Washington Targets Benefits in Fight against Age Discrimination

Management Review, August 1991 | Go to article overview
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Washington Targets Benefits in Fight against Age Discrimination


The rising cost of employee benefits is a fact of life for every employer-big and small, public and private. Holding the line on costs is frequently in direct relation to the makeup of an organization; companies employing younger and healthier staffs generally end up paying less. As a result, those companies with an older employee makeup often attempt to curtail costs by offering different benefits packages to older and younger employees.

Late last year, President George Bush signed some of the most significant anti-age discrimination legislation of his presidency to date. By enacting the Older Workers' Benefit Protection Act (OWBPA), Bush set into motion the nation's most far-reaching prohibition against age discrimination in employee benefits. At the same time, the new law establishes minimum standards for employees who waive their rights under the Age Discrimination in Employment Act (ADEA)

Since most businesses nationwide are affected, it's critical that senior management review all benefits plans to avoid potential liability.

The new law became effective on October 16, 1990. Private, nonunion employers are required to bring existing benefits plans into compliance by April 14, 1991. Unionized employers have until the termination of existing collective bargaining agreements or through June 1, 1992, whichever comes first, to bring their existing plans into compliance. Special delayed effective date provisions apply to state and local government employers.

The major goal of the Act is to reverse the U.S. Supreme Court's 1989 decision in Public Employees Retirement Systems of Ohio vs. Betts that invalidated the ADEA regulations prohibiting age discrimination with respect to most employee fringe benefits. The Act provides, for the first time, statutory recognition of early retirement programs and sanctions them to the extent employers follow certain rules. It enacts into law the "equal benefit" or "equal cost" principle, which requires employers to provide older workers with benefits at least equal to those provided for younger workers, unless the employers can prove that the cost of providing an equal benefit is greater for an older worker than for a younger worker.

This means employees over 40 years of age must receive either equal benefits or have an equal expenditure made for them, even if the benefit is less. For example, employers could provide lower amounts of life insurance coverage for older workers as long as the cost of the coverage remains constant as the workers' ages increase. AGE-BASED COST-JUSTIFIED BENEFIT REDUCTIONS

Under the new law, an employee benefits plan (except certain retirement benefits) may provide lower benefits to older workers if the actual cost of providing benefits to older and younger workers is the same. The cost considerations need not be actuarially based, but cost data that justifies lower benefits to older workers must be valid and reasonable. Moreover, the benefits plan must indicate the actual cost of providing the benefit over a representative number of years.

Two types of cost comparisons are permissible-the "benefit-by-benefit" and "benefits package" approaches. Under either approach, the employer may not use more than a five-year age range in its evaluations, except in the case of health insurance. An employer is entitled to the age-based cost justification if the actual cost of providing lesser benefits to workers between the ages of 65 and 70 is the same as the cost of providing benefits to employees between the ages of 60 and 65. A benefits plan is not entitled to the exemption, however, if the employer attempts to justify a plan providing lower benefits for workers between the ages of 60 and 65 based on cost comparisons of benefits for workers between 50 and 55 years of age.

Hence, if an employer adopts a benefit-by-benefit cost comparison analysis, it must compare benefit costs at different age levels and make adjustments in the benefit amount of level on an individual benefit basis.

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Washington Targets Benefits in Fight against Age Discrimination
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