Discrimination in Employee Benefit Plans

Age, Sex and Disability Discrimination in Employee Benefit Plans

By William J. Flanagan, Esq. Crowell & Moring LLP, Washington, DC

The diversification of the American workplace presents special issues in the field of employee benefits. Employers that in the past had to worry primarily about the application of the Internal Revenue Code (the “Code”) and the Employee Retirement Income Security Act of 1974 (ERISA) now must also be concerned with compliance with the many state and federal laws prohibiting discrimination on the basis of age, sex and disability. Failure to comply with these anti-discrimination statutes can result not only in significant potential liability for employers, but may also cause the employee benefit plans in question to lose some of their advantages under both ERISA and the Code.

The current legal landscape presents a number of particularly challenging issues for employers and their benefit plans. These include:

• Health Benefits for Retirees and Older Workers. The status of Medicare offsets for retiree health programs appears close to resolution through the decision in AARP v. EEOC and new EEOC regulation. Still unresolved, however, is the treatment accorded Medicare-eligible active employees, although the Medicare Secondary Payor Regulations do provide some guidance and restrictions on plan design. Further, retiree health programs continue to pose significant financial challenges to employers, who must resolve these difficulties in ways that do not discriminate against older workers.

• Gender Discrimination. Issues that appeared well-settled several years ago are now reemerging in connection with the varying state treatment of domestic partnerships, “same-sex” marriage and gender-identity litigation. Employers seeking to accommodate these new legal rights must be careful to analyze their effectiveness (or lack thereof) under federal marriage and sex discrimination statutes. The matter is complicated by the fact that ERISA preemption does not always apply to state laws that address family leave or require that substituted leave be given.

• Changing Pension Benefit Landscape. The proliferation of defined contribution plans generally and cash-balance plans in particular require new analyses of existing Code and ERISA benefit accrual provisions. Legislative changes in this area (primarily the Pension Protection Act of 2006) have not totally resolved issues regarding such plans. The recent changes could encourage more of the plan conversions that typically do not favor older workers.

• Mental Health Parity. Disability benefits in many plans continue to vary based on whether the disability is viewed as physically or mentally based. The status of such distinctions depends not only on an analysis of existing law, but also consideration of current legislative and regulatory initiatives.

At the federal level, the primary statutes addressing issues such as these are the Age Discrimination in Employment Act (ADEA), the Americans With Disabilities Act (ADA) and Title VII of the Civil Rights Act of 1964. Understanding these statutes is, therefore, crucial for an employer maintaining employee benefit plans today.