ordinary parlance, and in

dictionary definitions as well, a subterfuge is a scheme,

plan, stratagem, or artifice of evasion.” United Air

Lines, Inc. v. McMann, 434 U.S. at 203. Thus, the “sub-

terfuge” language must refer to a specific “intent .. .

to evade a statutory requirement,” and is inconsistent

with any “per se rule requiring an employer to show an

economic or business purpose” in order to qualify for the

$4(f) (2) exemption. /bid. A per se age-related cost

justification limitation is even mere at odds with the

“subterfuge” language than is a per se economic or busi-

ness purpose requirement: by making the “subterfuge”

inquiry turn on a particular kind of objective proof, it

essentially removes the illicit subjective intent require-

ment from the statute. Cf. Griggs v. Duke Power Co.,

401 U.S. 424 (1971). The “subterfuge” language cannot

properly be interpreted in this fashion. Accord EEOC v.

City of Mt. Lebanon, 842 F.2d 1480, 1494-1495 (3d Cir.

1988) (Hutchinson, J., concurring); Germann v. Levy,

553 F. Supp. 700, 703 n.9 «N.D. Ill. 1982).*

Calumet, 686 F.2d 1249, 1255-57 (7th Cir. 1982), bona fide collec-

tive bargaining negotiations do not lend themselves easily to unlaw-

ful collaboration and conspiracy. See Trans World Airlines, Inc. v.

Hardison, 432 U.S. 63, 79-83 (1977); American Tobacco Co. v.

Patterson, 456 U.S. 638, 68-71 (1982). Thus, courts should give

“maximum deference” to collective bargaining agreements (see, ¢.9.,

EEOC v. Fox Point-Bayside School Dist.. 772 F.2d 1294, 1302-03

(7th Cir. 1985); Graczyk v. United Steelworkers, 763 F 2d 256, 262-

63 (7th Cir.), cert. denied, 474 U.S. 970 (1985)), and should rarely,

if ever, find that age-distinctions in collectively bargained benefit

plans are a “subterfuge” to evade the ADEA. Accord Note, Federal

Age Discrimination in Employment Act: The Pension Plan Exrcep-

tion After McMann and the 1978 Amendments, 54 Notre Dame L.

Rev. 325, 329 (1980).

* The court below not only found (J.S. App. A4) that Congress

had overruled the McMann Court’s interpretation of the “subter-

fuge” clause in the 1978 ADEA amendments, it also apparently

17

B. An Age-Related Cost Justification Limitation Is In-

consistent With The Legislative History Of And The

Legislative Purpose For The § 4(f)(2) Exemption

An age-related cost justification limitation is also in-

consistent with the legislative history of and the legisla-

tive purpose for the $4(f)(2) exemption. Such a

limitation fails to recognize Congress’ other reasons for

including § 4(f) (2), as amended, in the statute.

equated the “subterfuge,” “economic or business purpose,” and

“age-related cost justification” inquiries. See J.S. App. A5-A6. As

noted earlier, we agree with Appellant and the Commonwealth of

Pennsylvania as amicus curiae that Congress did not overrule the

McMann Court's interpretation of the “subterfuye” language. But,

even if Congress in 1978 did overrule the “subterfuge” aspect of the

McMann decision, the court below still erred in equating the

“subterfuge,” “economic or business purpose,” and “age-related cost

justification” inquiries.

As Justice White pointed out in his McMann concurrence. even

if a pre-Act plan can be a “subterfuge,” proof of a “business or

economic purpose” is not necessary to establish the absence of a

“subterfuge.” 434 U.S. at 207. Rather, an employer need simply

offer proof that its plan is not designed to circumvent one of the

ADEA’s prohibitions—-such as the prohibition against discharges.

While proof of a “business or economic purpose” for a benefit vari-

ance will plainly suffice, it is not required. We agree with Appellant

(at 16-23) and the Commonwealth of Pennsylvania ‘at 26-28)

that nothing in the 1978 statute or its legislative history is to

the contrary.

Moreover, even if a “business or economic purpose” were required,

it would be wrong to equate the “economic or business purpose” and

“age-related cost justification” inquiries. An age-related cost justi-

fication is just one example of an “economic or business purpose.”

Nothing in the 1978 amendment or its legislative history purports

to restrict the kinds of economic or business purposes that may be

offered to justify an age-based plan distinction.

In this case, a “business or economic purpose” exists. As the

district court found (J.S. App. A25-A26), when Appellant limited

eligibility for disability retirement benefits to persons under age 60

and ineligible for other retirement benefits, it had a legitimate eco-

nomic or business purpose for doing so —to wit, te provide benefits

to persons who “otherwise have no source of income during their

disability.”

18

1. Congress first began considering the problem of age

discrimination in employment in 1964. At that time,

Congress ordered the Secretary of Labor to “make a full

and complete study of the factors which might tend to

result in discrimination in employment because of age

and of the consequences of such discrimination on the

economy and individuals affected,” and to report back to

Congress. with recommendations for legislation to pre-

vent “arbitrary” age discrimination in employment. 42

U.S.C. § 2000e-14 (repealed).

The Secretary of Labor did so. See The Older Ameri-

can Worker: Age Discrimination in Employment, Re-

port of the Secretary of Labor to the Congress Under

Section 715 of the Civil Rights Act of 1964 (1965)

i“Secretary’s Report’), reprinted in EEOC Legislative

History of the Age Discrimination in Employment Act

of 1967, at 16-41 (1981) (“EEOC Legislative History”).

His June 1965 Report began by emphasizing that “not

all diverimination in this area is ‘arbitrary’.”. EEOC

Legislative History, at 19. It found that, in contrast to

race diserim'nation, age discrimination is rarely based

on a mere dislike for older workers. /d. at 20. Rather,

it found that age discrimination is principally based on

three other factors: (a) unfounded assumptions about

the effect of age on ability to perform; (b) valid con-

clusions about the effect of age on ability to do a job;

and ‘¢) inst'tut‘onal arrangements—such as pension,

seniority, insurance, and promotion from-within-policies

-—that, although often designed to protect or support

older workers, may have an adverse impact on their em-

ployment opportunities. «bid. Importantly, the Report

made clear that only decision making based on unfounded

assumptions about the effect of age on ability constitutes

“arbitrary age discrimination,” although the Report

added that, in isolated circumstances, institutional ar-

rangements could be used arbifrarily to restrict the em-

ployment opportunities of older workers. /d. at 20, 22.

19

As noted, the Report expressly characterized employee

benefit plans as “institutional arrangements” which

might adversely affect the employment of older workers.

EEOC Legislative History, at 33. But, importantly, it

also stressed that “[{i]t is not clear to what extent [ex-

clusions of older workers from the workforce] arise di-

rectly from cost factors and to what extent they are the

result of plan operations largely unrelated to costs.” /bid.

It found that “cost considerations do not . . . always

operate against the older worker,” that “[r]elatively few

employers, in fact, cited the costs of providing pension

and insurance benefits as significant barriers to employ-

ment of older persons,” and that, “|e]ven in cases where

‘employers| mentioned pension and insurance [plans as

a barrier to employment], cost was not the principal fac-

tor involved.” /bid.’ Rather, the Report noted that em-

ployers had cited limited work expectancy of older

workers, morale issues associated with employing persons

who would not qualify for employee benefits, and pre-

sumed inability to pass physical examinations as the

principal employee benefit plan-related barriers to the

full employment of older workers. Jd. at 33-34. The Re-

port concluded that “{c]ase-by-case examination is neces-

sary” to determine which benefit “plan-induced limita-

tions on employment can be considered to constitute arbi-

trary discrimination[.|” /d. at 34.

2. Following the issuance of the Secretary's Report, a

croup of Senators proposed, in 1966, to amend the Fair

Labor Standards Act (“FLSA”) to prohibit age discrim-

ination in “terms, conditions, or privileges” of employ-

ment, unless age was a necessary bona fide occupational

” The Research Materials Accompanying The Secretary of Labor's

Report 10 (1965) indicated that, of the employers surveyed, only

6.7% cited the costs and provisions of pension plans as a reason for

excluding older workers: only 1.4 cited the costs and provisions

of health insurance as a reason; and only 1.2% cited the costs and

provisions of life insurance as a factor.

20

qualification. See EEOC Legislative History, at 43.

While Congress did not enact this proposal (see id. at

'7), ‘t did direct the Secretary of Labor to submit spe-

cifie legislative proposals to implement the recommenda-

tions that he made in his Report. See Fair Labor Stand-

ards Act Amendments of 1966, P.L. No. 89-601, 80 Stat.

830.

On January 23, 1967, the Secretary did so. After

President Johnson issued a message to the Congress stat-

ing that “[wle must end arbitrary age limits on hiring”

(A Review of Measures Taken to Aid the Older Ameri-

coms ond Reco mendations for Legislation to Provide

Further Aid, 113 Cong. Ree. 1089-90, 90th Cong., 1st

Sess. (1967). reprinted in EEOC Legislative History, at

60-61), Secretary of Labor Willard Wirtz submitted a

draft “Age Discrimination in Employment Act of 1967”

to Congress. See id. at 62-63. In his cover letter, Sec-

retary Wirtz stated that the bill’s “prohibitions are de-

signed to bar arbitrary age discrimination.” Jd. at 62.

With respect to so-called “institutional arrangements,”

the Secretary stated that the bill authorized research that

would be aimed at “reducing barriers to the employment

of older workers.” Jd. at 63. Section 4(f) of the bill,

however, also provided that:

It shall not be unlawful for an employer, employ-

ment agency, or labor organization—

(2) to separate involuntarily an employee under a

retirement policy or system where such policy or

system is not merely a subterfuge to evade the pur-

poses of this Act[.]

113 Cong. Rec. 2794 (Feb. 7, 1967), reprinted in EEOC

Legislative History, at 68.

The Senate Hearings on this bill, which Senator Yar-

borough introduced as 8S. 830 on February 3, 1967

(EEOC Legislative History, at 66), commenced on March

15, 1967. See Age Discrimination in Employment: Hear-

ings on S.830 and §.788 Before the Subcommittee on

21

Labor of the Senate Committee on Labor and Public Wel-

fare, 90th Cong., Ist Sess. (March 15-17, 1967) (“Sen-

ate Hearings”). On the first day of these hearings,

Senator Javits, who had previously introduced his own

age discrimination bill, 8. 788, criticized § 4(f) (2) of the

Administration bill on the ground that:

the age discrimination law should not be used as

the place to fight the pension battle but that we

ought to subordinate the importance of adequate

pension benefits for older workers in favor of the

employment of such older workers and not make the

equal treatment under pension plans a condition of

that employment.

Senate Hearings, at 27. Senator Javits announced that

he would therefore soon propose an amendment to the

Administration bill that would grant employers “a de-

gree of flexibility” with respect to employee benefit plans.

Ibid. In his view, a “fairly broad exemption . . . for bona

fide retirement and seniority systems |would! facilitate

hiring rather than deter it and make it possible for older

workers to be employed without the necessity of disrupt-

ing those systems.” /d. at 28.

Senator Smathers, a co-sponsor of 8. 830, similarly in-

dicated on this first day of the hearings that a “defic-

iency ’ existed in the Administration’s bill. Senate Hear-

ings, at 29. Senator Smathers read the Administration’s

bill as requiring employers to provide older workers “the

same private pension rights and other fringe benefits”

as they provide to younger workers. Jbid. Senator

Smathers argued that such a requirement would impose

unwarranted costs on employers and actually induce them

to discriminate against older workers in the hiring proc-

ess. Jd. at 29-30. He therefore proposed the following

amendment :

(g) Nothing in this Act shall be construed to make

unlawful the varying of coverage under any pension,

retirement, or insurance plan or any plan for pro-

22

viding medical or hospital benefits or benefits for

work injuries, where such variance is necessary to

prevent the employer’s being required to pay more

for coverage of an employee than would be required

to provide like coverage for his other employees.

Id. at 30. Senator Smathers suggested that this amend-

ment, by equalizing the employer's cost obligations, would

make the bill fairer to the emp'oyer and reduce the per-

verse hiring incentives with which he ~as concerned.

Ibid.

Senator Murphy next urged the committee, however, to

reconsider the bill that he and Senator Javits had intro-

duced in 1966. Senate Hearings, at 32. In doing so,

Senator Murphy reiterated the Secretary of Labor’s find-

ing that, in his studies. only a smal! percentage of em-

ployers cited the cost of providing pension and insurance

benefits as a reason for age discrimination in emp’ oy-

ment. Id. at 34. Moreover, he referred the committee to

a Bureau of Labor Statisties (“BLS”) report which pur-

ported to show that the costs of health and insurance

plans do not vary greatly with age and that pension and

‘insurance costs of hiring older workers are often over-

stated. Ibid.

Secretary Wirtz then took the podium in defense of the

Administration’s bill. Senate Hearings, at 35. He em-

phasized that the Administration bill’s “prohibition is of

‘discrimination’ in the sense of ‘arbitrory age discrimi-

nation. This is reflected particularly in Section 4/f),”

which he characterized as “obviously broad.” Jd. at 39

(emphasis in original). Secretary Wirtz stated that

§ 4(a)’s prohibition on age discrimination “reflects sim-

ply the significant fact that what we are doing here is to

extend to individuals in situations not covered by collec-

tive bargaining agreements or established retirement pol-

icies, a degree of protection against discrimination on the

basis of age... .” Id. at 43. He noted, however, that.

under §£4(a) and (f) of the Administration bill,

“!wihether different eligibility requirements or benefit

levels for older workers would constitute arbitrary dis-

crimination . . . would require determination under the

facts of each case.” Id. at 47. But, in response to ques-

tions, he opined that “the effect of the provisions in sec-

tion 4(f)(2) ... is to protect the application of almost

all plans which I know anything about.” Jd. at 53.

3. Senator Javits was apparently not persuaded by Sec-

retary Wirtz’s reassurances about the effect of § 4(f)(2)

of the Administration bill. The next day, on the Sen-

ate floor; he reiterated his concern that the Adminis-

tration’s bill was inflexible and that it would encourage,

rather than discourage, age discrimination in employ-

ment. See 113 Cong. Rec. 7076 (March 16, 1967), re-

printed in EEOC Legislative History, at-71. He thus

proposed that $4(f)(2) of the Administration bill be

replaced with an amendment making it lawful for an

employer:

(2) to observe a seniority system or any retirement,

pension, employee benefit, or insurance plan, which

is not merely a subterfuge to evade the purposes of

this Act, except that no such retirement, pension,

employee benefit, or insurance plan shall excuse the

failure to hire any individual [.]

113 Cong. Rec. 7077 (March 16, 1967), reprinted in

EEOC Legislative History, at 72.

Senator Javits stressed that he did not mean to mini-

mize the importance of older workers receiving adequate

pension benefits and the like. 113 Cong. Rec. 7076 (March

16, 1967), reprinted in EEOC Legislative History, at 71.

But he stated that, in his view, “the age discrimination

lew is not the proper place to fight this particular bat-

tle.” Ibid. Indeed, he noted that he had “recently intro-

duced a comprehensive bill to deal with this problem.”

Ibid. Significantly, the bill to which he referred, which

was a precursor to ERISA, defined the phrase “employee

benefit plan” to include:

24

any plan providing for the payment of any of...

the following benefits: Medical or hospital care,

pension on retirement or death of employees, benefits

under a profit-sharing retirement plan, compensation

for injuries or illness resulting from occupational

activity or insurance to provide any of the forego-

ing, or unemployment benefits or life insurance, dis-

ability and sickness benefits, or accident benefits, or

pooled vacation, holiday, severance or similar bene-

fits, or defraying the costs of apprenticeship train-

ing programs, or, in the case of a fund subject to

the restrictions of section 302(c) of the Labor-

Management Relations Act, providing any other ben-

efit which may be permitted by subsections 302(c) (5)

or 302(c) (6) of that Act[.]

S. 1103, 90th Cong., Ist Sess. 2-3 (1967)."°

4. The hearings in the House evidence a clear under-

standing on that body's part of the events that occurred

in the Senate subcommittee. See Age Discrimination in

Employment: Hearings on H.R. 3651, H.R. 3768, and

H.R. 4221 Before the General Subcommittee on Labor

1” When the hearings resumed, representatives of the business

community joined with Senator Javits in urging the committee to

adopt a broader exception for bona fide employee benefit plans than

the Administration bill provided. Like Senator Javits, Towers,

Perrin, Forrester & Crosby, Inc., a leading employee benefits con-

sulting firm, recommended that the Administration bill be amended

to exempt “any other bona fide employee benefit plan” from the

statute’s operation, stating that, “[i]n the absence of such exclu-

sions, ... hundreds of long established, bona fide pension, group life

insurance, medical and other employee benefit plans may be in viola-

tion of section 4:a)(1)[.|" Senate Hearings, at 280. The American

Life Convention, the Health Insurance Association of America, and

the Life Insurance Association of America similarly expressed con-

cern that the Administration's bill would disrupt many established

insurance, welfare, pension, and other employee benefit plans. /d.

at 296. And the National Association of Manufacturers argued that

any regulation of employee benefit plans “should be accomplished

knowingly and intelligently, not inadvertently by legislation de-

signed to resolve an entirely different matter.” /d. at 323.

25

of the House Committee on Education and Labor, 90th

Cong., Ist Sess. (August 1, 2, 3, 15, 16 and 17, 1967)

(“House Hearings’). Secretary Wirtz admitted to the

House subcommittee that the Senate subcommittee had

amended § 4(f) (2) of the Administration bill in order

to clarify its scope. House Hearings, at 39-40. Numerous

witnesses urged the House subcommittee to do so too,

reiterating the concerns expressed in the Senate that the

Administration bill would disrupt existing plans and

discourage the hiring of older workers. See id. at 63, 68-

70, 413, 418, 480-481, 495-496, 496-497, 499-500. In do-

ing so, they proposed language like that Senator Javits

proposed in the Senate and that is essentially identical to

the language ultimately enacted. See id. at 63, 480-481,

496, 499. And, as the Chairman of the House subcom-

mittee explained, the proposed language would “relieve{ |

femployers| of the responsibility for the health and wel-

fare and fringe benefits to employees” covered by the

bill. 7d. at 68 (remarks of Rep. Dent).

On October 23, 1967, after the conclusion of these hear-

ings, the Committee on Education and Labor reported

H.R. 13054 favorably to the House as a whole. See H.R.

Rep. No. 805, 90th Cong., 1st Sess. 4, reprinted in EEOC

Legislative History, at 77. The bill so reported included

the amendment proposed by the witnesses in the House

hearings. See id. at 94. In discussing the amended

$ 4(f) (2), the House Committee’s report stated:

It is important to note that exception [2] applies to

new and existing employee benefit plans, and to both

the establishment and maintenance of such plans.

This exception serves to emphasize the primary pur-

pose of the bill—hiring of older workers—by per-

mitting employment without necessarily including

such workers in employee benefit plans. The spe-

cific exception was an amendment to the original

26

bill, is considered vita[]] to the legislation, and was

favorably received by witnesses at the hearings.

H.R. Rep. No. 805, supra, reprinted in EEOC Legislative

History, at 77. Twelve days later, the same bill was re-

ported favorably to the Senate, with a Senate committee

report to the same effect. See S. Rep. No. 723, 90th

Cong., Ist Sess. 4 (November 4, 1967), reprinted in

EEOC Legislative History, at 108."

In floor debate before the Senate, on November 6, 1967,

Senator Javits engaged Senator Yarborough, the floor

manager of the bill, in the following colloquy to make

certain that the full effect of his amendment was under-

stood:

MR. JAVITS: The meaning of this provision is as

follows: An employer will not be compelled .. . to

afford to older workers exactly the same pension,

retirement, or insurance benefits as he affords to

younger workers. If the older worker chooses to

waive all of those provisions, then the older worker

can obtain the benefits of this act, but the older

worker cannot compel an employer through the use

of this act to undertake some special relationship,

course, or other_condition with respect to a retire-

ment, pension, or insurance plan which is not merely

a subterfuge to evade the purposes of the act—and

we understand that—in order to give that older em-

ployee employment on the same terms as others.

1! Senator Javits, in his Individual Views accompanying S. Rep.

No. 723, supra, stated that:

the bill has also been improved by the adoption of language .. .

exempting ... bona fide seniority systems and retirement, pen-

sion, or other employee benefit plans from its prohibitions. The

lack of any such provision was a serious defect in both S. 788

and S. 830 as originally introduced, since in its absence em-

ployers might actually have been discouraged from hiring older

workers because of the increased costs involved in providing

certain types of benefits to them.

Id. at 14, reprinted in EEOC Legislative History, at 118.

27

I would like to ask the manager of the bill whether

he agrees with that interpretation, because I think

it is very necessary to make its meaning clear to

both employers and employees. . . .

MR. YARBOROUGH: I wish to say to the Senator

that that is basically my understanding of the pro-

vision... |[Z|t means that a man who would not

have been employed except for this law does not have

to receive the benefits of the plan. Say an applicant

for employment is 55, comes in and seeks employ-

ment, and the company has bargained for a plan

with its labor union that provides that certain moneys

will be put up for a pension plan for anyone who

worked for the employer for 20 years so that a 55-

year-old employee would not be employed past 10

years. This means he cannot be denied employment

because he is 55, but he will not be able to par-

ticipate in that pension plan because unlike a man

hired at 44, he has no chance to earn 20 years re-

tirement. Jn other words, this will not disrupt the

hargained-for pension plan. This will not deny an

individual employment or prospective employment

hut will limit his rights to obtain full consideration

in the pension, retirement, or insurance plan.

MR. JAVITS: 1 thank my colleague. That is im-

portant to business people.

113 Cong. Ree. 31255, reprinted in EEOC Legislative

History, at 146 (emphasis added).

The floor debate in the House indicates that the mem-

bers of this branch of Congress similarly understood that

$ 4(f) (2), as amended, would broadly pro*ect employee

benefit plans, even where the plans completely excluded

older workers. Representative Perkins, the floor manager

of the House bill, H.R. 13054, stated quite explicitly that

“lwle do not undertake to tackle the whole problem of

age discrimination in employment in this bill. but we

fee] that we strike at the heart of the situation”; and he

specifically noted that “{e|]xceptions are provided in order

28

not to disrupt employee benefit programs, seniority sys-

tems, and the like.” 113 Cong. Rec. 34740 (Dec. 4, 1967),

reprinted in EEOC Legislative History, at 151. Repre-

sentative Randall, speaking in support of the bill, like-

wise noted that the amended bill left some things un-

done: “. .. there is no provision for a worker, in the 40

to 65 range, to participate in some of the pension or re-

‘irement programs available to his fellow workers.” 113

Cong. Rec. 34750 (Dee. 4, 1967), reprinted in EEOC

Low lative History. at 161. Some members of the House

even oppoced the bill precisely because it allowed older

wo kers to be excluded entire'y from existing benefit

p'ans and thus allowed°employers to reap a “cash re-

ward.” 113 Cong. Ree. 34745 (Dee. 4, 1967), reprinted

in EEOC Legislative History, at 156. But the amended

bill, with that provision and understanding, was never-

theless passed by the House ‘and the Senate) and event-

ually signed by the President into law.

5. This legislative history confirms that, in enacting

the critical language in § 4(f) (2), Congress understood

that it was exempting myriad fringe benefit plans and

that the exemption would not be limited to benefit vari-

ances justified by age-related costs. Congress was prin-

cipally concerned with promoting the employment of

older workers. It understood that employee benefit plans

were among the “institutional barriers” to the employ-

ment of older workers. But it had ne reason to believe

that the age-related costs of providing such benefits were

the only employee benefit plan-related cause of the un-

employment problem. To the contrary, the Secretary’s

studies, of which Congress was plainly aware, had sug-

gested that limited work expectancy, morale issues as-

sociated with employing persons who would not qualify

for benefits, and presumed inability to pass physical

examinations were even greater employee benefit plan-

related barriers to the employment of older persons than

were the increased costs (if any) of providing such bene-

fits to them.

29

Congress acted on this larger and more subtle under-

standing of the age discrimination in employment prob-

lem when it enacted the existing version of § 4(f) (2). It

expressly declined to adopt Senator Smathers’ proposal,

which would have limited the exemption to benefit vari-

ances justified by age-related costs. Likewise, it declined

to adopt the Administration bill, which Secretary Wirtz

had suggested would allow case-by-case inquiry into the

issue of whether different eligibility requirements or

benefit levels for older workers constituted “arbitrary”

age discrimination in employment. Instead, it adopted

Senator Javits’ proposal m order, as Senator Javits

stated, to grant employers “a degree of flexibility” with

respect to employee benefit plans and thereby to “facili-

tate hiring rather than deter it and [to] make it possible

for older workers to be employed without the necessity

of disrupting those systems.” Senate Hearings, at 27-28.

An age-related cost justification limitation on § 4(f)

(2) is simply irreconcilable with this legislative history.

It ignores Congress’ failure to adopt Senator Smathers’

proposal for an express age-related cost justification lim-

itation. It authorizes case-by-case scrutiny of individual

terms of employee benefit plans, even though Congress

dismissed such an approach when it declined to adopt

the Administration’s proposal. It fails to acknowledge

that employee benefit plan-related barriers to the full

employment of older workers extend beyond age-related

benefit costs and thus does not fully respond tu the insti-

tutional concerns which Congress had found resulted in

the unemployment of older persons. And it suggests that

myriad employee benefit plans, many of which pre-dated

the statute’s enactment, are unlawful and must be

changed, notwithstanding Congress’ clear intent to pre-

vent the disruption of employee benefit plans and to leave

their regulation to a more studied and comprehensive

statutory scheme ‘like the one Senator Javits had con-

30

temporaneously proposed).'*? Such inconsistencies with

legislative history and purpose confirm that the age-

related cost justification limitation is statutorily un-

reasonable.

CONCLUSION

For the reasons set forth above, the judgment of the

court below should be reversed.

Respectfully submitted,

Of Counsel: GLEN D. NAGER

JAMES BAIRD (Counsel of Record)

SEYFARTH, SHAW, ANDREW M. KRA YER

FAIRWEATHER & GERALDSON M. LANE HoweLi

55 East Monroe Street JONES, DAY, Reavis & Pocue

Suite 4200 1450 G Street, N.W.

Chicago, Illinois 60603 Washington, D.C. 20005-5701

(312) 346-8000 (202) 879-3939

Counsel for Amicus

December 1988

For example, the age-related cost justification theory would

disrupt numerous disability retirement plans. As the Commonwealth

of Pennsylvania makes clear in its brief, over half of the states in

this country limit disability retirement benefits to persons ineligible

for regular or early retirement benefits. Surveys indicate that the

majority of private plans similarly limit eligibility for disability

retirement benefits. See Basic Patterns: Collective Bargaining

Negotiations and Contrects (BNA) No. 1068, at 48:2 ( May &, 1986).

The disruption weuld, of course, extend to other kinds of employee

benefit plans as well. Some courts have held that the cost of provid-

ing severance pay does not vary with age and, moreover, that deny-

ing severafice pay on the basis of pension or retirement eligibility

discriminates against the older worker. EEOC v. Westinghouse

Elec. Corp., supra. But surveys show that, both in 1967 and today,

large numbers of severance pay plans condition their benefits on

ineligibility for pensions. See Major Collective Bargaining Agree-

ments: Severance Pay and Layoff Benefit Plans, U.S. Dept. of Labor,

Bulletin No. 1425-2 (1965), at 23; Basic Pattern: Income Mainte-

nance, Collective Bargaining Negotiations and Contracts (BNA)

No. 1067, at 43:4 (Apr. 24, 1986). There is nothing in the statute

or the legisiative history to suggest that Congress intended the

wholesale invalida:ion of these severance pay plans.