Client Bulletins
Happy New Year! Military FMLA Loses a Battle, EEOC Formally Approves Medicare “Coordination”

Client Bulletin #379
January 3, 2008

For PDF version of this Client Bulletin, click here. 

What a difference a “year” makes! In our last Client Bulletin of 2007, we reported that Congress had approved a defense authorization bill that provided rights under the Family and Medical Leave Act based on service in the armed forces. We also noted that President Bush was expected to sign the bill into law.

For reasons unrelated to the FMLA provisions, the President has “pocket-vetoed” the bill, which means that the new FMLA provisions are likewise vetoed for the time being.

A “pocket veto” occurs when the President fails to sign a bill into law within the 10 days allowed under the U.S. Constitution. Congress must be in adjournment at the time; if Congress is in session, the bill becomes law by default.

Although the military FMLA provisions have lost a battle, they are expected to win the war. Congress will reconvene January 15 and is expected to revisit the FMLA provisions at that time. Constangy will keep you informed of the latest developments.

Coordination of Retiree Health Benefits With Medicare Is OK, Says the EEOC. In other news, the Equal Employment Opportunity Commission has issued final regulations that allow employers who voluntarily provide retiree health benefits to “coordinate” those benefits with eligibility under Medicare or similar state benefits programs. Such “coordination” will not violate the Age Discrimination in Employment Act. To see the final regulations, which took effect December 26, 2007, click here.

“Coordination” actually means “offset,” or a reduction in benefits offered by the employer. Many employers reduce health insurance benefits once a retiree qualifies for Medicare or a similar state program. The U.S. Court of Appeals for the Third Circuit (Delaware, Pennsylvania, New Jersey) had held in 2000 that such policies violated the ADEA unless the employer could prove that the retiree received the same benefit as other employees or, at least, that the retiree’s benefit cost the employer as much as the employer’s insurance costs for other employees. The EEOC had adopted regulations consistent with the Third Circuit’s decision.

However, employers are not required to offer any retiree health benefits. After the prior rule was adopted, unions, state and local governments, and private employers argued in unison that coordination should not be construed to violate the ADEA. Among other concerns, there was a fear that employers would find it easier to simply discontinue any health insurance benefits for retirees. In response to these concerns, the EEOC issued a Notice of Proposed Rulemaking in 2003 and invited comments. The EEOC tried to implement the rule in 2004, but was blocked by a lawsuit filed in the Third Circuit by the American Association of Retired Persons. The Third Circuit ultimately found that the EEOC’s proposed rule was “a reasonable, necessary, and proper exercise of [its] authority,” which cleared the way for publication of the final regulation.

According to the EEOC’s press release, the new rule has the support of the AFL-CIO, the Society for Human Resources Management, the National Education Association and American Federation of Teachers, and the American Benefits Council, among others.

The exemption for retiree health benefits applies to retirees and their dependents, but it does not apply to current employees who are eligible for Medicare or state benefits. By law, Medicare-eligible current employees must be offered the same level of benefits as other employees.

It should also be noted that the new rule applies only to the ADEA. Therefore, employers should make sure that any proposed coordination does not violate other applicable laws.

If you need assistance in updating your retiree health benefits program in light of the new EEOC rule, please contact any member of Constangy’s Employee Benefits practice group or the Constangy attorney of your choice.

Constangy, Brooks & Smith, LLC has counseled employers, exclusively, on labor and employment law matters since 1946. The firm represents Fortune 500 corporations and small companies across the country. More than 100 lawyers work with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Georgia, South Carolina, North Carolina, Tennessee, Florida, Alabama, Virginia, Missouri, and Texas. For more information about the firm's labor and employment services, visit www.constangy.com, or call toll free at 866-843-9555.