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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1989
- **Citation:** 492 U.S. 158

## Text

" 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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0253%3A10. Public record. Not legal advice.