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

Supreme Court, U.S,

FILED

(

\ JAN 31 1989

No. 88-389 | | JOSEPH F. SPANIOL, JR.

Reantilt

In the Supreme Court of the United States

OCTOBER TERM, 1988

PuBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO,

APPELLANT

V.

JUNE M. BETTS

ON APPEAL FROM

THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF FOR THE EQUAL EMPLOYMENT OPPORTUNITY

COMMISSION AS AMICUS CURIAE SUPPORTING APPELLEE

WILLIAM C. BRYSON

Acting Solicitor General

THOMAS W. MERRILL

Deputy Solicitor General

CHRISTOPHER J. WRIGHT

Assistant to the Solicitor General

Depariment of Justice

Washington, D.C. 20530

(202) 633-2217

CHARLES A. SHANOR

General Counsel

GWENDOLYN YOUNG REAMS

Associate General Counsel

HARRY F. TEPKER, JR.

Attorney

Equal Employment

Opportunity Commission

Washingion, D.C. 20507

QUESTION PRESENTED

Whether an employee benefit plan that bars employees

who become disabled after age 60 from receiving disability

benefits is sheltered from liability under the Age

Discrimination in Employment Act by Section 4(f)(2) of

the Act, 29 U.S.C. 623(f)(2), which allows employers to

observe the terms of a “bona fide employee benefit plan

such as a retirement, pension, or insurance plan, which is

not a subterfuge to evade the purposes of” the Act, where

the employer has not shown that the discrimination is

justified by economic considerations.

(I)

TABLE OF CONTENTS

Interest of the Equal Employment Opportunity Commission . .

EE ee ee

Summary of argument .............. 0. cee cece eee

Argument:

Ohio’s Public Employees Retirement System violated the

Age Discrimination in Employment Act by disqualifying

Betts from receiving disability benefits solely on account

of her age since it proved no economic justification for its

discriminatory treatment .............-- 0c eee eee eee

A.

The Public Employees Retirement System dis-

criminated against Betts by denying her disability

Ne eee es enesecccsccess

The EEOC’s regulations properly interpret Section

4(f)(2) to shelter provisions in employee benefit plans

reducing the amount of benefits paid to older

employees only where economic considerations

justify such treatment ............----. ee eee eee:

Because Ohio’s Public Employees Retirement System

has offered no economic justification for its refusal

to pay disability benefits to employees over age 59, its

discrimination against older employees is not shielded

NMI, occ cccnssccrscccscccssseess

Appellant errs in contending that Section 4(f)(2)

authorizes arbitrary discrimination against older

employees under employee benefit plans and that its

plan is exempt as a pre-ADEA plan ..............-.

Neen Tne eee ees ee cccecaccecces

Cases:

TABLE OF AUTHORITIES

Cipriano v. Board of Education, 785 F.2d 51 (2d Cir.

EEOC v. Borden’s, Inc., 724 F.2d 1390 (9th Cir. 1984)...

EEOC vy. Cargill, 855 F.2d 682 (10th Cir. 1988) .........

(111)

Page

+ w=

ET ee er §, 13, 22

lV

Cases — Continued: Page

EEOC vy. City of Mt. Lebanon, 842 F.2d 1480 (3d Cir. *

MOOD occ ccccnccscadsscceseness settee ee nena es 5, 8, 12

EEOC vy. County of Orange, 837 F.2d 420 (9th Cir. -

SN. , cus uedh wanes saner scans teres seee Rast: . 2

EEOC vy. Home Insurance Co., 672 F.2d 252 (2d Cir. -

NN icoareucncecsbausas enrseaee (Sess <3 sta 2

FEOC v. Westinghouse Electric Corp., 725 F.2d 211 :

(3d Cir.), cert. denied, 469 U.S. 820 (1984) ...--- 4, 10, 11, ~

Hishon v. King & Spalding, 467 U.S. 69 (1984) ....----- 25

Karlen v. City Colleges of Chicago, 837 F.2d 314 (7th a

Cir.), cert. denied, No. 87-1831 (June 6, 1988) ...--- Pe a : .

Lehman v. Nakshian, 453 U.S. 156 (1980) .....----++-: 2

Skidmore v. Swift & Co., 323 U.S. 134 (1944) ... Denese S

Texas Department of Community Affairs v. Burdine, 450

Th Rr he 12

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

OE acca nnvusucusy stuns $64nrwon st Cees | ~

United Air Lines, Inc. v. McMann, 434 U.S. 192 (1977) . _— “

Western Air Lines v. Criswell, 472 U.S. 400 (1965) ....+: y

Statutes and regulations:

Age Discrimination in Employment Act, 29 U.S.C. 621 |

UI dan cap rueen eee ed + 1592 FEE? OES NE SEAT?

§ 1(b), 29 U.S.C. 621(b) ...--- eee errr ok 2, -

§ 4(a)(1), 29 U.S.C. || ec oe & * 6, 24

§ 4(f)(2), 29 U.S.C. Ss nee passim

BF, UBC. GB . 6... c cscs esc ccrreeeeeresenes |

§ 11(b), 29 U.S.C. 630(b) ....- 6-2 errr errr hk,

§ 11(b)(2), 29 U.S.C. ee oe “

0S, DUB. GB9e ..... esr e rete ceeecrenees 2

Pub. L. No. 93-259, § 28(a2) .---- +e errr 26

Pub. L. No. 95-256, § 2(a), 92 Stat. Dewees Ceaese 14, 19

yh ae) lt rr rr a 18

yk toe) ere es, 18

Ee OI soaps wc bon csesctre tyres Rye tee Pnse 18

V

Statutes and regulations — Continued: ° Page

Ohio Rev. Code Ann. (Anderson 1982 & Supp. 1987):

Ll rere rrr etre ere re rere 6, 21

| S ARAAR rrr ere esr errr ree 2, 22

Reorg. Plan No. | of 1978, 3 C.F.R. 321 (1978) ......... y

29 C.F.R. (1969):

Section 860.110(a) ......... PED EL Pr ee 19

Ns Se ieee he eeleceeheen 8

0 Eee re ress rier coor se 3

i ee te cce bee eiee seen 4,8, 11

29 C.F.R. (1988):

Cg oko oe ed Seaweed ee l

i ae boas Sa heeeh tenes s 3, 4,9

eed wade ca eee eee 12

I OD ds ves ccacacawetaaeeus 23

Miscellaneous:

Age Discrimination in Employment: Hearings on S. 830

and S. 788 Before the Subcommittee on Labor of the

Senate Committee on Labor and Public Welfare,

90th Conmg., 190 Sess. (1967)... 2... cece ee eeees 15, 16, 19

Tite § SS Prrerrrrrrrrrec errr ates 5, 10,

16, 17, 19, 21

SLE ou kewneens dscns kone et eu Vege scaaneheee 17

RT cdkey ¥eNses ce aunsaeaee roeseasteae et 16

“eb Bo Meeererrr er eerr erry er ae

“S > ere errr orrrrn: tery Tt 10, 17, 19, 21

“Se 5 ry ree rr eeerr Ta ree rr rs er 17

le SS Pree revererec rrr sire 20

yo. RR errr rrr rrr rrr 4,8, 11, 19

4D Fed. Gam, GO DIB ISI on occ ccc ccc cer ceeeeeenss 23

H.R. Conf. No. Rep. 950, 95th Cong., 2d Sess.

DN deca scale ue sea edh'c Gada hess had Chad OREN 17, 26

H.R. Rep. No. 256, 95th Cong., 2d Sess. (1978) .........

H.R. Rep. No. 805, 90th Cong., Ist Sess. (1967) ...... 17, 26-27

Report of the Secretary of Labor to the Congress under

Section 715 of the Civil Rights Act of 1964, The

Older American Worker: Age Discrimination in Em-

ployment (1965) .......... mis vest eae 15

Vi

Miscellaneous — Continued:

S. 830, § 4(f)(2), 9th Cong., Ist Sess. (1967) .......-:::

S. Rep. 723, 90th Cong., Ist Sess. (1967)

In the Supreme Court of the United States

OCTOBER TERM, 1988

No. 88-389

PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO,

APPELLANT

Vv.

JUNE M. BETTS

ON APPEAL FROM

THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF FOR THE EQUAL EMPLOYMENT OPPORTUNITY

COMMISSION AS AMICUS CURIAE SUPPORTING APPELLEE

INTFREST OF THE

EQUAL CEMPLOYMENT OPPORTUNITY COMMISSION

The Age Discrimination in Employment Act (ADEA),

29 U.S.C. 621 ef seq., generally proscribes discrimination

against employees age 40 and older. This case involves the

meaning of Section 4(f)(2) of the Act, 29 U.S.C. 623(f)(2),

which authorizes employers to observe the terms of

employee benefit plans in certain circumstances even

though older employees are disadvantaged as a result. The

Equal Employment Opportunity Commission (EEOC) en-

forces the ADEA (29 U.S.C. 626) and has issued regula-

tions concerning the meaning of the exception at issue (29

C.F.R. 1625.10). Accordingly, the EEOC has a substantial

interest in the resolution of the question presented. '

| This case does not affect the federal government as an employer,

because under 29 U.S.C. 630(b) it is not an “employer” tor purpose

(1)

STATEMENT

Appellee June Betts was hired by the Hamilton County,

Ohio, Board of Mental Retardation and Developmental

Disabilities in 1978 at age 55. In 1985, when she was 61,

Betts’ employer determined that she could no longer per-

form her job for medical reasons and informed her that

she could either retire or be placed on medical leave with

no pay and no medical benefits. J.S. App. A23. Had she

been under 60, she would have had a third option: disabili-

ty retirement. That option was foreclosed to her, however,

because of a provision in Ohio’s pension law preventing

persons over 60 from receiving disability pensions and

allowing them to receive only regular age retirement pen-

sions. Betts chose to retire and is currently receiving retire-

ment benefits of $158.50 per month (id. at A24). If she

had been eligible for disability retirement, she would

receive $355.02 per month (ibid.).?

The district court concluded that appellant, the Public

Employees Retirement System of Ohio (PERS), had im-

perimissibly discriminated against Betts because of her age.

Section 4(a)(1) of the Age Discrimination in Employment

Act (ADEA), 29 U.S.C. 623(a)(1), provides that “{i't shall

be unlawful for an employer to * * * discriminate against

any individual with respect to his compensation, terms,

conditions, or privileges of employment, because of such

individual’s age.” The Qhio employee benefit plan, the

of the statutory provision at issue. A separate and self-contained sec-

tion of the ADEA, 29 U.S.C. 633a, governs federal agencies. Lehmun

v. Nakshian, 453 U.S. 156, 168 (1980).

2? The difference between ordinary retirement benefits and disability

retirement benefits in Bett’s case comes about because of a provision

added to Ohio Rev. Code Ann. § 145.36 (Anderson 1982 & Supp.

1987) in 1976, which states that “[i]n no case shall a disability retire-

ment benefit be less than thirty per cent * * * of {an employee's] fina!

average salary.”

court stated, is contrary to Section 4(a)(1) because “[o]n its

face and in its effect, the disability retirement plan denies

benefits to ceriain employees because they are sixty years

of age or older.” J.S. Avp. A23.

The district court rejected PERS’ claim that its age-

based denial of disability benefits was protected under

Section 4(f)(2) of the ADEA, 29 U.S.C. 623(f)(2), which

provides that “[ijt shall not be unlawful for an employer

* * * to observe the terms of * * * any bona fide employer

benefit plan such as a retirement, pension, or insurance

plan, which is not a subterfuge to evade the purposes of”

the Act. The court agreed with the EEOC’s interpretative

regulation, which construes this provision to “ ‘permit age-

based reductions in employee benefit plans where such

reductions are justified by significant cost considera-

tions.’ ” J.S. App. A28, quoting 29 C.F.R. 860.120(a)(1)

(1969) (currently designated 29 C.F.R. 1625.10(a)(1)).

Here, the court concluded, the discrimination “is not

justified by significant cost considerations and therefore,

it is not the type of plan contemplated by the exception.”

J.S. App. A29.?

A divided court of appeals affirmed. J.S. App. A2-A19.

It agreed with the Seventh Circuit that “ ‘where, as in the

present case, the employer uses age — not cost, or years of

service, or salary—as the basis for varying retirement

benefits, he had better be able to prove a close correlation

between age and cost if he wants to shelter in the safe har-

bor of ” Section 4(f)(2). J.S. App. AS, quoting Karlen

“The district court also concluded that because Betts was dis-

qualified from obtaining disability benefits she had been forced to

retire involuntarily. The court therefore held that PERS had violated

Section 4(f)(2)’s proscription against “requir[ing] or permuit(ting] the

involuntary retirement of any individual * * * because of the age of

such individual.” J.S. App. A30-A32. The court of appeals did not ad-

dress that conclusion.

4

J

v. City Colleges of Chicago, 837 F.2d 314, 319 (7th Cir.),

cert. denied, No. 87-1831 (June 6, 1988). Here, the court

concluded, “{dJjespite having every opportunity, the de-

fendants declined to introduce any cost figures or other

economic justification for the different treatment of

employees over sixty.” J.S. App. Aé.

SUMMARY OF ARGUMENT

PERS discriminated against Betts on account of her

age, as she would receive more than double the amount of

the benefits she currently receives if she had become

disabled before, rather than after, turning 60. It is un-

disputed that, in the absence of Section 4(f(2), PERS

would be liable under Section 4(a)(1) of the ADEA.

From the time of the enactment of the ADEA to the

present, the two federal agencies that have administered

the Act have consistently interpreted Section 4(f)(2) as re-

quiring some sort of cosi justification in order to permit

an employer to avoid a charge of discrimination. 29

C.F.R. 860.120(b) (1969) (34 Fed. Reg. 9709 (1969))

(Department of Labor regulation); 29 C.F.R 1625.10(a)(1)

(current EEOC regulation). That construction is fully con-

sistent with the language of the provision. In enacting Sec-

tion 4(f)(2), Congress meant to shield employee benefit

plans that disadvantage older employees only where

employers present reasonable economic justifications for

doing so. This conclusion draws support from Congress's

use of the phrase “such as a retirement, pension, or in-

surance plan.” The thread common to those sorts of plans

is that they entail costs that typically increase as employees

age. EEOC v. Westinghouse Electric Corp., 725 F.2d 211

(3d Cir.), cert. denied, 469 U.S. 820 (1984); EEOC v.

Borden’s, Inc., 724 F.2d 1390 (9th Cir. 1984). Alternative-

ly, the cost-justification rule can be derived from the re-

quirement that a plan not serve a “a subterfuge to evade

the purposes of” the Act. One purpose of the ADEA is to

5

abolish arbitrary discrimination against older employees,

i.e., discrimination that has no foundation in legitimate

cost differences between older and younger employees.

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

1988); Cipriano v. Board of Education, 785 F.2d 51 (2d

Cir. 1986).

The legislative history also supports the conclusion that

employers must provide an economic justification before

they may discriminate against older employees in the pro-

vision of an employee benefit. Senator Javits, who intro-

duced the amendment that became Section 4(f)(2), ex-

plained at the time he introduced it that it was intended to

allow employers to provide different benefits to older em-

ployees “because of the often extremely high cost of pro-

viding certain types of benefits to older workers.” 113

Cong. Rec. 31,254-31,255 (1967), reprinted in U.S. Equal

Employment Opportunity Commission, Legislative

History of the Age Discrimination in Employment Act

145-146 (1981). Since the exception was intended to

authorize employers to grant lesser benefits to older

employees where benefits are more costly to provide to

those employees, it is sensible to require employers to pro-

vide a cost justification for their discrimination in order to

invoke Section 4(f)(2).

The courts below correctly concluded that PERS is not

Shielded by Section 4(f)(2) because it has offered no eco-

nomic justification whatever to expluin why persons who

become disabled before age 60 are entitled to greater bene-

fits than employees who become disabled after turning 60.

PERS argues that it need not offer any justification for its

discriminatory treatment because Congress intended to

allow employers to discriminate in the provision of

employee benefits as long as the discrimination is not a

cover for forcing older employees to retire. But neither the

language of the statute nor its legislative history provides

support for the contention that Congress intended to grant

6

employers the right to discriminate arbitrarily in the provi-

sion of employee benefits except in that limited circum-

stance. Finally, there is no merit to PERS’ suggestion that

its plan is protected because it was established prior to the

enactment of the ADEA, since the discriminatory provi-

sion at issue was added in 1976, after the ADEA took ef-

fect.

ARGUMENT

OHIO’S PUBLIC EMPLOYEES RETIREMENT SYSTEM

VIOLATED THE AGE DISCRIMINATION IN EMPLOY-

MENT ACT BY DISQUALIFYING BETTS FROM RECEIV-

ING DISABILITY BENEFITS SOLELY ON ACCOUNT OF

HER AGE SINCE IT PROVED NO ECONOMIC JUSTIFICA-

TION FOR ITS DISCRIMINATORY TREATMENT

A. The Public Employees Retirement System Discriminated

Against Betts By Denying Her Disability Benefits

The Ohio statute at issue, Ohio Rev. Code Ann.

§ 145.35 (Anderson 1982 & Supp. 1987), is discriminatory

on its face, as it provides that only employees who have

“not attained age sixty” may apply for disability benefits.

The statute thus conflicts with Section 4(a)(1) of the

ADEA, 29 U.S.C. 623(a)(1), which makes it unlawful for

employers to “discriminate against any individual with re-

spect to his compensation, terms, conditions, or privileges

of employment, because of the individual’s age.” There 1s

no question that the application of Section 145.35 had a

discriminatory effect here, since the monthly retirement

benefit that Betts initially received was less than half of the

amount of the disability benefit that she would hz ve re-

ceived if she had not been barred from applying for those

benefits. Indeed, under the Ohio Public Employees Retire-

ment System a recipient of disability benefits does not

cease to receive those benefits after reaching age 60; conse-

quently, if Betts had become eligible to obtain disability

benefits at age 59, she would continue to receive at least 30

percert of her salary after she turned 60 rather than the

lesser . 2tirement benefit that she receives instead. In short,

an employee disabled before age 60 is treated significantly

differently than an employee disabled after age 60 even if

the younger and older employees have identical years of

service, identical disabilities, and identical salaries. Thus,

this case involves disparate treatment of an employee on

account of her age.

B. The EEOC’s Regulations Properly Interpret Section 4(f)(2)

To Shelter Provisions In Employee Benefit Plans Reducing

The Amount Of Benefits Paid To Older Employees Only

Where Economic Considerations Justify Such Treatment

The dispositive question is whether the disparate treat-

ment afforded Betts under Ohio law is protected under

Section 4(f)(2), which authorizes an employer to observe

the terms of “any bona fide employee benefit plan such as

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

subterfuge to evade the purposes of” the Act. The federal

agencies charged with enforcement of the ADEA have

long construed this provision to permit age-based differ-

entials in employee benefits only where such differences

are justified by significant cost considerations. That con-

struction is consistent with both the language of Section

4(2)(f) and its purposes, as revealed by the legislative

history. The lower courts therefore correctly ruled that

PERS may not rely on Section 4(f)(2) unless it can demon-

Strate a significant cost justification for its refusal to ex-

tend disability retirement benefits to persons over age 60.

1. Shortly after the enactment of the ADEA in 1967,

the Department of Labor, which originally administered

the Act, issued an interpretation of Section 4(f)(2). That

interpretation allowed employers to discriminate against

older employees in the provision of employee benefits

8

where the cost of such benefits was more expensive for

older employees. It stated: “{[A]n employer may provide

lesser amounts of insurance coverage under a group in-

surance plan to older workers than he does younger

workers, where the plan is not a subterfuge to evade the

purposes of the Act. A retirement, pension, or insurance

plan will be considered in compliance with the statute

where the actual amount of payment made, or cost in-

curred, in behalf of an older worker is equal to tha! made

or incurred in behalf of a younger worker, even though the

older worker may thereby receive a lesser amount of pen-

sion or retirement benefits or insurance coverage.” 29

C.F.R. 860.120(a) (1969); 34 Fed. Reg. 9709 (1969). Thus,

as the Department understood Section 4(f)(2) shortly after

its enactment, it permitted, for example, employers to

contribute $100 annually towards the purchase of term life

insurance for all employees, even though $100 would buy

twice as much coverage for a 35-year-old employee as it

would for a 55-year-old employee.

The Department also understood that Section 4(f)(2) did

not authorize discrimination against older employees with

respect to benefits that were not more costly to provide

older employees. Noting that “[nJot all employee benefit

plans but only those similar to the kind enumerated in sec-

tion 4(f)(2) of the Act come within this provision,” the

Department opined that in the normal case Section 4(f)(2)

would not shield discrimination against older employees

under the terms of profit-sharing plans. 29 C.F.R.

860.120(b) (1969); 34 Fed. Reg. 9709 (1969). Thus, in the

Department’s view, by the phrase “employee benefit plan

such as a retirement, pension, or insurance pian” in Sec-

tion 4(f)(2) Congress limited the exception to plans where

the cost of providing benefits increases as employees age.

In 1979, the responsibility for enforcing the ADEA was

transferred from the Department of Labor to the EEOC.

9

Reorg. Plan No. | of 1978, 3 C.F.R. 321 (1978). The

EEOC adopted the Department of Labor’s interpretation

of Section 4(f)(2). The current EEOC regulations state

that “its purpose is to permit age-based reductions in

employee benefit plans where such reductions are justi-

fied by significant cost considerations.” 29 C.F.R.

1625.10(a)(1). Like the Department of Labor’s 1969

regulations, the EEOC’s regulations provide that “{a]

benefit plan will be considered in compliance with the

Statute where the actual amount of payment made, or cost

incurred, in behalf of an older worker is equal to that

made or incurred in behalf of a younger worker, even

though the older worker may thereby receive a lesser

amount of benefits or insurance coverage” (ibid.).

Thus, the agencies responsible for administering the

ADEA have consistently agreed—from the time of its

enactment more than twenty years ago to the present —

that Section 4(f)(2) is designed primarily to permit cost-

justified discrimination against older workers in the provi-

sion of employee benefits. This Court has relied on “the

consistent interpretation of the administrative agencies

charged with enforcing” the ADEA. Western Air Lines v.

Criswell, 472 U.S. 400, 412 (1985); see also Skidmore v.

Swift & Co., 323 U.S. 134, 139-140 (1944). “[T}he EEOC’s

cost justification requirement constitutes the type of long-

standing and contemporaneous agency interpretation de-

serving recognition.” EEOC v. City of Mt. Lebanon, 842

F.2d 1480 (3d Cir. 1988).

2. The interpretation of Section 4(f)(2) adopted by the

federal agencies charged with its enforcement is fully com-

patible with the statutory language. The cost-justification

requirement can be derived either from the phrase “bona

fide employee benefit plan such as a retirement, pension,

or insurance plan,” as some courts have held, or it can be

viewed as implicit in the requirement that a plan not be “a

10

subterfuge to evade the purposes of” the Act, as other

courts have suggested. Whichever phrase is given primary

emphasis, the courts of appeals agree that the cost-justi-

fication standard is supported by the statutory language.

When Congress adopted the “safe harbor” provision

codified as Section 4(f)(2), it listed as illustrative examples

of the type of benefit plans it had in mind retirement, pen-

sion, and insurance plans. A common feature of such

plans is that they tend to entail costs that rise with the age

of the beneficiary. To be sure, the costs of providing bene-

fits to older employees under retirement, pension, and in-

surance plans do not always increase as the age of em-

ployees increases. But they commonly do. Most obviously,

it costs more to obtain term life insurance as employees

age. In addition, health insurance may be more expensive

to obtain for older employees. And it might be more ex-

pensive to provide the same defined benefit under a retire-

mext or a pension plan to an employee who began work at

age 55 than to an employee who began working at a much

younger age. See 113 Cong. Rec. 31,255 (1967), reprinted

in U.S. Equal Employment Opportunity Commission,

Legislative History of the Age Discrimination in Employ-

ment Act 146 (1981).

The Third Circuit in EEOC v. Westinghouse Electric

Corp., 725 F.2d 211, 224, cert. denied, 469 U.S. 820

(1984), agreed that Section 4(f)(2) incorporates an “age-

related cost factor,” and it grounded that requirement in

the phrase “bona fide employee benefit plan such as a

retirement, pension, or insurance plan.” * In Westing-

house, the employer had refused to provide layoff benefits

* The Department of Labor similarly emphasized in 1969 that “[njot

all employee benefit plans but only those similar to the kind

enumerated in section 4(f)(2) of the Act come within this provision.” It

therefore concluded that Section 4(f)(2) would not shield discrimina-

tion against older employees in the provision of profit-sharing benetits

11

to employees age 55 and over because they qualified for

retirement benefits (id. at 214-215). The court of appeals

noted that it was “aware that the words ‘such as a retire-

ment, pension or insurance plan’ were added in a descrip-

tive sense” to Section 4(f)(2) (id. at 224). However, the

court stated, “their description contains substance” (ibid. ).

As the court stated, those sorts of plans are “indicative of

the types of plans in which Congress intended to allow age

discrimination; they are of the type whereby the cost of

benefits increases with age,” since “(t]he thread common

to retirement, insurance and pension plans * * * is the age-

related cost factor” (ibid.).

Similarly, the Ninth Circuit in EEOC v. Borden’s, Inc.,

724 F.2d 1390, 1396 (1984), concluded that “Borden’s

severance pay policy is not an ‘employee benefit plan such

as a retirement, pension, or insurance plan.’ ” The court

explained that Congress “meant to encourage the hiring of

older workers by relieving employers of the duty to pro-

vide them with equai benefits—where equal benefits

would be more costly for older workers” (ibid.). Sincé

severance benefits do not vary depending on the age of the

worker, the Ninth Circuit, following the Third Circuit’s

approach in Westinghouse, held that the employer’s

severance pay policy was “a ‘simple fringe benefit,’ outside

the scope of” Section 4(f)(2) (id. at 1397).°

because the cost of providing those benefits does not increase as

employees age. 29 C.F.R. 860.120(b) (1969); 34 Fed. Reg. 9709 (1969).

* The discrimination here is not excused because, while denying

Betts disability benefits, PERS has provided her with lesser benefits of

a type listed in the statute. The employees in Westinghouse who were

denied layoff benefits were also provided retirement benefits, but the

court properly concluded that the fact that the layoff plan “is tied to

Westinghouse’s Pension Plan does not negate the fact that it is more

analogous to a ‘fringe benefit’ than to the types of employee benefit

plans covered under 4(f)(2).” 725 F.2d at 225. Moreover, even if a

12

Other courts of appeals have emphasized Section

4(f)(2)’s requirement that a plan not be “a subterfuge to

evade the purposes of” the Act.® As in any other disparate

treatment case, the question whether an employer’s dis-

criminatory treatment of oider employees is a subterfuge

must focus on whether the employer had a valid reason for

its action or whether its stated reason is a pretext for pro-

scribed behavior. Thus, courts must determine whether

the employer’s motive was nonpretextual. Cf. Texas

Department of Community Affairs v. Burdine, 450 U.S.

248 (1981). In the context of Section 4(f)(2), this means the

employer must demonstrate a legitimate business reason

for treating older employees less generously than younger

employees. As a rule, that will generally require the

employer to show that it is more expensive to provide the

benefit in question to older employees.

Like this case, EEOC v. City of Mt. Lebanon, 842 F.2d

1480, 1484 (3d Cir. 1988), involved a plan under which

older employees were barred in some circumstances from

receiving disability benefits, and had to settle for lesser

retirement benefits. The court stated that the question pre-

sented was whether the employer “created the plan as a

subterfuge to evade the ADEA prohibition of age dis-

crimination” (id. at 1488). It concluded that Congress en-

acted Section 4(f)(2) because it “recognized the greater ex-

pense incurred by employers providing benefit programs

for older employees,” and decided that “employers should

be relieved of the obligation of providing older employees

plan is of the sort enumerated in the statute, that does not mean that

any discrimination against older employees under the terms of the

plan, no matter how arbitrary, should be excused.

®° The EEQC’s current regulations provide that “a plan or plan pro-

vision which prescribes lower benefits for older employees on account

of age is not a ‘subterfuge’ within the meaning of section 4(f)(2), pro-

vided that the lower level of benefits is justified by age-related cost

considerations.” 29 C.F.R. 1625.10(d).

»

13

with benefits equal to benefits for younger employees

when it would be more costly to do so” (id. at 1489). Ac-

cordingly, the court held that “[i]n order to ‘cost justify’ a

reduced level of benefits for older employees, and thereby

disprove subterfuge, an employer must establish a connec-

tion or nexus showing how general cost savings data sup-

ports the extent of reductions in its particular plan” (id. at

1492). Similarly, the Second Circuit in Cipriano v. Board

of Education, 785 F.2d 51, 57, 58 (1986), concluded that

an incentive plan under which an employer gave bonuses

to employees between 55 and 60 if they retired, but did not

offer similar bonuses to older employees, was a “ ‘subter-

fuge to evade the purposes of the Act’ ” in the absence of

evidence showing a legitimate business reason for discrimi-

nating against the older employees. ’

While the courts of appeals have emphasized different

language in the text of Section 4(f)(2), they have generally

agreed that where “the employer uses age—not cost, or

years of service, or salary —as the basis for varying retire-

ment benefits, he had better be able to prove a close corre-

lation between age and cost if he wants to shelter in the

safe harbor of section 4(f)(2).” Karlen, 837 F.2d at 319;

Pet. App. AS. That conclusion is fully warranted by the

language of Section 4(f)(2) which limits its coverage to cer-

tain types of employee benefit plans characterized by age-

” The Second Circuit in Cipriano stated that it “would not wish to

be understood as endorsing every detail of the regulations.” 785 F.2d

at 58. However, it held that an employee benefit plan that discrimi-

nated against older employees would not be protection by Section

4(f)(2) in the absence of a showing by the employer that it had “a

legitimate business reason for structuring the plan as it did” (ibid.).

The Second Circuit thus plainly rejected PERS’ position, which is that

it may discriminate against older employees in the provision of

employee benefits as long as it does not try to force them to retire. See

App. Br. 26, 48.

14

related costs (“a plan such as a retirement, pension, or in-

surance plan”), and by the language that proscribes plans

that undermine the basic antidiscrimination rationale of

the Act (a plan that is “a subterfuge to evade the purposes

of” the Act).§

3. If there were any doubt about whether the EEOC’s

cost-justification standard is consistent with the statutory

language, that doubt is resolved by the legislative history.

As introduced by Senator Yarborough in 1967, Section

4(f)(2) of the bill that became the Age Discrimination in

Employment Act provided only that it would not be un-

lawful for an employer “to separate involuntarily an em-

ployee under a retirement policy or system where such

policy or system is not merely a subterfuge to evade the

purposes of this Act.” S. 830, § 4(f)(2), 90th Cong., Ist

Sess., reprinted in U.S. Equal Employment Opportunity

* At the end of its opinion in United Air Lines, Inc. v. McMann,

434 U.S. 192, 203 (1977), this Court stated that it found nothing to in-

dicate that Congress intended to require an employer that established

a retirement plan long before the enactment of the ADEA “to show an

economic or business purpose in order to satisfy the subterfuge

language in the Act.” Contrary to appellants (Br. 22), we do not think

that that statement has binding force following Congress’s enactment

of the 1978 amendment to Section 4(f)(2) negating the holding in

McMann. Pub. L. No. 95-256, § 2(a), 92 Stat. 189. In any event, the

statement appears to have been tied to the situation presented in that

case, where the discriminatory provision had been added to the plan at

issue prior to the enactment of the ADEA. Here, in contrast, the

discriminatory provision in Ohio law was added in 1976, after the

ADEA was enacted and after it was amended to apply to the States.

Thus, no pre-ADEA provision is involved here. See pages 25-26, in-

Sra. Furthermore, the Court in McMann did not focus on the language

of Section 4(f)(2) referring to plans “such as a retirement, pension, or

insurance plan” or the legislative history showing that Congress plain-

ly intended to require employers to provide an economic justification

where lesser benefits are provided to older employees, but. instead

focused on the question presented in that case. See pages 14-20, infra.

15

Commission, Legislative History of the Age Discrimina-

tion in Employment Act [hereinafter Legislative History|

68 (1981). The bill as introduced made no reference to any

circumstance that might authorize employers to discrim-

inate against older employees in the provision of benefits.

The drafters of the bill, which was termed the administra-

tion bill, probably thought such a provision unnecessary

because the 1965 report of the Secretary of Labor on the

problems of older employees noted that “[rJelatively few

employers * * * cited the costs of providing pension and

insurance benefits as significant barriers to employment of

older persons.” Report of the Secretary of Labor to the

Congress under Section 715 of the Civil Rights Act of

1964, The Older American Worker: Age Discrimination in

Employment 16 (1965), reprinted in Legislative History at

33.

Senator Javits, however, thought that employers were

concerned about the cost of providing some types of em-

ployee benefits to older persons. He criticized the ad-

ministration bill for “not provid[ing] any flexibility in the

amount of pension benefits payable to older workers de-

pending on their age when hired.” Age Discrimination in

Employment: Hearings on S. 830 and S. 788 Before the

Subcommittee on Labor of the Senate Committee on

Labor and Public Welfare {hereinafter Senate Hearings},

90th Cong., Ist Sess. 27 (1967). In his view, “faced with

the necessity of paying greatly increased premiums,” em-

ployers might “look for excuses not to hire older workers”

(ibid.).

Senator Smathers, a cosponsor of the administration

bill, shared this concern. He agreed with Senator Javits

that “[a]s presently drafted, the bill would probably be in-

terpreted to require that workers hired for the first time

between the ages of 45 and 65 be given the same private

pension rights and other fringe benefits that workers are

16

given who began with the employer at younger ages, thus

ignoring the fact that providing fringe benefits for the

former can be expensive.” Senate Hearings at 29-30. He

therefore suggested an amendment “somewhat along the

lines of the following: * * * 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

providing 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).

The next day, Senator Javits stated on the floor of the

Senate that he would seek to amend the administration bill

in a way that incorporated his and Senator Smathers’ con-

cerns. The proposed amendment, which was similar to

Section 4(f)(2) as ultimately enacted, provided that it

would not be unlawful for an employer “to observe a

seniority system or any retirement, pension, employee

benefit, or insurance plan, which is not merely a subter-

fuge to evade the purposes of this Act.” 113 Cong. Rec.

7077 (1967), reprinted in Legislative History at 72. Senator

Javits explained that under his amendment “an employer

will not be compelled to afford older workers exactly the

same pension, retirement, or insurance benefits as younger

workers and thus employers will not, because of the often

~extremely high cost of providing certain types of benefits

to older workers, actually be discouraged from hiring

older workers.” 113 Cong. Rec. 31,254-31,255 (1967), re-

printed in Legislative History at 145-146 (emphasis

added). According to its drafter, therefore, a key purpose

of Section 4(f)(2) was to allow employers to pay lesser

benefits to older employees where it cost more to provide

those benefits to older persons. See also 113 Cong. Rec.

34,746 (1967) (employers need not provide “special and

17

costly benefits” to older employees) (remarks of Rep.

Daniels), reprinted in Legislative History at 157).

Senator Javits’ amended version of Section 4(f)(2) had

another effect as well. In a colloquy with Senator Javits,

Senator Yarborough asked: “Say an applicant for employ-

ment is 55, comes in and seeks employment, and the com-

pany 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 * * * will not be able to

participate in that pension plan because unlike a man hired

at 44, he has no chance to earn 20 years retirement.” 113

Cong. Rec. 31,255 (1967), reprinted in Legislative History

at 146. Senator Javits agreed that his amendment pro-

tected an employer in such a situation from a claim that it

discriminated against older employees who would not be

eligible to participate in the pension plan (ibid.). See also

H.R. Rep. 805, 90th Cong., Ist Sess. 4 (the exception per-

mits “employment without necessarily including such

folder] workers in employee benefit plans” (1967),

reprinted in Legislative History at 78; 113 Cong. Rec.

34,746 (1967) (older employees need not “be included in all

employee benefit plans”) (remarks of Rep. Daniels), —

reprinted in Legislative History at 157).?

* PERS notes (Br. 37) that Senator Javits believed that the ADEA

was not the place to “fight{ ] the pension battle.” See 113 Cong. Rec.

7076 (1967), reprinted in Legislative History at 71. By that remark,

Senator Javits was not suggesting that any type of discrimination in

the provision of employee benefits should be permissible under the

ADEA. Rather, he was aware that some pension plans in existence

then had very long periods before benefits vested, such as the 20-year

period in the plan hypothesized by Senator Yarborough, and he

thought that such requirements should be changed by comprehensive

pension legislation rather than by an age discrimination statute. A ma-

jor change made by the Employee Retirement Income Security Act of

1974 (ERISA), of which Senator Javits was a sponsor, was that en-

18

Thus, in addition to allowing employers to decrease the

amount of benefits paid to older employees where it costs

more to provide those benefits to them, Senator Javits’

version of Section 4(f)(2) was intended to allow employers

to bar older employees from participating in certain plans

altogether when they could not work for the employer

long enough to qualify for participation in the plan. The

decision to permit employers to enforce waiting periods

for the vesting of pension benefits, like the decision to

allow them to provide reduced benefits in some circum-

stances, was based on economic considerations. The

amounts employers must pay into certain employee bene-

fit plans, such as defined benefit pension plans,'® depends

on actuarial predictions of the amounts that ultimately

will have to be paid in benefits. It would upset the predic-

tions on which contributions had been based, and the ac-

tuarial soundness of some plans, if a large number of em-

ployees previously thought to be ineligible for pensions

suddenly became entitled to benefits.'!'

titkement to benefits paid by qualified pensions plans must vest par-

tially after five years of service and totally after ten years of service. 29

U.S.C. 1053.

'® Defined benefit plans are pension plans where retirees receive a

fixed amount per month based on factors such as final salary and

years of service. They differ from defined contribution plans, under

which an employer regularly contributes a percentage of an

employee's compensation to an account, and the employee is entitled

to the account upon retirement. See 29 U.S.C. 1002(34) & 1002(35).

'' PERS (Br. 33) and amicus National Public Employers Labor

Relations Association (Br. 29) note that Senator Smathers’ suggested

amendment, which expressly authorized variation in employee

benefits where it is more expensive to provide certain benefits to older

employees, was not enacted. Contrary to their suggestion, however,

that in no way implies that Congress rejected his concerns. Senator

Smathers never actually proposed an amendment to the Senate, but

instead suggested at a hearing language “somewhat along the lines of

19

The concern with costs that animated the original enact-

ment of Section 4(f)(2) was confirmed in 1978, when Con-

gress amended Section 4(f)(2) by adding a clause providing

that no employee benefit plan may “require or permit the

involuntary retirement of any individual * * * because of

the age of such individual.” Pub. L. No. 95-256, § 2(a), 92

Stat. 189.'? The purpose of the amendment was to over-

turn the result in United Air Lines, Inc. v. McMann, 434

U.S. 192, 193 (1977), where this Court held that involun-

tary retirements were permitted by Section 4(f)(2). In so

ruling, the Court stated that it had found “nothing to in-

dicate Congress intended wholesale invalidation of retire-

ment plans instituted in good faith before its passage, or

the following.” Senate Hearings at 30. Senator Javits plainly under-

stood his amendment, which borrowed its reference to pension, retire-

ment, and insurance plans from Senator Smathers’ suggestion, to ac-

complish the result Senator Smathers desired, as he stressed that

where the “high cost of providing certain types of benefits to older

workers” exceeded the cost of providing those benefits to younger

employees, employers would “not be compelled to afford older

workers exactly the same pension, retirement, or insurance benefits.”

113 Cong. Rec. 31,255 (1967), reprinted in Legislative History at 146

(emphasis added).

Moreover, Senator Javits could not have adopted Senator

Smathers’ suggested language exactly because it did not allow em-

ployers to bar older employees from participating in employee benefit

plans altogether where they could not work for the employer long

enough to qualify. Senator Smathers’ language authorized “variance”

only. In the case of the 55-year-old employee hypothesized by Senator

Yarborough in his colloquy with Senator Javits, Senator Smathers’

proposed language would have required that the 55-year-old receive a

lesser pension if he worked to age 65, whereas the terms of the hypo-

thetical plan bargained by the employer and its union required 20

years of employment for an employee to quality tor a pension.

‘2 The guidelines that the Department of Labor issued in 1969 pro-

vided that involuntary retirement was permitted by Section 4(f)(2). 29

C.F.R. 860.110(a) (1969), 34 Fed. Reg. 9709 (1969)

v

20

intended to require employers to bear the burden of show-

ing a business or economic purpose to justify bona fide

pre-existing plans.” 434 U.S. at 203. In the course of ex-

plaining the decision to overturn this result, Senator Javits

asserted that the Court had erred by stating that an

economic justification was not required to shield discrimi-

nation in the provision of employee benefits: “The mean-

ing of the exception, as I stated in a colloquy with Senator

Yarborough on the Senate floor, was that an ‘employer

will not be compelled under this section to afford to older

workers exactly the same pension, retirement, or insurance

benefits as he affords to younger workers.’” 124 Cong.

Rec. 8218 (1978), reprinted in Legislative History at 539.

By that statement, Senator Javits indicated, he had meant

that “(welfare benefit levels for older workers may be

reduced only to the extent necessary to achieve approxi-

mate equivalency in coutributions for older and younger

workers” (ibid.).

4. Finally, the EEOC’s interpretation of Section

4(f)(2) not only comports with the language and legislative

history of the Act, it also finds support in important policy

considerations. The cost-justification standard imports an

objective criterion for determining the scope of the Section

4(f)(2) exemption—whether the disparate treatment of

older workers can be justified by significant differences in

the costs of providing benefits to older workers. The ob-

jective nature of the standard should result in more pre-

dictable enforcement, which in turn should encourage

voluntary compliance and facilitate long-range planning in

the development of employee benefit plans. The cost-

justification criterion also supplies a general, neutral

standard for assessing all types and varieties of employee

benefit plans, regardless of the particular label that may be

attached to those plans. Finally, and most importantly,

the EEOC’s standard follows directly from the ADEA’s

anti-discrimination principle. When it costs the same to

provide a particular benefit to an older employee and a

younger employee, then there is no relevant difference be-

tween the two that would justify disparate treatment. But

when it costs significantly more to provide a benefit to an

older employee, it cannot fairly be said that the two

employees are so similarly situated that it would be unfair

to differentiate between them in the provision of benefits.

The cost-justification standard therefore advances the

most basic purpose of the ADEA: ending discrimination

against older employees in the workplace.

C. Because Ohio's Public Employees Retirement System Has

Offered No Economic Justification For Its Refusal To Pay

Disability Benefits To Employees Over Age 59, Its Dis-

crimination Against Older Employees Is Not Shielded By

Section 4(f)(2)

PERS has not demonstrated that its disability benefits

plan is the sort of plan where costs increase with the age of

the participant.'? Indeed, as the court below stated,

“[djespite having every opportunity, the defendants

declined to introduce any cost figures or other economic

justification for the different treatment of employees over

sixty.” J.S. App. A6.'* That defect is fatal, since Section

'} Because Betts had five years of service, she qualified for dis-

ability benefits under Ohio law. Ohio Rev. Code Ann. g 145.35

(Anderson 1982 & Supp. 1987). Accordingly, Congress’s interest in

enacting Section 4(f)(2) to authorize employers to establish legitimate

waiting periods before employees are entitled to participate in

employee benefit plans, which was stressed by Senator Yarborough in

his colloquy with Senator Javits (113 Cong. Rec. 31,255 (1967),

reprinted in Legislative History at 146), is not implicated by this case.

‘+ In its court of appeals’ brief, PERS conceded that “[t}here was no

evidence before the court concerning the potential increased cost to

PERS based on the greater frequency of incidence of disability within

the excluded age group.” PERS’ C.A. Br. 27.

22

4(f)(2) is an affirmative defense on which the defendant

bears both the burden of production and persuasion.

Karlen, 837 F.2d at 318; Cipriano, 785 F.2d at 57-59. In

any event, there is no good reason to assume without evi-

dence that disability benefits become more costly as em-

ployees get older. While older employees may be more

likely to become disabled (a point on which there is no evi-

dence), the court of appeals correctly noted that “the em-

ployee who becomes disabled at a younger age should

draw more in benefits over the course of his lifetime than

the employee who becomes disabled at 60 or older.” J.S.

App. A6é. Thus, it may be that it is actually more expensive

to provide disability benefits to younger workers.

Nor is PERS’ discrimination justified because em-

ployees like Betts, unlike younger employees who become

disabled, are eligible for retirement benefits under Ohio

law. That explanation does not square with the effect of

the Ohio statutes, since employees who obtain disability

benefits do not cease to receive them when they turn 60.

Rather, they continue to receive disability benefits at the

rate of at least 30 percent of their “final average salary”

(Ohio Rev. Code Ann. § 145.36 (Anderson 1982 and

Supp. 1987), even after they turn 60 and become eligible

for retirement benefits instead of disability benefits. Thus,

contrary to PERS’ explanation (Br. 48), the disability plan

provides income to employees who have an alternative

source of income.

Even if PERS disqualified all recipients from receiving

disability benefits once they became eligible to receive

retirement benefits, its plan would still not be shielded by

Section 4(f)(2). The federal agencies administering the

ADEA have concluded that employers may in certain cir-

cumstances reduce disability benefits, or replace them with

lesser retirement benefits, as recipients age and become en-

titled to other benefits. But the circumstances in which dis-

23

qualification is permitted do not include the situation pre-

sented here. In 1978, the Department of Labor noted that

disability benefits are typically intended “to replace, at

least partially, income which an employee would have

earned but is unable to earn because of disability.” 43 Fed.

Reg. 43,266. Requiring disability benefits to continue

without reduction until age 70 (the age at which manda-

tory retirement was permissible at that time), the Depart-

ment continued, “rests on the unwarranted assumption

that a worker who suffers from a long-term disability

would, in the absence of the disability, have worked until

age 70” (id. at 43,267). Data that the Department’s Bureau

of Labor Statistics had gathered showed that “the most

common age at which employees retire is 65” and that, for

“individuals still employed at age 60 (or later), the average

remaining worklife is about 5 years” (ibid.). Accordingly,

the Department concluded, employers should be allowed

to cut off disability payments “at age 65 for any employee

who becomes disabled at age 60 or less” and “5S years after

the disability occurred” when employees become disabled

after age 60 (ibid.).

The EEOC has adopted that approach. 29 C.F.R.

1625. 10(f)(1 (ii). Its regulations also note that “[cjost data

may be produced to support other patterns of reduction as

well” (ibid.). Here, PERS’ reduction of benefits does not

fall into the safe harbor provided by the regulations, and it

has produced no cost data at all to justify its approach.

D. Appellant Errs In Contending That Section 4(f)2) Autho-

rizes Arbitrary Discrimination Against Older Employees

Under Employee Benefit Plans And That Its Plan Is Exempt

As A Pre-ADEA Plan

1. PERS contends (Br. 26) that, under Section 4(f)(2),

“any plan designed to provide employees with benefits un-

related to salary or wages is exempt from the prohibitions

24

of the Act, provided the plan was not conceived to avoid

the statute’s specified purposes of facilitating the employ-

ment of older workers.” PERS’ amici similarly argue that

Section 4(f)(2) excuses all discrimination pursuant to an

employee benefit plan that is not a sham.'> That construc-

tion, which has no support at all in the many decisions of

courts of appeals construing Section 4(f)(2), totally ig-

nores the statutory phrase “such as a retirement, pension,

or insurance plan.” Indeed, PERS states, contrary to the

Third Circuit in Westinghouse (725 F.2d at 224), that that

phrase “merely provides examples of the plans protected

by the exemption; it does not purport to define or qualify

it” (Br. 28). But if Congress had not meant to limit the

types of plans protected by Section 4(f)(2), it would have

omitted the phrase, so that the provision reached

employee benefit plans without exception. PERS’ con-

struction also ignores the abundant legislative history

showing that Congress was concerned, not with all em-

ployee benefit plans, but with plans with legitimate

waiting periods and plans that provide benefits that cost

more for older employees. .

Moreover, PERS fails to comprehend that Section

4(a)(1) of the ADEA not only prohibits refusals to hire

older employees, it also proscribes “discriminat{ion]}

against any individual with respect to his compensation,

terms, conditions, or privileges or employment because of

such individual’s age.” That prohibition follows from Sec-

tion 1(b) of the Act, 29 U.S.C. 621(b), which provides that

'* The National Public Employers Labor Relations Association, for

example, contends (Br. 13-14) that an employee benefit plan may dis-

criminate against older employees except where “it is specifically de-

signed involuntarily to deprive older workers of terms and conditions

of employment that younger persons enjoy — for example, a plan that

is purposefully designed and used as a cover for the involuntary retire-

ment of older persons.”

ee ee ee eee

25

the purposes of the ADEA include “prohibit[ing] arbitrary

age discrimination in employment” as well as “promot[ing]

employment of older persons.” As this Court has stated

repeatedly, “ ‘{a] benefit that is part and parcel of the

employment relationship may not be doled out in a dis-

criminatory fashion, even if the employer would be free

. not to provide the benefit at all.’” Trans World

Airlines, Inc. v. Thurston, 469 U.S. 111, 121 (1985)

(quoting Hishon v. King & Spalding, 467 U.S. 69, 75

(1984)).

That PERS’ construction of Section 4(f)(2) is faulty is

made plain by consideration of its effects, since it would

allow any sort of discrimination against older employees

in the provision of employee benefits. As the Seventh Cir-

cuit stated in Karlen, if an employer told its employees

that “at age 65 you lose your free parking space (or dental

insurance, or any other fringe benefit), [it] would be guil-

ty, prima facie, of age discrimination.” 837 F.2d at 318.

Yet PERS’ proposal would authorize just such arbitrary

discrimination, since presumably it would not interfere

sith the “employment of older workers” (Br. 26). Indeed,

PERS appears to believe that the fact that it hired Betts at

age 55 insulates it from liability as long as it does not ar-

bitrarily terminate or refuse to promote her (Br. 29, 48). If

it had cut off her dental insurance or eliminated her park-

ing space, solely on account of her age, and offered no

justification for doing so, such acts would be permissible

under PERS’ construction of Section 4(f)(2), just as it con-

tends that it may deny her disability benefits without pro-

viding any cost justification for its discriminatory

behavior. But Congress did not intend to authorize

employers arbitrarily to discriminate against older persons

in the provision of employee benefits.

2. PERS also argues (Br. 16-23) that its plan is exempt

from liability under Section 4(f)(2) because it was estab-

26

lished in 1933. There is no merit at all to that claim. The

discriminatory provision in PERS’ plan was added in

1976, two years after the ADEA was amended to apply to

the States. See 29 U.S.C. 630(b)(2); Pub. L. No. 93-259,

§ 28(a)(2). Until that time, disability benefits (which are

and were generally calculated like retirement benefits

under Ohio law) were not required to be at least 30 percent

of the employee’s final average salary, and hence

employees like Betts were not disadvantaged by the provi-

sion making them ineligible for disability benefits. Only

with the enactment of the 1976 amendment were em-

ployees over 60 deprived of a significant benefit available

to employees under 60. All of the courts of appeals that

have concluded that pre-ADEA employee benefit plans

are exempt from its requirements have noted that a differ-

ent result would follow if, as here, the relevant provision

had been added after the enactment of the ADEA. EEOC

v. Cargill, 855 F.2d 682, 686 n.4 (10th Cir. 1988); EEOC

v. County of Orange, 837 F.2d 420, 423 (9th Cir. 1988);

see also EEOC v. Home Insurance Co., 672 F.2d 252, 259

(2d Cir. 1982).'¢

‘© Consequently, this Court need not address the question whether

all pre-ADEA plans are exempt from the anti-discrimination provi-

sion of the Act under Section 4(f)(2). Although this Court in McMann

(434 U.S. at 197-198, 203) expressed the view that a pre-1967 benefit

plan could not be a “subterfuge to evade the purposes of the Act,”

those statements should not be thought to be binding where Congress

has overruled the holding of the case and has indicated its express dis-

approval of the Court’s reasoning (see H.R. Conf. Rep. 950 at 8,

reprinted in Legislative Hisiory at 519). The better view, we think, is

that a provision that existed prior to 1967 can be said to be contrary to

the Act’s purpose of eliminating arbitrary discrimination against older

employees, even though it could not have been enacted to evade the

ADEA itself. Moreover, Congress in 1967 made clear that the Act ap-

plied “to new and existing employee benefit plans, and to both the

establishment and maintenance of such plans.” H.R. Rep. 805, 90th

+ Sno

27

CONCLUSION

The judgment of the court of appeals should be af-

firmed.

Respectfully submitted.

WILLIAM C. BRYSON

Acting Solicitor General

j THOMAS W. MERRILL

\ Deputy Solicitor General

CHRISTOPHER J. WRIGHT

Assistant to the Solicitor General

CHARLES A. SHANOR

General Counsel

GWENDOLYN YOUNG REAMS

Associate General Counsel

HARRY F. TEPKER, JR.

Attorney

Equal Employment

Opportunity Commission

JANUARY 1989

Cong., Ist Sess. 4 (1967); S. Rep. 723, 90th Cong., Ist Sess. 4; re-

printed in Legislative History at 77, 108.

US GOVERNMENT PRINTING OFFICE 1989—241-699/00082