The Older Workers Benefit Protection Act (OWBPA) amended the federal Age Discrimination in Employment Act (ADEA) to provide guidance on the ADEA requirement that the benefits employers offer to older workers must be equal to the benefits offered to younger workers.
The OWBPA prohibits age discrimination in the provision of fringe benefits, such as life insurance, health insurance, disability benefits, pensions, and retirement benefits. In most situations, this means that employers must provide the same benefits to older and younger workers. For benefits that cost more to provide as people age, however, employers can sometimes meet the nondiscrimination requirement by spending the same amount on the benefits provided to older and younger employees, even if this means older workers receive lesser benefits. Employers are also allows, in some circumstances, to provide lesser benefits to older employees if those employees receive additional benefits from the employer or the government (called "offsets") to make up the difference.
The Equal Cost Defense
An employer may offer a lesser benefit to older workers if it costs the same as the benefit offered to younger workers. However, this defense applies only to certain benefits and only if a number of conditions are met. An employer may use the equal cost defense only if all of the following are true:
- The benefit becomes more costly to provide as workers age. This is often true of life insurance, health insurance, and disability insurance, for example. As workers age, it becomes more likely that they will use these benefits, and insurers often charge more for coverage to guard against this possibility. Because benefits such as severance pay or paid vacations do not cost more to provide to older workers, however, the defense does not apply to these benefits.
- The benefit is not a retirement benefit. The equal cost defense doesn’t apply to retirement benefits.
- The benefit is part of a bona fide employee benefit plan. A bona fide employee benefit plan is one that has been accurately described, in writing, to all employees and that actually provides the benefits promised.
- The benefit plan explicitly requires lower benefits for older workers. An employer may use the equal cost defense only if the benefit plan requires benefits to diminish for older workers. If the plan gives the employer discretion to provide lower benefits to older workers if it choses, the employer may not rely on the equal cost defense.
- The employer pays the same amount for coverage for older and younger workers. This is where the “equal cost” part comes in.
- Benefit levels for older workers have not been reduced more than necessary to achieve the goal of equal cost for coverage of older and younger workers. In other words, the employer may not rely on the equal cost defense to cut older workers’ benefits beyond what’s required to achieve cost parity.
- When comparing coverage costs, the employer has not used age brackets of more than five years. In other words, an employer that plans to reduce a benefit for workers ages 61 through 65 must compare the cost of covering those workers to the cost of covering workers ages 56 through 60, not the cost of covering workers in their 20s or 30s.
The Offset Defense
In some cases, employers may offer older employees lesser benefits if those employees receive additional benefits from the employer or the government that make up the difference. The employer may use these additional benefits to offset the shortfall and bring the older workers’ benefits up to the same level offered to younger employees. The rules for when an employer can use offsets are quite detailed, and they don’t apply to all types of benefits. You can find out more at the EEOC’s website, or in The Essential Guide to Federal Employment Laws, by Lisa Guerin and Amy DelPo (Nolo).
Special Requirements for Certain Benefits
The OWBPA includes detailed rules for particular types of benefits, including employee contribution plans, long-term disability benefits, retiree health benefits, pensions, and early retirement incentive plans. These rules attempt to accommodate employers’ benefit programs (and to avoid creating disincentives to employers who provide these benefits) while ensuring that older workers are not discriminated against. (You can find all of the details in the portion of the Equal Employment Opportunity Commission’s Compliance Manual that addresses nondiscrimination in benefits.)