Public Employees Retirement System of Ohio v. Betts
The Public Employees Retirement System of Ohio (PERS), established by statute in 1933, provides retirement benefits for state and local government employees. Benefits are payable based on age and service or, for persons under the age of 60 at retirement, on disability. The disability retirees' age requirement has remained unchanged since 1959. However, in 1976, PERS was amended to provide that disability payments could not constitute less than 30% of the ret ree's final average salary. No corresponding floor applies to age-and-service payments. Individuals continue to receive the type of benefit they retired on throughout retirement, regardless of age. In 1985, appellee, who had been employed by a county agency since 1978, retired at age 61 because of her health. Despite her medical condition, she was ineligible for disability retirement benefits because of her age. Her monthly age-and-service benefits amount to approximately one-half of the amount she would have received on disability retirement. She filed a charge against PERS with the Equal Employment Opportunity Commission (EEOC), and then filed suit in the District Court, claiming that PERS' refusal to grant her disability benefits application violated the Age Discrimination in Employment Act of 1967 (ADEA). The court granted summary judgment in her favor, finding that PERS' retirement scheme was discriminatory on its face in that it denied benefits to certain employees on account of age. It rejected PERS' reliance on § 4(f)(2) of the ADEA, which exempts from the Act's prohibitions certain actions taken in observance of "the terms of . . . any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of [the Act]." Rather, the court, relying on the EEOC's interpretive regulations, held that plans qualify for the § 4(f)(2) exemption only if age-related reductions in benefits are justified by the increased cost of providing those benefits to older employees, which was not the case here. The Court of Appeals affirmed, agreeing that the exemption is available only to plans that can provide such cost justifications or establish a substantial business purpose. The court rejected PERS' reliance on United Air Lines, Inc. v. McMann, 434 U.S. 192, 98 S.Ct. 444, 54 L.Ed.2d 402, which, in upholding an age-based mandatory retirement plan, ruled that plans adopted prior to the ADEA's enactment need not be justified by any business purpose, and defined "subterfuge" to mean "a scheme, plan, strategem, or artifice of evasion." Instead, the court concluded that Congress had expressly repudiatedMcMann when it amended the ADEA in 1978 by adding a clause forbidding age-based mandatory retirement to the end of § 4(f)(2).
Held: Section 4(f)(2) exempts all provisions of bona fide employee benefit plans from the purview of the ADEA, unless the plan is a subterfuge for discrimination in the non-fringe-benefit aspects of the employment relationship, and summary judgment for appellee was therefore inappropriate. Pp. 165-182.
(a) An employee benefit plan adopted prior to the ADEA's enactment cannot be a subterfuge. While the 1978 amendment to the ADEA changed the specific result in McMann, it did not change the controlling, general language of the statute. Since Congress did not add a definition of "subterfuge" or modify § 4(f)(2)'s language in any way other than by adding the new last phrase, there is no reason to depart from McMann § holding that "subterfuge" should be given its ordinary meaning. However, this reaffirmation of McMann does not insulate the specific plan provision being attacked-the 30% floor-from challenge, since it was not added to the plan until 1976, after the ADEA became applicable to PERS. Pp. 165-169.
(b) Section 4(f)(2) does not protect age-based distinctions in employee benefit plans only when justified by the increased costs of benefits for older workers. Thus, 29 CFR § 1625.10, which recites such a definition, is invalid. No such requirement can be found in the statute itself. Moreover, § 1625.10's definition is not entitled to deference since the term "subterfuge," as interpreted in McMann, includes a subjective-intent element which § 1625.10's objective requirement fails to acknowledge; since the regulation, contrary to the EEOC's suggestion, was not adopted contemporaneously with the ADEA's enactment; and since appellee's relianc on the ADEA's legislative history and the 1978 amendment is misplaced. The cost-justification rule also is not supported by the argument that the statutory phrase that "any bona fide employee benefit plan such as a retirement, pension, or insurance plan" is intended to limit § 4(f)(2)'s protection to those plans which have a cost justification for all age-based differentials in benefits. The statutory language on its face appears to be nothing more than a listing of the general types of plans that fall within the "employee benefit plan" category rather than an exclusive listing. Nor is it apparent that the specified plans were intentionally selected because the costs to employers of the benefits provided by these plans tend to increase with age. In addition, the regulatory definition of an employee benefit plan does not support the proffered interpretation. Pp. 175-180.
(c) Both the statute and the legislative history support a construction of § 4(f)(2) that exempts the provisions of a bona fide benefit plan from the purview of the ADEA so long as the plan is not a method of discriminating in other, non-fringe-benefit aspects of the employment relationship. Thus, a post-Act plan cannot be a subterfuge to evade the ADEA's purpose of banning arbitrary age discrimination unless it discriminates in a manner forbidden by the Act's substantive provisions. If the ADEA's substantive prohibitions were read to encompass employee benefit plans, any employee benefit plan that by its terms mandated the discrimination allowed under § 4(f)(2) would be facially irreconcilable with the purposes of the Act, a result Congress could not have intended. Pp. 175-180.
(d) An employee seeking to challenge an employee benefit plan provision as a subterfuge bears the burden of proving that the discriminatory plan provision actually was intended to serve the purpose of discriminating in some non-fringe-benefit aspect of the employment relationship. Section 4(f)(2) redefines the elements of the plaintiff's prima facie case, since it is not so much a defense to an age discrimination charge as it is a description of the type of employer conduct that is prohibited in the employee benefit plan context. This interpretation is consistent with this Court's longstanding interpretation of the analogous provision of Title VII of the Civil Rights Act of 1964. Summary judgment for appellee was inappropriate because she failed to meet her burden of proof on this issue. On remand, the District Court should give appellee an opportunity to demonstrate the existence of a genuine issue of material fact. Pp. 181-182.
848 F.2d 692, reversed and remanded.
KENNEDY, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, BLACKMUN, STEVENS, O'CONNOR, and SCALIA, JJ., joined. MARSHALL, J., filed a dissenting opinion, in which BRENNAN, J., joined, post, p. 182.
Andrew Ian Sutter, Columbus, Ohio, for appellant.
Robert F. Laufman, Cincinnati, Ohio, for appellee.
Christopher J. Wright, Washington, D.C., for the Equal Employment Opportunity Commission as amicus curiae supporting the appellee, by special leave of Court.
Justice KENNEDY delivered the opinion of the Court.