The EEOC has taken some high-profile hits lately, see here and here, but in EEOC v. Baltimore County, No. 13-1106 (4th Cir. Mar. 31, 2014), the EEOC scored a victory against Baltimore County, Maryland, which had an employee retirement benefit plan that the EEOC alleged unlawfully discriminated against older workers in violation of the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634. The Fourth Circuit held that it is unlawful to require older employees to contribute a larger percentage of their salaries to a retirement plan that bases retirement eligibility on years of service rather than meeting a specified retirement age.
In 1945, Baltimore County established a retirement benefit plan that provided that employees were eligible to retire and receive pension benefits at age 65, regardless of the length of their employment. Baltimore Cnty., at 4. The plan was funded, in part, from contributions by employees who contributed a fixed percentage of their annual salaries to the plan. Id. at 5. To ensure that all employees received the same level of benefits, contribution rates were based on, among other things, the number of years that an employee would contribute to the plan before being eligible to retire at age 65. Id. Older employees therefore ended up paying a greater percentage of their salaries to the plan. Id. at 6.
Over the years, the County modified its plan so that correctional officers became eligible to retire after only 20 years of service, regardless of age, or at age 65 with five years of service. Id. at 6-7. Two correctional officers filed charges of discrimination with the EEOC, alleging that the disparate contribution rates discriminated against them on the basis of age. Id. at 7-8.
The County actually won on summary judgment back in 2009. The District Court held that the plan’s disparate contribution rates were not motivated by age, but rather by the number of years remaining until an employee reached retirement age. The different contribution rates were permissible because older new-hires had less time to accrue earnings on their contributions and because of the “time value” of money. EEOC v. Baltimore Cnty., No. 07-CV-2500 (D. Md. Jan. 21, 2009). The Fourth Circuit vacated that judgment, holding that the District Court had considered only the age-based retirement eligibility requirement, and had failed to consider the plan’s separate provision for service-based eligibility. EEOC v. Baltimore Cnty., No. 09-1688 (4th Cir. June 25, 2010). On remand, the District Court granted partial summary judgment in favor of the EEOC. EEOC v. Baltimore Cnty., No. 07-CV-2500 (D. Md. Oct. 17, 2012).
Fourth Circuit Decision
The County’s primary argument on appeal was that the District Court had failed to apply the factors identified by the Supreme Court in Kentucky Retirement Systems v. EEOC, 554 U.S. 135 (2008). But the Fourth Circuit held that that case was inapplicable to the District Court’s analysis because it presented a different question: whether “pension status” unlawfully constituted a “proxy for age.” In that case, the plan treated employees differently based on their pension status rather than on their age. But Baltimore County’s plan required different contribution rates explicitly in accordance with employees’ ages at the time of their enrollment in the plan. The employee’s eligibility to retire (i.e., “pension status”) therefore had no bearing on the disparate treatment in that case, i.e., that older employees were required to contribute a higher percentage of their salaries to the plan than younger employees. Baltimore Cnty., at 13-15.
An employer violates the ADEA by relying on a facially discriminatory policy where age is the “but-for” cause of disparate treatment of older employees. Accordingly, the only question in Baltimore County was whether the disparate contribution rates were lawfully based on a reasonable factor other than age. Id. at 15. While there may have been some basis for such disparate treatment at the plan’s inception – when the only basis for reaching retirement eligibility was reaching retirement age – that justification disappeared when the plan was modified to allow employees to retire based solely on a set number of years of service. Id.
Under the terms of the plan, correctional officers were eligible for retirement after 20 years of service. So a 20-year-old and a 40-year-old would both be eligible to retire after 20 years, but the 40-year-old would still have to contribute more of his or her income to the plan over the same twenty years to receive the same retirement benefits. Because the plan required older employees to contribute more of their income to the plan regardless of whether they chose to retire after reaching retirement age or after working the required number of years, the number of years until retirement age could not be the basis for the disparate rates. Id. at 15-16. Accordingly, the disparate rates were not motived by anything other than age, and were a violation of the ADEA. Id.
Implications For Employers
This case demonstrates the complexities and potential pitfalls employers face while trying to navigate the ADEA. It often makes sense to treat older and younger employees differently under a retirement plan in order to ensure that all employees receive the same level of plan benefits. But employers must be aware that any such differences will be considered facially discriminatory and therefore must be based on a reasonable factor other than age. The plan must be carefully structured so that any age-based disparities are actually justified by the different financial considerations that might apply to older employees when calculating plan benefits and contributions.
Readers can also find this post on our EEOC Countdown blog here.