HomeMy WebLinkAbout01/19/10 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