Thursday, January 10, 2008

Supreme Court considers use of age as factor in disability retirement benefits

Yesterday, the Supreme Court heard oral argument in Kentucky Retirement Systems v. EEOC. The issue is whether a benefit plan's use of age as a potential factor in the distribution of retirement benefits to disabled workers establishes a prima facie case of age discrimination. Kentucky’s disability retirement plan at issue awards benefits based in part on how close a disabled worker is to reaching normal retirement. For example, it disqualifies those who have already reached normal retirement age, and otherwise calculates disability retirement benefits so that an eligible older employee receives a lower monthly benefit payment than a younger disabled employee who is similar to in every relevant way other than age. It therefore affects older workers differently than younger workers, even though its goal is to provide workers with the same retirement benefits he or she would achieved by working until eligible for normal retirement.

The EEOC sued on behalf of a 61-year-old disabled employee. Because he was over age 55 and eligible for normal retirement, he received normal retirement benefits based on his years of service. The EEOC claimed that this policy constituted age discrimination because had he been under age 55 and not eligible for retirement, he would have received higher disability retirement benefits based on the 20 years of service he would have been granted under the plan.

The 6th Circuit decision from which the State of Kentucky appealed found that the EEOC established a prima facie case of age discrimination based on the facially discriminatory language of the plan, and further that when a plan is facially discriminatory one need not offer any further proof of discriminatory animus to establish a prima facie case.

The State argued that the plan is not facially discriminatory because it differentiates on the basis of retirement eligibility, and not age. The EEOC has countered that the plan is facially discriminatory because it uses age as a factor to the disadvantage of older workers.

Kentucky also argues that as age is a necessary component of any retirement plan, only plans that use age in an arbitrary manner can be considered discriminatory on the basis of age. The EEOC, on the other hand, counters that the the at-issue plan is arbitrary because its use of age to provide a claimed necessary safety net for younger workers is based on "stereotypical assumptions of the kind the ADEA seeks to eradicate."

Instead of reinventing the wheel on yesterday's oral argument, I'll merely point everyone to Professor Paul Secunda's thorough summary at the Workplace Prof Blog.

It is very difficult to get a read on what the Court is going to do with this case. If I had a vote, I would reject Kentucky's argument that there is a difference between retirement eligibility and age. The former certainly seems like a proxy for the latter, and both are facially discriminatory. Nevertheless, I would reverse the 6th Circuit, because the use of age in this context simply is not arbitrary. One simply cannot design a disability retirement plan without taking age into consideration.