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Home My WebLink About01/19/10 CORRESPONDENCE; A.D. "GUS" FIELDS~; Strasburger ATTORNEYS AT LAW January 19, 2010 A.D. "GUS" FIELDS 214.651.4306 Direct Fax: 214.659.4051 gus.fields(~strasburger.com Rebecca Underhill, Esq. Assistant City Manager City of Port Arthur P.O. Box 1089 Port Arthur, Texas 77641 RE: Health Benefit Program Dear F;ebecca: You have inquired about the legal right oi` the City of Port Arthur (the "City") to make certain changes to the retiree health (benefit program. We understand that you arE: concerned primarily that the changes not violate the Age Discrimination in Erriplo~yment Act of 1967, as amended, ("ADEA") ;and regulations issued thereunder. You indicate that active employees and retirees of the City pay a portion of the cost oif health care for themselves and their dependents. More specifically, the City's Health Insurance plan states that the City will pay fifty percent (50%) of the dependent cost fc>r employees and retirees. However, for some time, the City has been paying more i:han fifty percent (50%) of dependent insurance premium costs. The City now propo:ces to move back toward the fifty percent (50%) payment as stated in the plan. The City also has requested, and received, ratings for the City's three (3) plan group:> that is active employees, pre-age 65 retirees and retirees 65 and older, based on their actual cost to the insurance plan which indicate that health benei'tt coverage for retired employees and their dependents is significantly more expensive than for active employees. You propose to increase the cost to the two retiree groups, "Retirees Under 65" and "Retirees Over 65" to more clearly reflect their share of the actual costs for each group's health care. However, this increase was deemed too significant to pass on at one tirne. Accordingly, you propose that these increases be phased in over a three (3) year period. The first one-third ('/3) of the difference between the currently subsidized premium rate and the "actual" fifty percent (50%) is to be phased in beginning this year. As you know, employers are not required by Federal law to offer retiree health care and many do not. Texas law, specifically Chapter 175 of the Texas Local Government code, provides employees wha retire from certain municipalities a right to purchase continued coverage under the health benefit plan from which they received coverage before retirement unless they are eligible for group health coverage from anotht:r employer's plan. However, the City is nat required to bear the cost of the group health benefits coverage. Based on the information you provided to us, we believe that, Strasburger ti Price, LLP 901 Main Street, Suite 4400 Dollos, Texas 75202.3794 214.651.4300 tet 214.651.4330 fax www.strasburger.com Austin Collin County Dollar Houston San Antonio New York Washington D.C. Strasburger & Price, SC - Mexico City Rebecca Underhill, Esq. January 19, 2010 Page 2 after implementation of the changes proposed, the City would continue to be in compliance with Chapter 175 of the Texas Lacal Government Code. The ADEA is a Federal law that protects individuals who are 40 years of age or older from employment discrimination based on age. The ADEA's protections apply to both employees and job applicants. Under the ADEA, it is unlawful to discriminate against a person because of his/her age with respect to any term, condition or privilege of employment, including hiring, firing, promotion, layoff, compensation, benefits, job assigniments and training. The ADEA permits employers to favor older workers based on age even when doing so adversely affects a younger worker who is 40 or older. The ADEA applies to employers with 20 or more employees, including state and local governments. One amendment to the ADEA, the Older Workers Benefit Protection Act of 1990 ("OWBPA") specifically prohibits employers from denying benefits to older employees. In enacting the OWBPA Congress recognized that the cost of providing certain benefits to older workers is greater than the cost of providing those same benefits to younger workers. Therefore, in limited circumstances, an employer is permiti:ed to reduce benefits based on age, as long as the cost of providing the reduced benefits to older workers is the same as the cost of providing benefits to younger workers.. After enactment of the OWBPA amendments to the ADEA„ employers sometimes argued that the law protected employees from age discrimination, but because retirees were no longer employees, retirees were not protected by the law. Both the Equal Employment Opportunity Commission ("EE:OC"), the Federal Agency charged with enforcing the Act, and the courts have rejected this argument. Erie County Retirees Association v. County of Erie, 220 F.3d 193 1;3`~ Cir. 2000). This case also held that the employer could not make distinctions in health benefits based on Medicare eligibility, unless the employer satisfied one of the ADE:A's specified defenses or exemptions. Subsequently, the EEOC granted a specific exemption for retiree health benefits that coordinate plan benefits with benefits provided under Medicare or comparable State health benefit plans that, like Medicare, provide retirees who have attained a minimum age with health benefits whether or not the type, amount or value of those benefits is equivalent to the type, amount or value of the health benefits provided under Medicare. The exemption provides, in part as follows: (b) Exemption. Some employee benefit plans provide health benefits for retired participants that are altered, reduced or eliminated when the participant is eligible for Medicare health benefits or for health benefits under a comparable State health benefit plan, whether or not the participant actually enrolls in the other benefit program. Pursuant to the authority contained in Section 9 of the Act, and in accordance with the procedures provided therein and in Section 1625.30(b) of this part, it is hereby found necessary and proper in the public interest to exempt from Rebecca Underhill, Esq. January 19, 2010 Page 3 ;all prohibitions of the Act such coordination of retiree health benefits with (Medicare or a comparable State health benefit plan. (c) Scope of Exemption. This exemption shall be narrowly construed. No other aspects of ADEA coverage or employment benefits other than those specified in paragraph (b) of this Section are affected by 1the exemption. Thus, for example, the exemption does not apply to the ruse of eligibility for Medicare or a comparable State health benefit plan in connection with any act, practice or benefit of employment not specified in (Paragraph (b) of this Section. Nor does it apply to the use of the age of eligibility for Medicare or a comparable State health benefit plan in connection with any act, practice or benefit of employment. not specified in paragraph (b) of this Section. 29 CFFt Section 1625.32. This exemption has been upheld by the United States Court of Appeals for the Third Circuit. See American Association of Retired People v. Equal Employment Opportunity Commission, 489 F.3d 558 (3rd Cir., June 4, 2007, cert denied 128 S. Ct. 1733 (?008). ,Although the EEOC indicated that its exemption was to be narrowly construed, we think the exemption clearly allows an employer to provide a different level of health benefits for retired employees and their dependents depending on whether such retired employees have, or have not, become eligible for Medicare. Thus, the separate classes of retirees and levels of employer provided benefits will not violate Federal law. Of course, this conclusion is based on the current Federal statutes and regulations, which may change in the future. Further, the EEOC exemption discussed above does not permit a classification of active employees based on age whereby older active employees, such as those who are eligible far Medicare, receive less favorable benefits or employer contributions than younger active employees. You have indicated that you are concerned whether the mere fact that the City pravidE;d more than fifty percent (50%) of the dependent costs for some prior years may pose an obstacle to the City providing a lesser share of the cost of future years. You do indicate that each time the City determined to pay more than fifty percent (50%) of the health care the decision was made on an "ad hoc" basis for a one (1) year period. As we have indicated above we have found nothing in either State or Federal law that would preclude the cost adjustments you propose. However, we believe Article XVI, Section 66 of the Texas Constitution may have a bearing on your concern. Current Sectionn 66 was enacted in 2003 to reverse along-standing position of the Texas Supreme Court that allowed a Texas governmental entity to reduce pension payments already in pay status to retired employees. Briefly, Article XVI, Section 66 prevents Rebecca Underhill, Esq. Januairy 19, 2010 Page ~t impairment of pension benefits accrued by persons eligible to receive such benefits without accumulating additional service on or after the effective date of the change. While Texas Attorney General Opinion No. GA-0615 gave a very expansive reading and interpretation to the meaning of Section 66, and one which we do not believe comports with the law, it should be noted that Article XVI, Section 66, expressly excludes from its protecttion health benefits. Thus, the Texas Legislature had an opportunity to protect health benefits from being reduced at the time pension benefits were being protected, and regardless of the breath of such protection to pensions, the legislature expressly chose not to extend that protection to health benefits. Please call if you have further questions regarding this matter. Sincerely yours, ~G~~ ~J A.D. "'Gus" Fields ADF~:It 2983947.3/'S P/21 88 710 1 01 /0 1 20 1 0