Public Employees Retirement System of Ohio v. Betts

1989-06-23

Headline: Court rejects EEOC cost-justification rule and protects bona fide benefit plans, allowing retirement systems broader leeway to deny age-linked benefits unless plans were intended to evade age-discrimination law.

Holding: The Court ruled that §4(f)(2) shields bona fide employee benefit plans from ADEA liability unless the plaintiff proves the plan was intended as a subterfuge to evade the Act, and it rejected the EEOC cost-justification rule.

Real World Impact:

Allows retirement systems wider leeway to deny age-linked benefits absent proof of improper intent.
Invalidates EEOC rule requiring cost-based justification for age-related benefit reductions.
Makes employees bear burden to prove a plan was intended to evade age-discrimination protections.

Topics: age discrimination, employee benefits, retirement plans, EEOC regulation, disability benefits

Summary

Background

The dispute is between Ohio’s Public Employees Retirement System (a state retirement system) and June Betts, a public speech pathologist who became disabled at age 61. Ohio offered two retirement paths: age-and-service retirement and disability retirement. Disability retirement required disability before age 60 and, after 1976, guaranteed a minimum payment equal to 30% of final pay. Because Betts was over 60 when she became disabled, she received far smaller age-and-service benefits and sued, claiming age discrimination; lower courts relied on an EEOC rule requiring cost-based justifications for age-based benefit differences and ruled for Betts.

Reasoning

The central question was whether section 4(f)(2) of the Age Discrimination in Employment Act shields bona fide benefit plans only if employers can show age-related cost increases. The Court rejected the EEOC interpretation as inconsistent with the statute. It held that “subterfuge” means a plan adopted with an intent to evade the Act, not any plan that lacks a cost justification. A bona fide employee benefit plan falls within the exemption unless the employee proves the plan was intended as a device to evade the Act’s protections. The Court found PERS’ plan fits the exemption on its face and sent the case back so the employee can try to show improper intent.

Real world impact

The decision gives employers and public retirement systems broader protection when benefit rules treat older workers differently unless plaintiffs can show the plan was intended to evade age protections. The EEOC’s cost-justification safe harbor is invalidated, and employees challenging plans now face a higher burden to prove improper intent. The factual outcome for Betts was left open on remand.

Dissents or concurrances

Justice Marshall’s dissent warned the ruling will leave most benefit discrimination unreviewable, criticized overturning agency and appeals-court approaches, and argued older workers lose protections absent business-justified plans.