EEOC Issues Comprehensive Guidance on Discrimination

January 2, 2001 Advisory
Reprinted with permission of CBIA News December 2000

n October 3, the U.S. Equal Employment Opportunity Commission (EEOC) issued new guidance on the application of certain anti-discrimination laws to health and life insurance benefits, long-term and short-term disability benefits, severance benefits, pensions and other retirement benefits and early retirement incentives offered by employers. This guidance was issued as part of the EEOC's Compliance Manual. Employers should consult this new section of the Compliance Manual for specific guidance. The full text is available on the EEOC's web site at .


Under the Pregnancy Discrimination Act, an employee benefit plan must cover pregnancy, childbirth and related medical conditions in the same manner and extent that it covers other medical conditions. This includes the same deductibles, co-pays, choices of physicians, etc. Additionally, an employer must allow women who are on pregnancy leave to accrue service credits in the same manner as those who are leave for other reasons.


The Age Discrimination in Employment Act (ADEA) prohibits discrimination on the basis of age under employee benefit plans except in cases where an employer can justify not offering equal benefits to older and younger employees under the "equal cost defense" or can demonstrate that the difference was due to an ADEA permitted "offset." Benefits are considered "equal" where younger and older workers receive the same types of benefits, the same amounts of benefits and the same payment options.

Equal Cost Defense: Under the equal cost defense an employer may provide older workers with reduced benefits if the employer spends an equal amount of money or incurs an equal cost on behalf of older workers as it does on behalf of younger workers. This defense only applies to benefits that become more costly to provide with age, for example, life insurance, health insurance and disability benefits. The defense does not apply to pension or severance benefits.

Special rules apply where employees are required to pay part of the premium. For example, if health insurance premiums increase for older employees, older employees cannot be required to pay a higher percentage of the premium than younger worker are required to pay. Alternatively, older employees can be given the option to reduce their benefits in order to keep the premium cost the same.

Offsets: In limited circumstances the ADEA also permits employers to offset the amount of certain types of benefits provided to older workers with the amounts of other age-based benefits those employees also receive, e.g. Medicare, Social Security, or certain other employer provided benefits. An offset is permitted only if it is specifically authorized by the ADEA and older workers are receiving, in total, benefits that are no less favorable than the benefits provided to similarly situated younger workers.

The ADEA permits only three types of offsets:

  • offsets from long-term disability payments with certain pension benefit amounts;
  • offsets from severance pay with certain retiree health benefits or extra pension benefits; or
  • offsets for certain pension benefit accruals.


While an employer generally may not discriminate against an individual with a disability on the basis of that disability, the Americans with Disabilities Act (ADA), recognizes that some types of benefit plans rest on the assessment of risks and costs associated with various health conditions. If an employer provides equal benefits (same premiums, deductibles, caps on coverage, etc.) to all employees, there is no ADA violation. If benefits are unequal, however, based on an employee's disability (for example, if the plan singles out a particular disability, a discrete group of disabilities or a disability in general), the benefit plan is unlawful unless the employer can justify the distinction. For example, a health plan that covers all mental disorders except for major depression would violate the ADA unless the plan could justify this distinction. A disability-based distinction can be justified only if the employer can show that the plan is not a "subterfuge" to evade the purposes of the ADA. A plan will not be a subterfuge if the disability-based distinction is a based on sound actuarial principles or related to actual or reasonably anticipated experience.


An employer may not discriminate in eligibility, amount or charges for employee benefits on the basis of race, color, sex, national origin or religion. Thus, for example, even if it costs an employer more to provide certain benefits to women, the employer may not charge female employees more or provide lesser benefits. Nor may employers use sex-based actuarial tables to calculate benefit amounts.