FAQs About the Retiree Health Benefits Ruling

Last year, the federal Equal Employment Opportunity Commission (EEOC) approved an NEA-supported retiree health benefits rule. The rule was subject to comment by other federal agencies and needed to be reviewed by the Office of Management and Budget and published in the Federal Register before it would become final.

What is the status of the EEOC rule?

On March 30, 2005 a federal court ruled that the EEOC could not implement the rule. The EEOC is planning to appeal the court's ruling.

What does the EEOC rule do?

The rule clarifies that early retirement plans coordinated with Medicare do not violate the Age Discrimination in Employment Act.

Why is the EEOC rule needed?

Health benefits provided to retirees not yet eligible for Medicare until they become eligible for Medicare are legally at risk without this rule.

Many NEA affiliates have bargained into their contracts health benefits for early retirees until they reach age 65 and become eligible for Medicare. Without these health benefits, employees would have fewer options in retirement planning because members and their families could not afford to be without health insurance.

Why are retirees' pre-Medicare health benefits legally at risk?

The U.S. Court of Appeals (Third Circuit) in the Erie County decision held that offering more costly medical benefits to retirees who are not eligible for Medicare than to retirees who are eligible for Medicare violates the Age Discrimination in Employment Act.

The Erie County decision made the coordination of early retiree health benefits with Medicare — a benefit bargained into many local contracts — legally suspect.

How does the EEOC rule help?

Without the rule, school districts would face the following options:

• Leave current early retirement plans in place and accept the legal risk.
• Provide benefits in addition to Medicare to Medicare-eligible retirees.
• Reduce the benefits provided pre-Medicare eligible retirees to match Medicare benefits, or eliminate such benefits altogether.

Most school districts — facing stressed budgets and rising health care costs — would likely choose the last option.

Indeed, this was the outcome in Erie County as a result of the court ruling. Medicare-eligible retirees received no additional benefits and retirees not yet eligible for Medicare were forced to pay more towards their health plan.

Does the rule negatively affect benefits for older, Medicare-eligible retirees?

NO. The rule allows a benefit for retirees not yet eligible for Medicare. It does not mandate, nor does it take away, any benefits. It does not change state law. It does not change negotiated agreements.

Can benefits for older, Medicare-eligible retirees be negatively impacted in other ways?

Any benefits can be changed if legislators change a law or bargaining agents change a contract.

Why does AARP oppose the EEOC rule?

AARP alleges that the rule jeopardizes the health benefits of Medicare-eligible retirees.

Why do NEA and the labor community disagree with the AARP position?

This rule does not alter any health benefits for Medicare-eligible retirees (age 65 or older).

• The rule does not increase an employer's current control over retiree health benefits — including retiree health benefits provided by state retirement systems.
• The rule does not give employers more incentive to drop retiree health plans. In act, it removes a reason for employers to drop retiree health plans.

The "equal benefits/equal cost" test jeopardizes all retiree health benefits.

• Without the rule, the "equal benefits/equal cost" test is projected to result in reducing or eliminating all retiree health benefits.
• The challenge in valuation makes the "equal benefits/equal cost" test difficult to implement. For this test to work fairly, the value of Medicare would vary considerably by geographic region, age, gender, and other demographic factors. Further, the government's cost may not reflect what an employer would have to pay for the same benefits.
• The test would have to be repeated each year by every employer and the employer's good faith determination could be second-guessed by any retiree or litigant. Employers are motivated to respond - as a growing number are - by eliminating all retiree health benefits