company's long-term disability plan terminate benefits for all employees at age
65? If so, your benefit plan may violate the Age Discrimination in Employment
Act. On October 3, 2000, the U.S. Equal Employment Opportunity Commission
issued its Enforcement Guidance on Employee Benefits ("Enforcement Guidance").
In this Enforcement Guidance, the EEOC explains how companies may violate the
Age Discrimination in Employment Act ("ADEA"), the Americans with Disabilities
Act ("ADA"), or Title VII of the Civil Rights Act of 1964 (.Title VII.)
[including the Pregnancy Discrimination Act] through their fringe benefit plans,
including health insurance, short-term and long-term disability insurance, and
life insurance. Discrimination in benefits may occur when an employee either
receives lower benefits or is denied benefits based on a protected
classification, such as age, gender, disability, or race.
Age Discrimination in Employment Act
Fringe benefit plans, if offered by an employer, must be offered without regard
to the employee's age. An employer may not defend against a charge of age
discrimination by asserting the plan complies with ERISA or with the Internal
In determining whether a benefit plan discriminates against older employees, the
EEOC looks to see if all employees receive the same or "equal" benefits. In
other words, do older employees receive the same types of benefits, the same
payment options, and the same amount of benefits? Plans do not provide equal
benefits when benefits are reduced or eliminated based on an employee's age.
Nonetheless, plans may provide better benefits for older employees than younger
employees without running afoul of the ADEA.
If older employees do not receive equal or better benefits, an employer can
defeat a charge of age discrimination by showing either it pays the same amount
for each employee's benefits or there is a legally-authorized "offset" to an
Offsets are available to reduce benefits paid to older employees, such as
retiree health benefits, by amounts they receive from other sources, such as
Social Security or Medicare. However, in order to be lawful, the offset must be
specifically authorized by the ADEA. Additionally, offsets cannot be used to
reduce the total benefits provided to the older employee. In other words, older
employees must be eligible to receive benefits that are "no less favorable" than
those provided to younger employees.
Employers may be able to take advantage of the so-called "equal cost" defense,
which provides that employers who "spend the same amount of money, or incur the
same cost, on behalf of older workers as on behalf of younger workers may - if
specified conditions are met - provide certain fringe benefits to older workers
in smaller amounts or for shorter time periods than it provides to younger
workers." However, this defense only applies to disability insurance, health
insurance, and life insurance benefits because these benefits typically get more
expensive as the employee gets older.
In order to satisfy this defense, the employer must show that the costs incurred
or the payments made on behalf of the older employee are no less than those
incurred or made on behalf of younger employees.
Additionally, the benefits may not be reduced more than necessary to achieve
"approximate equivalency" of cost for all employees. Finally, the benefit must
become more expensive as the employee ages and be part of a bona fide benefit
plan which requires older employees receive a lower level of benefits. Special
rules apply when an employee pays all or some of the premiums.
EOC regulations provide a "safe harbor" provision which allows employers to
place limitations on how long employees may be paid long-term disability
benefits. The purpose of this safe harbor is to protect employees who become
disabled after the age of sixty.
To take advantage of the safe harbor and, thereby, avoid liability for age
discrimination, employers which provide long-term disability coverage for its
employees must provide, (1) benefits until age 65 for employees who become
disabled on or before their sixtieth birthday and (2) five years of disability
benefits for employees who become disabled after their sixtieth birthday.
Americans with Disabilities Act
Equal benefits" under the ADA requires a benefit plan provide for the same
premiums, deductibles, coverage caps, and waiting periods of all similarly
situated employees. A benefit plan may violate the ADA if it provides different
coverage for a group of disabilities (i.e., cancers), a particular disability
(i.e., major depression), or disabilities in general. Nonetheless, an employer
may offer different coverage for mental conditions than for physical conditions
because mental conditions may affect both the disabled (i.e., those seeking
treatment for major depression) and the non-disabled (i.e., those seeking
treatment for grief counseling). If a plan provides for different levels of
coverage for different ailments, an employer may avoid liability under the ADA
if it is able to prove the plan is not a "subterfuge to evade the purposes of
the ADA." For example, if excluding or limiting treatment for a particular
condition is necessary to maintain the solvency of the plan or is justified
based on actuarial data, the plan may not violate the ADA, regardless of the
effect on covered disabled employees.
If your company offers a defined benefit pension plan, benefits cannot differ
for men and women even though women typically have a longer life expectancy.
Similarly, health plans must provide equivalent coverage for men and women for
conditions which affect both genders. Further, coverage for pregnancy and
pregnancy-related conditions must be subject to the same levels of coinsurance,
deductibles, basis for reimbursement, and choices of doctors as coverage for
Employers should review their benefit plans to ensure they do not discriminate
against employees based on a protected classification.