Employment-Fourth Circuit Rules That County Retirement Plan Violates ADEA, As It Determines Employee Contribution Rates Based On Age

In Equal Employment Opportunity Commission v. Baltimore County, No. 13-1106 (4th Cir. 2014), the Court was asked to consider whether an employee retirement benefit plan (the “Plan”) maintained by Baltimore County, Maryland (the “County”) unlawfully discriminated against older County employees based on their age, in violation of the Age Discrimination in Employment Act (the “ADEA). The challenged plan provision involved the different rates of employee contribution to the plan, which required that older employees pay a greater percentage of their salaries based on their ages at the time they enrolled in the Plan. The district court concluded that the plan violated the ADEA, and granted summary judgment against the County on the issue of liability. The County appeals.

In analyzing the case, the Fourth Circuit Court of Appeals (the “Court”) determined that the district court correctly determined that the County’s plan violated the ADEA, because the plan’s employee contribution rates were determined by age, rather than by any permissible factor. The Court further concluded that the ADEA’s “safe harbor provision” applicable to early retirement benefit plans does not shield the County from liability for the alleged discrimination. Accordingly, the Court affirmed the district court’s award of summary judgment on the issue of liability, and remanded the case for consideration of damages.

In analyzing the case, the Court noted that the ADEA prohibits discrimination with respect to “compensation, terms, conditions, or privileges of employment,” which includes “all employee benefits, including such benefits provided pursuant to a bona fide employee benefit plan.” 29 U.S.C. §§ 623(a)(1), 630(l). Accordingly, it generally is unlawful for an employer to maintain a retirement benefit plan that treats older employees in the protected age group differently from younger employees, unless the differentiation “is based on reasonable factors other than age.” 29 U.S.C. § 623(f)(1).

In the present case, the EEOC alleged that the Plan was facially discriminatory. A policy that explicitly discriminates based on age violates the ADEA. The Plan mandated different contribution rates that escalated explicitly in accordance with employees’ ages at the time of their enrollment in the Plan. The Court found no merit in the County’s argument that the employee contribution rates lawfully were based on a reasonable factor other than age, such as the “time value of money.” The Court said that it’s conclusion is not altered by the County’s reliance on the ADEA’s “safe harbor provision” in 29 U.S.C. § 623 (l)(1)(A)(ii)(I). As relevant to this appeal, that provision states that “it shall not be a violation” of the ADEA “solely because” a retirement benefit plan “provides for . . . payments [by the employer] that constitute the subsidized portion of an early retirement benefit. . . .” Id. The Court said that the safe harbor provision is not a defense to the challenged disparate treatment. The safe harbor provision permits an employer to subsidize early retirement benefits without violating the ADEA. However, the provision does not address employee contribution rates nor does it permit employers to impose contribution rates that increase with the employee’s age at the time of plan enrollment. Thus, the Court concluded that the safe harbor provision is inapplicable here.