# 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

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0253%3A14. Public record. Not legal advice.