Indiana Law Review


Section 4(f)(2) of the Age Discrimination in Employment
Act: No Justification for Cost Justification?
Public Employees Retirement System v. Betts

^

In 1967, Congress enacted the Age Discrimination in Employment
Act ("ADEA'* or "the Act")' to address problems faced by older
workers, the **[h]undreds of thousands not yet old, not yet voluntarily

retired, [who found] themselves jobless because of arbitrary age dis-

crimination. "^ The ADEA prohibits arbitrary discrimination in the work-
place based on age, and makes it unlawful for an employer^ to discharge

or refuse to hire an older worker^ or otherwise discriminate in providing

**compensation, terms, conditions, or privileges of employment" because

of age.^

Section 4(f) of the ADEA contains statutory exemptions^ to charges
of age discrimination, indicating that Congress contemplated that some

1. The Age Discrimination in Employment Act of 1967, Pub. L. No. 90-202,

§ 2, 81 Stat. 602 (1967) (codified as amended at 29 U.S.C. §§ 621-634 (1982 & Supp. V
1987)) [hereinafter ADEA or the Act]. The ADEA purports to "promote employment of
older persons based on their ability rather than age, to prohibit arbitrary age discrimination

in employment, [and] to help employers and workers find ways of meeting problems

arising from the impact of age on employment." 29 U.S.C. § 621(b).

2. H.R. Rep. No. 805, 90th Cong., 1st Sess. 2213, reprinted in 1967 U.S. Code
Cong. & Admin. News 2213, 2214 (comments of President Johnson, who urged Congress
to act swiftly and decisively in dealing with age discrimination).

Congress acted in response to findings that older workers were disadvantaged in

retaining and regaining employment because of the common practice among employers
of setting arbitrary age limits. See 29 U.S.C. § 621(a).

3. The proscription against age discrimination apphes with equal force to em-

ployers, employment agencies, and labor organizations. 29 U.S.C. § 623(a)-(c).

4. The ADEA extends its protection to all individuals who are at least forty years
old. 29 U.S.C. § 631(a). As originally enacted, the ADEA extended its protection to
workers between the ages of 40 and 65. ADEA, Pub. L. No. 90-202, § 12, 81 Stat. 602
(1967).

On two occasions congressional amendments raised the upper age limits. In 1978,
Congress extended the general protection of the Act to include those between 40 and 70

and abolished the age limit for federal employees. ADEA Amendments of 1978, Pub. L.
No. 95-256, §§ 3(a), 5(a), 92 Stat. 189, 889-91 (1978). In 1986, Congress removed the

upper age limit entirely. ADEA Amendments of 1986, Pub. L. No. 99-592, § 2(c), 100
Stat. 3342 (1986).

5. 29 U.S.C. § 623(a)(1).

6. 29 U.S.C. §§ 623(f)(1) - (3) provides in part:

It shall not be unlawful for an employer:

(1) to take any action otherwise prohibited [by the Act] where age is a bona

fide occupational qualification reasonably necessary to the normal operation of



162 INDIANA LAW REVIEW [Vol. 24:161

types of age-based discriminatory treatment are permissible. One example
is the benefit plan defense found in section 4(0(2).^ The benefit plan
defense allows employers to engage in discriminatory conduct when
providing employee benefits to older workers, conduct that would oth-

erwise be a violation of the ADEA, if the employers* actions are taken
pursuant to the administration of a bona fide^ employee benefit plan,'

such as a retirement, pension, or insurance plan that is not a subterfuge'"

to evade the purposes" of the ADEA. Unfortunately, the statutory
language of the benefit plan defense'^ gives little guidance regarding the

exception's scope or the means of satisfying the defense.

the particular business, or where the differentiation is based on reasonable factors

other than age . . .

(2) to observe the terms of a bona fide seniority system or any bona fide

employee benefit plan, such as a retirement, pension, or insurance plan, which

is not a subterfuge to evade the purposes of this chapter, except that no such

employee benefit plan shall excuse the failure to hire any individual, and no

such seniority system or employee benefit plan shall require or permit the

involuntary retirement of any individual , . . because of the age of such individual;

or

(3) to discharge or otherwise discipline an individual for good cause.

See generally Player, Defenses Under the Age Discrimination in Employment Act: Mis-
interpretation, Misdirection, and the 1978 Amendments, 12 Ga. L. Rev. 747 (1978).

7. 29 U.S.C. § 623(f)(2). See generally Note, Age Discrimination in Employment
and the Benefit Plan Defense: Trends in the Federal and Iowa Courts, 30 Drake L. Rev.
617 (1980).

8. A benefit plan is bona fide if it exists and pays benefits. See, e.g.. United
Air Lines, Inc. v. McMann, 434 U.S. 192, 194 (1977); EEOC v. County of Orange, 837
F.2d 420, 422 (9th Cir. 1988); EEOC v. Home Ins. Co., 672 F.2d 252, 260 (2d Cir.
1982).

The regulations contain another definition of bona fide: a plan is bona fide if its

terms were explained to the employee in writing and the plan provided benefits according

to those terms. 29 C.F.R. § 860.120(b) (1989).

9. Some cases have held that § 4(f)(2) applies only to the types of benefit plans
in which age is an actuarially significant factor in plan design. Actuarially significant

means that the cost of providing benefits pursuant to the plan increases with the age of

the participants. See, e.g., EEOC v. Westinghouse Elec. Corp., 869 F.2d 696, 710 (3d
Cir. 1989), vacated and remanded, 110 S. Ct. 37 (1989); EEOC v. Borden's, Inc., 724
F.2d 1390, 1394 (9th Cir. 1984); cf Patterson v. Independent School Dist., 742 F.2d 465,

467 (8th Cir. 1984) (plan must be systematic and interrelated structure in which consideration

of age is actuarial necessity to attain fairness in computing benefits); EEOC v. Great
Atlantic & Pacific Tea Co., 618 F. Supp. 115, 122 (N.D. Ohio 1985) (severance pay plan
does not refiect age-related cost factors and is not the type of plan Congress intended

to protect in § 4(0(2)).

10. The Supreme Court defined subterfuge as having its ordinary dictionary meaning

of a ''scheme, plan, stratagem or artifice of evasion." United Air Lines, Inc. v. McMann,
434 U.S. 192, 203 (1977).

11. See supra note 1 and accompanying text.

12. See supra note 6 and accompanying text.



1990] AGE DISCRIMINATION ACT 163

The first two elements of the defense have generated little judicial
confusion. The benefit plan in question must be bona fide and the
employer's actions must be taken in observation of the plan's terms. '^

It is the last element of the defense — whether the plan is a subterfuge
to evade the purposes of the Act — that is a continuing source of
controversy.

The United States Supreme Court first addressed the section 4(f)(2)

defense in United Air Lines, Inc. v. McMann.^^ McMann involved a
challenge to a benefit plan predating the enactment of the ADEA. An
employee, involuntarily retired according to the terms of the benefit

plan, argued that the plan was a subterfuge and that the employer should

justify its discrimination by proving some economic or business purpose.
The Court rejected this argument and held that no plan predating the
enactment of the ADEA could be a subterfuge to evade an act passed
years later. ^^ The word ** subterfuge*' was given its ordinary meaning of

**a scheme, plan, stratagem or artifice of evasion."'*

The Court in McMann also rejected the argument that an employer
must show a business or economic purpose in order to prove that a
bona fide preexisting benefit plan was not a subterfuge.'^ Thus, after

McMann, if the plan was bona fide in that it paid substantial benefits,
and the employer's action was in observance of the terms of the plan,

the employer met its burden simply by showing that the plan pre-dated

the ADEA's enactment.'*
Since McMann, administrative regulations'^ and judicial decisions

have interpreted section 4(f)(2) as an affirmative defense.^^ In 1969, the

13. An employer observes the terms of a benefit plan if he provides lower benefits
to older workers because the terms of the plan actually mandate it. This requirement is

met only when an employer acts pursuant to the specific terms of a plan. If the plan,

by its terms, does not require an employer to reduce benefits for older employees, the

employer does not observe the terms of the benefit plan. See, e.g., Betts v. Hamilton

County Bd. of Mental Retardation, 631 F. Supp. 1198, 1204 (S.D. Ohio 1986), aff'd,
848 F.2d 692 (6th Cir. 1988); Sexton v. Beatrice Foods Co., 630 F.2d 478, 486 (7th Cir.

1980); Smart v. Porter Paint Co., 630 F.2d 490, 494 (7th Cir. 1980).

14. 434 U.S. 192 (1977).

15. Id. at 203. This approach to disproving subterfuge based on the date of

enactment of the benefit plan in question is called the chronological test. See, e.g., EEOC
V. Maine, 644 F. Supp. 223, 227 (D. Me. 1986), aff'd mem., 823 F.2d 542 (1st Cir.

1987). See also EEOC v. Fox Point-Bayside School Dist., 772 F.2d 1294, 1302 (7th Cir.
1985); Alford v. City of Lubbock, 664 F.2d 1263, 1271 (5th Cir. 1982), cert, denied, 456

U.S. 975 (1982); Smart v. Porter Paint Co., 630 F.2d 490, 495 (7th Cir. 1980); Jensen

V. Gulf Oil Ref. & Mktg. Co., 623 F.2d 406, 413 (5th Cir. 1980). See infra note 145.
16. McMann, 434 U.S. at 192.
17. Id.

18. Id. Accord EEOC v. County of Orange, 837 F.2d 420, 423 (9th Cir. 1988);
EEOC V. Maine, 644 F. Supp. at 227; Alford, 664 F.2d at 1271.

19. Congress initially charged the Secretary of Labor, in § 9 of the ADEA, with



164 INDIANA LAW REVIEW [Vol. 24:161

Department of Labor issued a regulation incorporating the cost justi-

fication principle as a means of disproving subterfuge.^' Cost justification

allows employers to prove that their benefit plans are not arbitrary,

even though the plans pay unequal benefits to employees because of

age. If the employer proves that the reduced benefits are justified by

the increased costs of providing them, the plan is, objectively, not a

subterfuge. Without such justification, the variance of benefits because

of age would establish a prima facie case of age discrimination.^^ Although

McMann purported to settle the question of whether an employer had
to disprove subterfuge by showing a cost justification, McMann did not
resolve the issue regarding post-ADEA benefit plans.

Recently, the United States Supreme Court interpreted the meaning

of the subterfuge language in the context of post-Act benefit plans in

a case that has far reaching effects on the provision of fringe benefits

issuing rules and regulations necessary to carry out the ADEA. President Carter transferred
the administration of the ADEA to the Equal Employment Opportunity Commission
(EEOC), effective July 1, 1979. Reorg. Plan No. 1 of 1978, § 2. The EEOC published
its proposed interpretations of the ADEA in November, 1979, and adopted the Department
of Labor's then-existing interpretations of § 860.120 as published without modification at

Employee Benefits Plans, Amendment to Administrative Bulletin, 44 Fed. Reg. 30,648,
30,658-62 (1979). Proposed Interpretations; Age Discrimination in Employment Act, 44

Fed. Reg. 68,858, 68,862 (1979). The ADEA interpretations were also renumbered as 29
C.F.R. §§ 1625-1625:13. The EEOC's final interpretations of the ADEA appeared at 46
Fed. Reg. 47,724-28 (to be codified at 29 C.F.R. § 1625.10). Section 1625.10 incorporated

the interpretations promulgated by the Secretary of Labor at 29 C.F.R. § 860.120 (1979);

Final Interpretations: Age Discrimination in Employment Act, 46 Fed. Reg. 47,728 (1981).
20. Betts V. Hamilton County Bd. of Mental Retardation, 848 F.2d 692 (6th Cir.

1988), rev'd sub nom. PERS v. Betts, 109 S. Ct. 2854 (1989); accord EEOC v. City of
Mt. Lebanon, 842 F.2d 1480 (3d Cir. 1988); Karlen v. City Colleges of Chicago, 837

F.2d 314 (7th Cir. 1988), cert, denied sub nom. Cook County College Local No. 1600
V. City Colleges of Chicago, 486 U.S. 1044 (1988); Cipriano v. Board of Educ, 785 F.2d

51 (2d Cir. 1986); EEOC v. Baltimore & Ohio R.R., 632 F.2d 1107 (1980), cert, denied,
454 U.S. 825 (1981); Puckett v. United Air Lines, Inc., 704 F. Supp. 145 (D. 111. 1989).

21. The Secretary promulgated the cost justification rule in an interpretive bulletin

published in Jan., 1969, at 29 C.F.R. § 860.120(a). Section 860.120(a) provided:

[A]n employer is not required to provide older workers who are otherwise
protected by the law with the same pension, retirement or insurance benefits

as he provides to younger workers, so long as any differential between them

is in accordance with the terms of a bona fide benefit plan. ... A retirement,
pension or insurance plan will be considered in compliance with the statute

where the actual amount of payment made, or cost incurred, in behalf of an

older worker is equal to that made or incurred in behalf of a younger worker,
even though the older worker may thereby receive a lesser amount of pension
or retirement benefits or insurance coverage.

22. See. e.g., Mt. Lebanon, 842 F.2d 1480 (3d Cir. 1988); Karien, 837 F.2d 314,

319 (7th Cir. 1988); Cipriano, 785 F.2d 51 (2d Cir. 1986).



1990] AGE DISCRIMINATION ACT 165

to older workers. In Public Employees Retirement System v. Belts^^^

Justice Kennedy, writing for the majority, narrowed the scope of the

ADEA by employing what dissenting Justices Marshall and Brennan
labelled a **draconian interpretation."^ The decision held that all bona
fide employee benefit plans are exempted from the purview of the Act

unless they are a subterfuge for discrimination in some other aspect of
the employment relationship, such as hiring, discharge, wages, or pro-

motion.^^ The Court also rejected cost justification as a means of dis-
proving subterfuge, regardless of the date of the plan's enactment,^^ and

invalidated the EEOC regulations incorporating this requirement. ^^
Lastly, the majority struck **a further blow against the statutory

rights of older workers"^^ by characterizing section 4(f)(2) not as an

affirmative defense, but as a redefinition of the plaintiff's prima facie

case.^^ This holding means that the plaintiff must show that, in offering
lower benefits, the employer actually intended to discriminate in hiring,

wages, promotions or discharge.^° One practical effect of Belts is that
it opens the door for employers to discriminate against older workers

with regard to employee fringe benefits, regardless of cost factors or

other justifications.^* The Court remanded the case to the district court
upon a finding that its grant of summary judgment was inappropriate
because Ms. Betts failed to meet her burden of proving that the reduced

benefits she received resulted from her employer's intent to discriminate

in a nonbenefit area of employment.^^

This Note reviews the Supreme Court's decision in Betts by focusing

on the majority's rejection of the cost justification rule embodied in the
interpretive regulations, many lower court decisions, and the legislative

23. 109 S. Ct. 2854 (1989). The majority consisted of Chief Justice Rehnquist and

Justices Kennedy, White, Blackmun, Stevens, O'Connor, and Scalia. Justice Brennan joined

the dissent of Justice Marshall.

24. Id. at 2871, 2875.

25. Id. at 2867.

26. Id. at 2865.

27. Id.

28. Id. at 2871 n.5.

29. Id. at 2868.

30. Id.

31. As stated by Justice Marshall in his dissent, "[hjenceforth, liability will not
attach under the ADEA even if an employer is unable to put forth any justification for
denying older workers the benefits younger ones receive, and indeed, even if his only

reason for discriminating against older workers in beneilts is his abject hostility to, or

his unfounded stereotypes of them." Id. at 2869 (Marshall, J., dissenting).

32. Id. at 2868-69. On remand, the Sixth Circuit treated the case as one involving
involuntary retirement because of age, ignored the Supreme Court's decision, and again

held for the plaintiff. Betts v. Hamilton County Bd. of Mental Retardation & Developmental
Disabihties, 897 F.2d 1380 (6th Cir. 1990).



166 INDIANA LAW REVIEW [Vol. 24:161

history of both the 1967 Act and 1978 amendments to the ADEA. This
Note begins with a detailed review of Betts in Part I. Part II examines

the relevant legislative history as the foundation for the Department of

Labor and subsequent EEOC regulations which incorporated an objective,
cost justification requirement into the subterfuge analysis. Part III an-

alyzes the Betts opinion in light of the previous case law interpreting

section 4(f)(2) and the cost justification rule. Finally, Part IV concludes

that the majority misconstrued the legislative intent regarding section

4(f)(2) and suggests a congressional overruling of Betts in the same way
Congress acted to overturn the specific result in McMannJ^

I. The Betts Decision

A. Betts in the District Court and Sixth Circuit

June Betts was a sixty-one year old speech pathologist who worked
for the Hamilton County Board of Mental Retardation and Develop-

mental Disabilities, a member of the Public Employees Retirement System
of Ohio^* (*TERS''), for about six years. ^^ The Board reassigned Betts,

a diabetic, to various less demanding positions as her job performance

deteriorated along with her health. ^^ Eventually, Betts became disabled

and the Board presented her with two alternatives: an unpaid medical

leave or length of service retirement. ^^ The Board did not offer disability

33. Congress subsequently overruled McMann with the ADEA Amendments of
1978, which specifically rejected the Court's conclusion that involuntary retirement pursuant

to the terms of a bona fide employee benefit plan was permitted by § 4(f)(2). ADEA
Amendments of 1978, Pub. L. No. 95-256, § 2(a), 92 Stat. 189 (1978), reprinted in 1978
U.S. Code Cong. & Admin. News 504, 512-13; see also H.R. Cong. Rep. No. 950, 95th
Cong., 2d Sess. 8 (1978), reprinted in 1978 U.S. Code Cong. & Admin. News 528, 529.
See 124 Cong. Rec. 7881 (statement of Rep. Hawkins) (The conferees agree that the

purpose of the amendment is to make perfectly clear that § 4(0(2) does not authorize an
employer to permit or require involuntary retirement, regardless of whether an involuntary

retirement provision in a benefit plan became effective before or after the ADEA or these
amendments. The conferees specifically disagree with the reasoning and holding in McMann.);

124 Cong. Rec. 8218 (statement of Sen. Javits). See infra note 85.

34. Betts, 109 S. Ct. at 2858. Ohio established the Public Employees Retirement

System of Ohio to provide retirement benefits for state and local government employees

in 1933. Both participating employees and public employers made contributions to the
plan.

35. Id.

36. Id. at 2858-59.

37. Id. at 2859. Omo Rev. Code Ann. § 145.35 (Baldwin 1984 & Supp. 1988)
provides:

Application for disability retirement may be made by a member or by a person
acting in his behalf, or by the member's employer provided the member has at
least five years of total service credit and has not attained age sixty and is not

receiving disability benefits under any other Ohio state or municipal retirement

programs.



1990] AGE DISCRIMINATION ACT 167

retirement, despite Betts's disabled condition, because a provision in the

Ohio statute governing pension plans prohibited persons who became
disabled at age sixty or older from receiving disability pensions. ^^ Thus,
employees who became disabled at age fifty-nine would be entitled to
disability retirement benefits, although those who became disabled at
age sixty or later, like Betts, were ineligible to receive any disability

benefits.

After considering her options, Betts accepted length of service re-

tirement, which entitled her to a monthly benefit of $158.50. A similarly
situated younger employee who qualified for PERS*s disability retirement
benefits would receive $355.02 per month.^' Disability retirement afforded
more benefits than age-and-service retirement because the Ohio legislature
amended the PERS statutory scheme in 1976 to provide that disability
retirement payments would not constitute less than thirty percent of the
disabled retiree's final average salary."^ Betts subsequently filed suit

against the Board, alleging that the PERS disability retirement scheme
was discriminatory on its face."*'

The Sixth Circuit agreed with the district court'*^ and held that **an
age-based benefit plan which denies disability retirement to older em-

ployees in favor of forcing length of service retirement is unlawful unless

it can be justified by a substantial business purpose."*^ This is essentially

a statement of the cost justification principle. Despite Betts 's argument

that there was no economic justification for the different treatment

afforded employees over sixty,'*^ the defendants made no effort to offer

38. Betts, 109 S. Ct. at 2858-59; see Omo Rev. Code Ann. §§ 145.33, 145.34
(Baldwin 1984 & Supp. 1988) (Age and service retirement benefits are paid to those
employees who have at least five years of service and are at least 60 years old or who
have 30 years of service or who have 25 years of service and are at least 55 years old).

39. Betts, 109 S. Ct. at 2859. Betts subsequently retracted her acceptance of the

service retirement and filed suit with the EEOC, alleging she was, in effect, forced to
retire involuntarily by the terms of the plan in violation of the post-McMann 1978

amendments to the ADEA. The district court found that Betts was forced to retire and,
therefore, that § 4(f)(2) was unavailable to PERS because of the 1978 amendments.
However, neither the court of appeals nor the Supreme Court addressed this question.

40. Omo Rev. Code Ann. § 145.36 (Baldwin 1984 & Supp. 1988).
41. Betts, 109 S. Ct. at 2859.

42. Betts V. Hamilton County Bd. of Mental Retardation, 631 F. Supp. 1198, 1204

(S.D. Ohio 1986), aff'd, 848 F.2d 692 (6th Cir. 1988). The district court concluded that
the Board did not act in observance of the terms of the benefit plan when they forced
Betts into retirement because of her age. Therefore, the plan did not qualify for the

§ 4(f)(2) exception.

43. Betts, 848 F.2d 692, 694 (6th Cir. 1988), rev'd, 109 S. Ct. 2854 (1989).

44. This argument was derived from the EEOC regulations interpreting the sub-
terfuge language in § 4(f)(2). 29 C.F.R. § 860.120(a)(1) (1989) (the legislative history of

this provision shows that its purpose is to permit age-based reductions in employee benefits



168 INDIANA LAW REVIEW [Vol. 24:161

any evidence on this point. Therefore, the court of appeals affirmed

the district court's grant of summary judgment for the plaintiff."*^

B. The Supreme Court's Decision in Betts

The broad issue presented to the Supreme Court on certiorari con-
cerned the meaning and scope of the section 4(f)(2) exemption. Justice

Kennedy, writing for the majority, first noted that the parties conceded

that the PERS plan was bona fide because it existed and paid benefits.'*^
Because the PERS statutory disability plan distinguished among employees
eligible to receive disability retirement solely because of age, it was

discriminatory on its face. Therefore, the plan could escape the pros-

criptions of the ADEA only by qualifying for the section 4(f)(2) ex-
emption.

The Court did not examine the 1959 PERS plan provision which
estabUshed age fifty-nine as the cut-off age for disability benefits because,

based on McMann, a plan that predated the enactment of the ADEA
could not be a subterfuge to evade the Act."*^ However, McMann did
not shield the thirty-percent floor provision for disability retirement

benefits that was added to the PERS plan in 1976.^8 Post-ADEA mod-
ifications of a pre-Act benefit plan may turn the plan into a subterfuge
if the modifications are significant or at least relevant to the challenged

discriminatory practice.'*^ The post-Act PERS modification was both
significant and relevant. Betts was restricted to age-and-service retirement

benefits, which entitled her to less than one-half of the monthly benefit

she would have received if she had been permitted to take disability

retirement. Consequently, the Court faced the issue of the exact meaning

of the section 4(f)(2) exception in the context of post-Act plans. '^

The Court rejected the definition of subterfuge contained in the

EEOC regulations.^* The regulations state that **a plan or plan provision
which prescribes lower benefits for older employees on account of age

is not a subterfuge within the meaning of section 4(0(2) provided that

the lower level of benefits is justified by age-related cost considerations.'*"

In the Court's view, this objective requirement of cost justification

when the reductions are justified by significant cost considerations); see supra note 21

and accompanying text.

45. Betts, 848 F.2d at 695.

46. See supra note 8 and accompanying text.

47. Betts, 109 S. Ct. at 2862.

48. See supra note 37.

49. See, e.g., EEOC v. County of Orange, 837 F.2d 420, 423 (9th Cir. 1988).
50. Betts, 109 S. Ct. at 2862.

51. Id. at 2865.

52. Id. at 2862 (quoting 29 C.F.R. § 1625.10(d) (1988)). This definition has been

adopted by other courts of appeal, e.g., EEOC v. City of Mt. Lebanon, 842 F.2d 1480,
1489 (3d Cir. 1988); Cipriano v. Board of Educ, 785 F.2d 51, 57-58 (2d Cir. 1986).



1990] AGE DISCRIMINATION ACT 169

appeared nowhere in the plain statutory language of the ADEA and
was inconsistent with the subjective definition of subterfuge adopted by

the McMann Court." Nor did the Court agree that the statutory language,
**any bona fide employee benefit plan such as a retirement, pension,

or insurance plan,'' limited the exemption to only those benefit plans

in which costs rise with age.^"^ The Court, therefore, invaUdated the

interpretive regulations construing section 4(f)(2) to include a cost jus-

tification requirement."

Under the majority's interpretation of section 4(0(2), if an employer

adopts a plan provision formulated to retaliate against an employee for

filing an age-discrimination complaint or designed to reduce salaries for

all employees while raising fringe benefits only for younger workers, the

employer would not be entitled to the protection of section 4(f)(2). ^^

The majority acknowledged that this result allows employers wide latitude

in structuring employee benefit plans," but also conceded that this

"construction of the words of the statute [was] not the only plausible

one."^^ If there is more than one interpretation of the words of a statute,

the meaning of the statute cannot be plain. Because **words are inexact

tools at best and . . . there is ... no rule of law forbidding resort to

explanatory legislative history no matter how clear the words may appear
on superficial examination,"^^ a review of the relevant legislative history

is necessary to analyze the majority's opinion in Betts.

II. Section 4(f)(2): Legislative History & Interpretive
Regulations

The main reason the Betts majority rejected the cost justification

rule advanced by the plaintiff, the Department of Labor, the EEOC,^
and the lower courts was that nowhere in the statute was the phrase

**cost justification" mentioned as the means of disproving that a plan

53. Betts, 109 S. Ct. at 2862-63.

54. Id. at 2864-65. The Court stated that this language "appears on its face to

be nothing more than a listing of the general types of plans that fall within the category

of employee benefit plans," and are not the types of plans in which the costs of benefits

provided to the employee rise with the age of the recipient. Id. See supra note 9.

55. Betts, 109 S. Ct. at 2865.

56. Id. at 2868.

57. Id. at 2867.

58. Id. at 2866.

59. Harrison v. Northern Trust Co., 317 U.S. 476, 479 (1943) (quoting United

States V. American Trucking Ass'n, 310 U.S. 534, 544 (1940)), cited in United Air Lines,

Inc. V. McMann, 434 U.S. 192, 210 (1977) (Marshall, J., dissenting).
60. See Proposed Interpretations; Age Discrimination in Employment Act, 29 C.F.R.

§ 1625.10 (1989).



170 INDIANA LAW REVIEW [Vol. 24:161

provision was a subterfuge.*' The majority dismissed Betts*s reliance on
the legislative history of section 4(f)(2) as **misplaced'* in light of what

it considered a plain and unambiguous statute." Yet, the Court resorted

to the legislative history to support its interpretation that Congress did

not intend to include employee benefit plans in the purview of the

ADEA*^^ unless the plan discriminated in some other nonfringe benefit
aspect of the employment relationship,^ such as hiring, discharge, com-

pensation, or terms of employment. The legislative history does not
support the majority's broad reading of the exemption, but instead

supports the view that Congress intended to allow discrimination in

benefit plans only if the employer proved that age-based distinctions

were justified, and therefore not arbitrary.

A. Legislative History of Section 4(f)(2): 1967

The ADEA owes its origins to Title VII of the Civil Rights Act of
1964.*^ When Congress considered Title VII, both the House and the
Senate introduced measures to add age to the list of categories to be

protected by Title VII.^ Congress rejected these measures because it did
not have sufficient information to judge the nature and extent of age

discrimination.*^ Congress, therefore, directed the Secretary of Labor to

study the problem and issue a report.*^ Then-Secretary of Labor, Willard

Wirtz, issued his report. The Older American Worker—Age Discrimi-
nation in EmploymentJ in June, 1965, and recommended that the Federal
government implement a national policy to eliminate arbitrary age limits

in employment.*^

These recommendations led the Johnson Administration, in January,

1967, to propose the bill that was to become the ADEA. This bill did

61. Betts, 109 S. Ct. at 2862.

62. Id. at 2864.

63. Id. at 2866-67.

64. Id.

65. 42 U.S.C. § 2000e-2000e(17) (1982 & Supp. V 1987). Title VII forbids dis-
crimination because of race, color, religion, sex, or national origin. 42 U.S.C. § 2000e-

2(a)(1) (It is an unlawful employment practice to fail or refuse to hire or to discharge a

person, or otherwise discriminate with respect to terms, conditions, or privileges of em-

ployment because of race, color, religion, sex, or national origin.).

66. See H.R. Rep. No. 805, 90th Cong., 1st Sess. (1967), reprinted in 1967 U.S.

Code Cong. & Admin. News 2213, 2214 [hereinafter House Report].
67. Id. See also EEOC v. Wyoming, 460 U.S. 226, 229 (1983).
68. The Civil Rights Act of 1964, Pub. L. No. 88-352, § 715, 78 Stat. 255 (1964);

House Report, supra note 66, at 2214.

69. House Report, supra note 66, at 2214. See also Age Discrimination in Em-
ployment: Hearings on S. 830 Before the Subcomm. on Labor of the Senate Comm. on
Labor and Public Welfare, 90th Cong., 1st Sess. 23 (1967) [hereinafter Senate Hearings].



1990] AGE DISCRIMINATION ACT 171

not contain an exemption corresponding to the current section 4(0(2).

Instead, the administration bill provided that it was not unlawful to

"separate involuntarily an employee under a retirement policy . . . where

such policy ... is not merely a subterfuge to evade the purposes of

this Act.**^^ Thus, this proposed exemption contained no provision for

observation of bona fide employee benefit plans. This point is significant

because under the proposed administration bill, an employer that con-

tinued the common practice of varying benefit levels for older employees,
in order to equalize the increased costs of providing those benefits,

would be engaged in arbitrary age discrimination in violation of the

Act.^»

Congress recognized the logical weakness of prohibiting employers

from varying the levels of fringe benefits among workers hired at ages
within the protected age range of forty to sixty-five. As stated by Senator

Jacob K. Javits, one of the co-sponsors^^ of the legislation, Congress

had to **be sure that the law . . . passed [did] not in practice encourage

rather than discourage discrimination against older workers. '*^^ Senator

Javits felt that the administration bill:

[did] not provide any flexibility in the amount of pension benefits

payable to older workers depending on their age when hired,

and thus [it might] actually encourage employers faced with the

necessity of paying greatly increased premiums, to look for

excuses not to hire older workers when they might have done

so under a law granting them a degree of flexibility with respect

to such matters.^'*

70. 113 Cong. Rec. 2794 (1967).

71. Many of the witnesses who testified at the Senate Hearings referred to this
point. The testimony of Anthony J. Obadal, the Secretary of the Advisory Panel on Older

Workers of the U.S. Chamber of Commerce, is representative. He objected to the in-
adequacy of the administration bill in the area of pension plans. He pointed out that
over 75% of the 16,000 pension plans surveyed by the Secretary of Labor in his report
had maximum participation ages in effect. Because "the pending legislation prohibits
discrimination regarding wages, and terms and conditions of employment based on age,

the operation or maintenance of such plans would be made unlawful." Senate Hearings,

supra note 69, at 106.

72. Senator Javits's counterpart in the House, Representative Hawkins, sponsored

H.R. 13054, the House version of the ADEA. Senator Javits introduced S. 788, a bill
to prohibit arbitrary discrimination in employment on account of age. Sen. Javits testified

at the Senate Hearings conducted on S. 788 and S. 830, the administration bill, in March,

1967, to "reconcile S. 788 with S. 830, the administration bill." Senate Hearings, supra

note 69, at 25. Congress eventually adopted the Senate bill after substituting the language

of the House bill.

73. Id. at 27 (statement of Sen. Javits); 113 Cong. Rec. 7076 (1967).

74. Senate Hearings, supra note 69, at 27 (emphasis added).



172 INDIANA LAW REVIEW [Vol. 24:161

Therefore, he proposed the addition of a ** fairly broad exemption for

bona fide retirement and seniority systems.*'^' This addition was intended

to allay congressional fears that employers would refuse to hire older

workers, and thus thwart the purposes of the ADEA, rather than incur
the higher costs associated with providing equal fringe benefits to all

workers regardless of age when hired.
The key word in analyzing these remarks, when seeking support for

the cost-justification rule jettisoned by the Betts majority, is
*

'flexibility."

Flexibility implies that Congress intended to allow employers to vary

the level of benefits offered to older workers based on their age at date

of hire, while complying with the Act*s prohibition of arbitrary dis-

crimination. The best way to demonstrate objectively that the lower
benefits offered related to the higher cost of providing those benefits,

rather than to some subjective motive or intent to discriminate because
of age, is to show cost justification. This objective justification ensures
that the employer's actions cannot be a

*

'scheme, plan, stratagem or

artifice of evasion" to evade the purposes of the ADEA.^^ Allowing
employers to cost-justify otherwise discriminatory conduct balances the

interests of older workers in maximizing employment possibilities against

the employer's interest in avoiding undue hardships caused by the costs

of providing "special and costly" benefits to older workers. ^^

The comments of others involved in the enactment of the ADEA
lend additional support to the cost-justification interpretation.^* Senator

75. The proposed amendment to § 4(f) read as follows:

(2) to observe a seniority system or any retirement, pension, employee benefit,

or insurance plan, which is not merely a subterfuge to evade the purposes of

this Act, except that no such retirement, pension, employee benefit, or insurance

plan shall excuse the failure to hire any individual.

113 Cong. Rec. 7077 (1967).

76. United Air Lines, Inc. v. McMann, 434 U.S. 192, 203 (1977).
77. 113 Cong. Rec. 34,746 (1967).

78. For example, Rep. Daniels interpreted § 4(f)(2) to permit employers to hire

older workers without necessarily including them in all employee benefit plans. 113 Cong.

Rec. 34,746 (1967). See also Note, The Federal Age Discrimination in Employment Act:
The Pension Plan Exception After McMann and the 1978 Amendments, 54 Notre Dame
L. Rev. 323, 324-25 (1978).

Senator Yarborough, the floor manager of S. 830, stated a similar understanding in

a colloquy with Sen. Javits on November 6, 1967: "Section 4(f)(2) . . . means that a man
who would not have been employed except for this law does not have to receive the
benefits of the plan. . . . This will not deny an individual employment but will limit his

rights to obtain full consideration in the pension, retirement, or insurance plan." 113

Cong. Rec. 31,255 (1967). This phrase should not be taken to mean that an employer

can exclude a newly hired older worker from receiving all benefits. It merely means that

he is limited in his right to obtain full consideration. The Senator's use of the phrase

"full consideration" thus implies that the employee will receive a reduced, that is, less

than full, level of benefits, depending on his age at date of hire.



1990] AGE DISCRIMINATION ACT 173

George Smathers, a cosponsor of the administration bill, considered the

bill deficient because it ignored the high costs of providing equal benefits

to all workers, regardless of their age when hired. The bill ignored the
added expense of providing fringe benefits to older workers^^ and thus

could be interpreted as requiring all workers to receive the same pension

rights and other fringe benefits. If employers were required to hire older

workers and provide them with the same fringe benefits given younger

workers, regardless of costs, **they would be given a handy excuse for

refusing to hire older workers. [Employers] would be able to argue . . .

that their refusal to hire older workers is not due to arbitrary age

discrimination based upon age but instead is due to increased fringe

benefit costs. "*°

To cure this defect, Senator Smathers recommended amending the
bill. The proposed amendment^' would have explicitly granted an ex-

emption to employers permitting them to vary the benefits offered to

older workers, thereby Hmiting the outlay for fringe benefits. The ra-

tionale behind this proposed exemption was that older workers would

be competitive with younger workers in the area of fringe benefits to

create a **better compliance climate.*'*^ Although Congress did not adopt

this language for the final version of the bill, it was preferable to the

language that Congress did incorporate into section 4(f)(2). This language

would have obviated the need for resort to the legislative history of the

amendment.

B. Legislative History of the 1978 Amendments

Congress amended the ADEA in response to McMann's holding^^
that the ADEA permitted involuntary retirement so long as it was

79. Senate Hearings, supra note 69, at 29-30.

80. Id. at 30.

81. Id. The text of the proposed amendment follows:

(g) Nothing in this Act shall be construed to make unlawful the varying of

coverage under any pension, retirement, or insurance plan or any plan for

providing medical or hospital benefits or benefits for work injuries, where such

variance is necessary to prevent the employer's being required to pay more for

coverage of an employee than would be required to provide like coverage for

his other employees.

Id. This language is strikingly similar to the language adopted by the Department of

Labor's interpretive regulations which incorporate the cost justification rule. See 29 C.F.R.

§ 860.120 (1989) (A retirement, pension, or insurance plan will be considered in compliance

with the statute where the actual amount of payment made, or cost incurred, in behalf

of an older worker is equal to that made or incurred in behalf of a younger worker,
even though the older worker may thereby receive a lesser amount of benefits.).

82. Senate Hearings, supra note 69, at 30.

83. United Air Lines, Inc. v. McMann, 434 U.S. 192, 203 (1977). See supra note
33 and accompanying text.



174 INDIANA LAW REVIEW [Vol. 24:161

mandated by an employer's observation of a bona fide employee benefit
plan that predated the ADEA.*'* The Betts majority argued that although
Congress changed the specific result in McMann by amending section
4(0(2) to forbid involuntary retirement, Congress did not change McMann's
definition of subterfuge.*^ Therefore, Congress must have intended for

the ordinary meaning of subterfuge — a scheme, plan, stratagem, or
artifice of evasion — to be applied, even to post-Act benefit plans.**

By adhering to this definition, the Court avoided deciding whether
the PERS disability plan, which limited eligibility to only those workers
who became disabled before age sixty, was a subterfuge. As the history
of the 1978 amendments showed, however. Congress rejected both

McMann*s involuntary retirement holding and the notion that a benefit
plan could not be a subterfuge to evade the ADEA simply because of
the date of its enactment.*^

The legislative history of the 1978 amendments was more explicit
than the history accompanying the Act*s original language with respect

to the cost justification required of employers to qualify for protection

under section 4(f)(2).** The majority observed that Congress's 1978 in-

terpretation of section 4(f)(2) was of little assistance in determining the

meaning attached to the exemption by the 1967 Congress.*^ However,

the statements of Senator Javits, as one of the original cosponsors of

the 1967 Act, as well as the 1978 amendments, are especially persuasive

in seeking to discern the legislative interpretation of section 4(f)(2).

^

Senator Javits explained that the purpose of section 4(f)(2) was to

allow employers to vary the level of benefits offered to older workers.^'

However, benefits were to be reduced **only to the extent necessary to

84. The ADEA Amendments of 1978, Pub. L. No. 95-256, 92 Stat. 189 (1978).
The amendments added the final clause of § 4(0(2) so as to exclude from the ADEA
benefit plans that "require or permit the involuntary retirement of any individual because

of the age of such individual." Id. § 2(a).

85. Betts, 109 S. Ct. 2854, 2861 (1989).

86. Id.

87. See infra note 145.

88. See infra notes 91-98 and accompanying text.

89. The Court noted that "the interpretation given by one Congress (or a committee

or Member thereoO to an earlier statute is of little assistance in discerning the meaning
of that statute." BettSy 109 S. Ct. at 2861 (citing Weinberger v. Rossi, 456 U.S. 25, 35

(1982) {post hoc statements of a congressional committee are not entitled to much weight));
Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 118 and n.l3
(1980) (views of a subsequent Congress form a hazardous basis for inferring the intent

of an earher one).

90. See, e.g.. Federal Energy Admin, v. Algonquin SNG, Inc., 426 U.S. 548, 564

(1976) (statements of legislation's co-sponsors deserve to be accorded substantial weight

in interpreting the statute).

91. 124 Cong. Rec. 8218 (1978).



1990] AGE DISCRIMINATION ACT 175

achieve approximate equivalency in contributions for older and younger

workers. '*'2 This would account for the increased cost of providing certain

benefits to older workers relative to younger workers.'^ He further
explained that a retirement, pension, or insurance plan would comply

with the ADEA if the actual amount of payments made or costs incurred
in providing benefits to older workers equalled payments made for
younger workers.^ As pointed out by the Senator, this explanation was
consistent with remarks he made during floor consideration of the original
Act.'^^

Similarly, the explanatory remarks of Representative Hawkins, an

original cosponsor in the House, should be accorded special weight in

interpreting the legislative intent of the section 4(f)(2) amendments. He
addressed renewed concerns that employers would be compelled to bear

further increased costs for employee benefit plans for older workers

because the amendments raised the upper age limit of the protected

group from sixty-five to seventy. Representative Hawkins stated that the

purpose of section 4(f)(2) is **to encourage the employment of older

workers by permitting age-based variations in benefits where the cost

of providing the benefits to older workers is substantially higher.'*^

The legislative history accompanying the 1978 amendments is im-

portant for two reasons. First, two of the original cosponsors, Senator

Javits and Representative Hawkins, were still in Congress and able to

clarify the original intent of the benefit plan exception. Second, because

the amendments raised the upper limit of the protected age group.

Congress again dealt with the potential problem of employers refusing

to hire older workers rather than integrating them into employee benefit

plans.'^ It is significant that the legislative history shows that Congress

92. Id. This interpretation was consistent with the Department of Labor's regu-

lations. See 29 C.F.R. § 860.120(a) (1989).

93. 124 Cong. Rec. 8218 (1978).
94. Id. at 7887-88 (statement of Rep. Waxman) (if no evidence of actuarial data

which shows that the costs of benefit plans are burdensome for the employer, such a

policy is discriminatory and a conscious effort to evade the purposes of the Act).

95. Id. at 8218 (1978); see also 113 Cong. Rec. 31,255 (statement of Sen. Javits);

supra notes 73-83 and accompanying text.

96. 124 Cong. Rec. 7881 (1978). See also id. at 8218 (1978) (statement of Sen.

Javits) (purpose of § 4(f)(2) is to take account of the increased cost of providing certain

beneHts to older workers; welfare benefit levels for older workers may be reduced only
to the extent necessary to achieve approximately equal contributions for older and younger

workers).

97. Rep. Waxman discussed the nature of the objections voiced by employers and
the role of cost justification in qualifying for the §4(f)(2) defense. He stated,

[TJhere is some concern that employers may seek to evade the restrictions of
section 4(f)(2) by reducing or eliminating welfare benefits to employees over 65.



176 INDIANA LAW REVIEW [Vol. 24:161

gave section 4(f)(2) the same interpretation in 1978 it was given in 1967

because, in the meantime, the Department of Labor promulgated re-

gulations that incorporated the cost justification requirement, based on

the Secretary's understanding of the legislative history.^* Congress did

not reject these regulations. Therefore, the inference is strong that the

regulations accurately represented original legislative intent.

C. The Interpretive Regulations

The agencies charged with administering and interpreting the ADEA
construed the legislative history to mean that employers would be required
to prove that they varied benefit levels for older workers only because

of the increased cost of providing them. The Wage and Hour Division
of the Department of Labor (the "Labor Department") promulgated
the initial interpretations of the ADEA in January, 1969.^ Section
860.120, entitled costs and benefits under employee benefit plans, ex-

plained that **an employer is not required to provide older workers who
are otherwise protected by the law with the same pension, retirement

or insurance benefits as he provides to younger workers, so long as any

differential between them is in accordance with the terms of a bona

fide benefit plan."'*^ This regulation incorporated the equal cost approach

to cost justification. By eliminating the need for employers to provide
equal benefits to older workers, and in effect eliminating the incentive

to avoid hiring such employees, the rule promotes one of the purposes

of the Act—the hiring of older workers.
Following the 1978 amendments to the Act,^°' the Labor Department

published an amendment to the interpretive bulletin concerning employee

It is argued that this practice may be justified, as health insurance and other
benefits are sufficiently more costly for workers between 65 and 70. In the

absence of actuarial data which clearly demonstrates that the costs of [benefit

plans] are uniquely burdensome to the employer, such a pohcy constitutes

discrimination and a conscious effort to evade the purposes of the Act.

Id. at 7888.

98. Interpretations of 29 C.F.R. 860.120(a) state the rule that:

[A] retirement, pension, or insurance plan will be considered in compliance with

the statute where the actual amount of payment made or cost incurred in behalf
of an older worker is equal to that made or incurred in behalf of a younger
worker, even though the older worker mdy thereby receive a lesser amount of
pension or retirement benefits, or insurance coverage.

Id.

99. 34 Fed. Reg. 322 (1969).

100. Id. at 323.

101. ADEA. Pub. L. No. 95-256, § 12(a), 92 Stat. 189 (1978). See supra notes 33
and 84.



1990] AGE DISCRIMINATION ACT 177

benefit plans on May 25, 1979. '^^ At Congress's request, the interpretation
of costs and benefits under employee benefit plans was expanded to

provide more complete guidance concerning section 4(f)(2). ^°^ The increase

in the maximum age level of those protected by the ADEA'<^ raised the
same concerns as the original enactment of the ADEA.^°^ To insure
employer compliance with the Act's purposes of encouraging the em-

ployment of persons in the protected age group and eliminating arbitrary

discrimination in employment, the Labor Department clarified the cost

justification approach.

Section 860.120(a)(1) retained the basic cost justification equal cost

rule, but cautioned that because section 4(f)(2) was an exception to the

general non-discrimination provisions of the ADEA, the exception should
be narrowly construed. ^^ The burden of proving that every element of

the exemption is ** clearly and unmistakably met'' is on the one seeking

to invoke the exception. '^^ The regulation identified three key elements

of the exception: (1) there must be a bona fide employee benefit plan;

(2) the employer's actions must be taken in observation of the terms

of the plan; and (3) the provision in question must not be a subterfuge

to evade the purposes of the Act.'°* When the employee benefit plan

102. 29 C.F.R. § 860.120 (1989). The proposed amendments to the interpretive

bulletin were published at 43 Fed. Reg. 43,264 (1978). See generally Cohen, Section 4(f)(2)

of the Age Discrimination in Employment Act: Age Discrimination in Employee Benefit
Plans, 2 West. New Eng. L. Rev. 379 (1980).

103. 44 Fed. Reg., 30,648 (1979); 124 Cong. Rec. 4451 (1978) (remarks of Sen.

Javits) (requesting the Secretary of Labor to act as soon as possible to promulgate

comprehensive regulations in order to provide guidance for sponsors of employee benefit

plans).

104. ADEA Amendments of 1978, Pub. L. No. 95-256, § 12(a), 92 Stat. 189 (1978).
These amendments raised the upper age limit of the protected group to 70.

105. Congress again addressed the potential problem of employers who might avoid
hiring older workers rather than incur higher benefit costs. See supra notes 73-83 and

accompanying text.

106. 29 C.F.R. § 860.120(a)(1) (1989). See also Cipriano v. Board of Educ, 785

F.2d 51, 54 (2d Cir. 1986); EEOC v. Fox Point-Bayside School Dist., 772 F.2d 1294,
1302 (7th Cir. 1985); EEOC v. Maine, 644 F. Supp. 223, 226 (D. Me. 1987), aff'd mem.,
823 F.2d 542 (1st Cir. 1987).

107. 29 C.F.R. § 860.120(a)(1) (1989). See also Karlen v. City Colleges of Chicago,

837 F.2d 314, 318 (7th Cir. 1988), cert, denied sub nom. Cook County College Local
1600 V. City Colleges of Chicago, 486 U.S. 1044 (1988); Cipriano v. Board of Educ,

785 F.2d 51, 54 (2d Cir. 1986); EEOC v. Fox Point-Bayside School Dist., 772 F.2d 1294,
1302 (7th Cir. 1985); Crosland v. Charlotte Eye, Ear & Throat Hosp., 686 F.2d 208, 212
(4th Cir. 1982); EEOC v. Home Ins. Co., 672 F.2d 252, 257 (2d Cir. 1982); Sexton v.
Beatrice Foods Co., 630 F.2d 478, 486 (7th Cir. 1980); Puckett v. United Air Lines, Inc.,

704 F. Supp. 145, 147 (D. 111. 1989); EEOC v. Maine, 644 F. Supp. 223, 224 (D. Me.
1987), aff'd mem., 823 F.2d 542 (1st Cir. 1987).

108. 29 C.F.R. 860.120(b)-(d) (1989).



178 INDIANA LAW REVIEW [Vol. 24:161

meets all of these criteria, **benefit levels for older workers may be
reduced to the extent necessary to achieve approximate equivalency in

cost for older and younger workers.***^

This version of the cost justification rule required only
*

'approxi-

mate/' rather than exact, equivalency because the Labor Department

decided to permit employers to make adjustments in benefits based on
**any reasonable data on benefit costs.* '''° Thus, an employer could use

cost data related to similar benefit plans to justify reductions in its own
plan, so long as those costs were approximately equal to the employer's

actual costs.'" The Labor Department adopted this approach to cost
justification in response to criticism that the rule limiting employers to

their own actual cost data for providing benefits to employees was
unnecessarily restrictive. The regulation's definition of subterfuge required

that the cost data used to justify a benefit plan providing lower benefits

to older workers because of age be **valid and reasonable."''^

The interpretive bulletin also discussed the application of section

4(f)(2) to various employee benefit plans, including long-term disability

plans. "^ The regulation stated that "[rjeductions on the basis of age

before age seventy in the level or duration of benefits available for

disability are justifiable only on the basis of age-related cost consider-

ations. """* Thus, if employees disabled at younger ages are entitled to

long-term disability, there is no cost-based justification for totally denying

such benefits because of age to employees who become disabled later
in life."^ Specifically, the Labor Department provided that an employer

could cut off disability benefits at age sixty-five when the employee
became disabled at age sixty or younger."^ When an employee became
disabled after age sixty, the employer could terminate disability benefits

five years after the disablement or at age seventy, whichever occurred

first.
"^

109. Id.

110. 29 C.F.R. § 860.120(d)(1) (1989).

111. Id.

112. Id. The regulations also detailed two methods to justify cost differences in

employee benefits plans: the benefit-by-benefit approach and the benefit package approach.

Under the benefit-by-benefit approach, the employer is required to justify separately

each cost reduction for each benefit offered. This method does not justify substitution

of one benefit for another. 29 C.F.R. § 860.120(d)(2)(ii) (1989).

The benefit-package approach provides more flexibility and permits cost comparisons

and adjustments to be made in the aggregate. 29 C.F.R. § 860.120(d)(2)(iii) (1989).
A full discussion of these methods is beyond the scope of this Note. For a complete

discussion, see generally Cohen, supra note 102, at 399-445.

113. 29 C.F.R. § 860.120(f)(l)(iii) (1989).

114. Id.

115. Id.

116. 29 C.F.R. § 860.120(0(l)(iii)(A) (1989).

117. 29 C.F.R. § 860.120(0(l)(iii)(B) (1989).



1990] AGE DISCRIMINATION ACT 179

The EEOC adopted the Labor Department's regulations, with certain
modifications, after the Commission assumed responsibility for enforce-

ment and administration of the ADEA in 1979."^ The EEOC published
its proposed interpretations,"^ but it made no changes to the section on
costs and benefits under employee benefit plans. '^° Likewise, no changes

were made to this section when the EEOC published the final inter-
pretations in 1981. '2' Thus, both administrative agencies responsible for

interpreting the ADEA considered the cost justification rule to be the
means by which an employer could prove that a benefit plan which

varied benefits to older workers was not a subterfuge to evade the

purposes of the Act. The cost justification rule was stated in the first
interpretive bulletin of the Labor Department in 1969 and has been

carried forward to the present day. This long-standing and consistent

pronouncement by the agencies charged with the administration of the

ADEA was accepted by Congress as accurately incorporating congres-
sional intent. Although the regulations do not control the issue of the

proper interpretation of subterfuge, courts may resort to them for guid-
ance. ^^^

III. Analysis of the Betts Decision

In Public Employees Retirement System v. Betts, ^^^ the Supreme

Court addressed the question left open in McMann — the meaning and
scope of the section 4(f)(2) exemption in the context of post-Act plans. '^

118. Reorg. Plan No. 1 of 1978, §2, 43 Fed. Reg. 19,807 (1978).

119. Proposed Interpretations; Age Discrimination in Employment Act, 29 C.F.R.
1625 (1979).

120. The EEOC renumbered the interpretations from 29 C.F.R. § 860 to 29 C.F.R.
§ 1625, effective July 1, 1987.

121. Final Interpretations: Age Discrimination in Employment Act, 29 C.F.R. 1625

(1981). However, the EEOC has pubUshed an advance notice of proposed rulemaking
relating to the prohibition against age discrimination because of age in employee benefit

plans and the § 4(f)(2) exception. 53 Fed. Reg. 26,789 (July 15, 1988). In the advance

notice, the EEOC solicited public comment on these specific issues: 1) Which plans should
be considered to be employee benefit plans? 2) What factor should be assessed when
determining the presence or absence of subterfuge under § 4(f)(2)? 3) Should employee

benefit plans which predate the ADEA be considered as meeting the lack of subterfuge
requirement? If so, under what circumstances? Id.

122. Skidmore v. Swift & Co., 323 U.S. 138, 140 (1944) (long-standing and consistent
pronouncements by administrative agencies, while not controlling upon the courts by reason

of their authority, do constitute a body of experience and informed judgment to which

courts and litigants may properly resort for guidance). See also K Mart Corp v. Cartier,
108 S. Ct. 1811, 1828 (1988) (longstanding administrative practice should not be "lightly

overturned").

123. 109 S. Ct. 2854 (1989).

124. Id. at 2858.



180 INDIANA LAW REVIEW [Vol. 24:161

Specifically, McMann did not address who bears the burden of proving
that a post-Act plan is not a subterfuge and the means by which to do

so. The majority of lower courts considering this question concluded
that section 4(f)(2) was an affirmative defense^^^ that placed the burden

of disproving subterfuge on the employer. *^^

The rationale in Betts was founded on the Court's characterization

of section 4(f)(2) as plain and unambiguous. By maintaining that the
statute was unambiguous, the Court avoided referring to the legislative

history supporting the cost justification test. Likewise, the Court rejected

the administrative regulations, claiming that no deference was due to

interpretations that conflicted with the plain meaning of the statute. '^^

Dissenting Justices Marshall and Brennan, however, found the **spare

language'* of section 4(f)(2) ambiguous and clear only in that it offered

**no explicit command as to what heuristic test those applying it should
use."^^^ Thus, they found it both necessary and appropriate to resort

to the legislative history. However, even the majority conceded that its

interpretation of section 4(f)(2) was not the only one possible. '^^ Thus,

the statute was not as plain and unambiguous as the Court initially

contended. When a statute is ambiguous, it is appropriate for a court
to refer to the legislative history as a means of discerning congressional

intent. '^^ A court may also defer to an administrative agency's inter-

125. E.g., EEOC V. City of Mt. Lebanon, 842 F.2d 1480 (3d Cir. 1988); Karlen
V, City Colleges of Chicago, 837 F.2d 314 (7th Cir. 1988), cert, denied sub nom. Cook
County College Local No. 1600 v. City Colleges of Chicago, 108 S. Ct. 2038 (1988).
When an employer invokes § 4(f)(2), it essentially admits that it based its decision to offer
lower benefits on the age of the employee, but it asserts that its actions were justified.

The employer bears both the burden of production and the burden of persuasion on the

elements of § 4(f)(2). See generally Player, supra note 6.

126. See, e.g., Mt. Lebanon, 842 F.2d at 1492 (employer must estabUsh a connection

or nexus between general cost savings data and age-based reductions); Karlen, 837 F.2d

at 319 (employer must show close correlation between age and cost); Cipriano v. Board

of Educ, 785 F.2d 51, 54 (2d Cir. 1986) (employer must show a legitimate business reason

for structuring the plan as it did); Crosland v. Charlotte Eye, Ear & Throat Hosp., 686
F.2d 208, 215 (4th Cir. 1982) (employer must show legitimate business or economic purpose,

which, objectively assessed, reasonably justified it); Puckett v. United Air Lines, Inc.,

704 F. Supp. 145, 149 (D. 111. 1989) (employer bears burden of showing that age-based

differences are based on age-related cost considerations). Cf. Smart v. Porter Paint Co.,

630 F.2d 490, 495 (7th Cir. 1980) (employer has burden of showing nondiscriminatory

purpose for its actions but showing is not limited to economic or business purpose—may
also be legal purpose).

127. Betts, 109 S. Ct. at 2863. See also Chemical Mfr. Ass'n v. Natural Resources

Defense Council, 470 U.S. 116, 125 (1985) (court should not displace an administrative

construction which is a sufficiently rational interpretation of a statute).

128. Betts, 109 S. Ct. at 2871.

129. Id. at 2866.

130. Id. at 2870 (citing Blum v. Stenson, 465 U.S. 886, 896 (1984)). Cf. Green v.



1990] AGE DISCRIMINATION ACT 181

pretation of an ambiguous statute if it is based on a permissible con-

struction of the statute. '^^

The regulations promulgated by the Department of Labor reflected

such a permissible construction of the ADEA. The Labor Department
incorporated the equal cost rule into the first interpretations of section

4(f)(2). ^^^ The adopted language directly reflected legislators' statements

made during hearings and floor debates. For example, Senator Javits
declared that section 4(0(2) meant that an employer would not be

compelled **to afford to older workers exactly the same pension, re-

tirement, or insurance benefits as he affords to younger workers."^"

Compare this language with that incorporated in the Labor Department's
regulation: *'[A]n employer is not required to provide older workers . . .

with the same pension, retirement, or insurance benefits as he provides

to younger workers, so long as any difference between them is in

accordance with the terms of a bona fide benefit plan."'^"*

The regulations provided a means for employers to show compliance

with the ADEA, even though benefit levels varied depending on the
ages of employees. Such plans would comply with the Act if the employer

made equal payments or incurred equal costs for all employees, even
if an older employee received, for example, $100 of insurance coverage

and not the $200 a younger employee received. '^^ The cost justification

principle recognized the competing interests of employers and older

employees that previously concerned Congress. *^^ The cost justification

rule was an objective means to promote the purposes of the ADEA by
**maximiz[ing] employment possibilities without working an undue hard-

ship on employers. "'^^

The EEOC subsequently adopted the Labor Department regulations
on costs and benefits under benefit plans without substantive change.'^*

Bock Laundry Co., 109 S. Ct. 1981 (1989) (meaning of terms on statute books should

be determined on the basis of which meaning is in accord with context and ordinary

usage and most compatible with the surrounding body of law into which the terms will

be integrated).

131. Chevron, U.S.A., Inc. v. Natural Resources Defense, 467 U.S. 837, 843 (1987).

"The power of an administrative agency to administer a congressionally created . . .

program necessarily requires the formulation of policy and the making of rules to fill

any gap left, implicitly or explicitly, by Congress." Id. (quoting Morton v. Ruiz, 415

U.S. 199, 231 (1974)).

132. 29 C.F.R. § 860.120 (1989).

133. S. Rep. No. 723, 90th Cong., 1st Sess. 14 (1967), reprinted in 113 Cong. Rec.

31,254-55 (1967).

134. 29 C.F.R. § 860.120 (1989).

135. Id.

136. See supra notes 72-82 and accompanying text.

137. 113 Cong. Rec. 34,727 (1967) (statement of Rep. Daniels).

138. Proposed Interpretations; Age Discrimination in Employment Act, 29 C.F.R.



182 INDIANA LAW REVIEW [Vol. 24:161

Congress, in effect, affirmed the regulations as an accurate interpretation

of congressional intent when it amended the ADEA in 1978. Members
of Congress referred to the cost justification principle favorably during

the enactment of the amendments. Indeed, Senator Javits adopted the

language of section 860.120 as his own in explaining that section 4(f)(2)
meant that a plan complied with the ADEA if the actual costs incurred
on behalf of older workers equalled the costs incurred for younger

workers. '^^ Senator WiUiams, the majority leader, stated that Senator

Javits*s statement accurately reflected congressional intent.''*^ As a long
standing and consistent pronouncement by the administrative agencies

responsible for enforcing the ADEA, a pronouncement that Congress
implicitly ratified, the Court should have accorded the regulations con-

siderable deference instead of disregard. Because the legislative history

supported the administrative agencies' construction of the Act, there was

"good reason to treat the [regulations] as expressing the will of Con-
gress.''^^^

The approach advocated by the dissent in Betts, the use of **con-

ventional tools of statutory construction, ''^"^^ also has been followed by

the majority of courts considering the scope and meaning of section

4(f)(2) in post-Act benefit plans. The lower courts considered the cost

justification rule to be the correct test of subterfuge, a test which placed

the burden of proof on the employer who wished to qualify for the
defense,

A. The Case Law: Support for Cost Justification

A review of precedent shows that courts have accepted the cost
justification rule in determining whether a discriminatory benefit plan

is a subterfuge. The trend of the case law is to reject McMann*s **ordinary
meaning" definition of subterfuge beyond its application to pre-ADEA
benefit plans in favor of requiring the employer to prove a business or

economic purpose in order to qualify for the exemption of section

4(f)(2). '*^ The rationale for the rule is simple: a plan that discriminates

1625 (1979); Final Interpretations: Age Discrimination in Employment Act, 29 C.F.R.

§ 1625.10 (1989).

139. 124 Cong. Rec. 4450-51 (1978) (welfare benefit levels for older workers may
be reduced only so far as necessary to achieve approximate equivalency in contributions

for older and younger workers).

140. Id. at 4451.

141. Griggs V. Duke Power Co., 401 U.S. 424, 434 (1971).
142. 109 S. Ct. 2854, 2874 (1989) (Marshall, J., dissenting).

143. E.g., Betts v. Hamilton County Bd. of Mental Retardation and Developmental

Disabilities, 848 F.2d 692 (6th Cir. 1988); EEOC. v. City of Mt. Lebanon, 842 F.2d 1480
(3d Cir. 1988); Karlen v. City Colleges of Chicago, 837 F.2d 314 (7th Cir. 1988), cert.



1990] AGE DISCRIMINATION ACT 183

by offering older workers fewer benefits than younger workers is not

arbitrary if the employer can prove that it had an economic reason for

so differentiating. If the plan is not arbitrary, it does not violate the

Act's ban of arbitrary discrimination.

Although McMann held that an employer need not disprove sub-
terfuge when a benefit plan predates the ADEA,'"" the Court did not

resolve the issue with respect to post-Act plans. Thus, McMann should
not be read as reUeving an employer of all obligation to disprove

subterfuge by showing a business or cost justification. If the relevant

terms of the benefit plan were adopted after the ADEA*s enactment,
the employer could not qualify for section 4(f)(2) simply by pointing to

the date of the plan's adoption. ^'^^ The employer must prove reasons

other than age existed for discriminating.^^

The Third Circuit addressed the means of disproving subterfuge in

the context of a post-ADEA benefit plan in EEOC v. City of Mt.
Lebanon .^"^^ In Mt. Lebanon, the court considered the validity of a

denied sub nom. Cook County College Local No. 1600 v. City Colleges of Chicago, 468

U.S. 1044 (1988); Cipriano v. Board of Educ, 785 F.2d 51 (2d Cir. 1986); EEOC v.
Borden's Inc., 724 F.2d 1390 (9th Cir. 1984); Crosland v. Charlotte Eye, Ear & Throat
Hosp., 686 F.2d 208 (4th Cir. 1982).

144. 434 U.S. 192, 203 (1977).

145. The trend in the courts is to reject McMann*s chronological test of subterfuge.
It is inconsistent to allow a plan that arbitrarily discriminates to continue to do so simply

because of the date of its enactment. For example, if an employer adopted a plan identical

to the PERS disability plan, that plan would be prima facie evidence of discrimination
and the employer could only escape liability for the plan by satisfying § 4(f)(2). Yet an

overtly discriminatory plan, such as the PERS plan, is permitted to continue to discriminate
without any need for justification, simply because the plan predated the ADEA's enactment.

Justice White questioned the validity of this argument in his concurring opinion in

McMann. 434 U.S. at 204-05 (White, J., concurring) (proper inquiry should examine the

employer's decision to continue the discriminatory aspects of the plan after the ADEA
took effect).

Congress also recognized the inconsistency of this test. H.R. Conf. Rep. No. 950,

95th Cong., 2d Sess. 8, reprinted in 1978 U.S. Code Cong. & Admin. News 504, 511
(plan provisions in effect prior to the date of enactment are not exempt under § 4(0(2)

by virtue of the fact that they antedate the Act or these amendments). Congress based

this view on the legislative history of the 1967 Act. See H.R. Rep. No. 805, 90th Cong.,

1st Sess. 4 (1968); S. Rep. No. 723, 90th Cong., 1st Sess. 6, reprinted in 1967 U.S. Code

Cong. & Admin. News 2213, 2217 (section 4(f)(2) applied "to new and existing employee
benefit plans, and to both the establishment and maintenance of such plans").

The Betts Court sidestepped the effect of this legislative history by dismissing the

history accompanying the 1978 Amendments as of little assistance in determining Congress's

original intent, and by so doing, insulated the PERS disability plan from attack as a
subterfuge. 109 S. Ct. at 2861.

146. EEOC V. Home Inc. Co., 672 F.2d 252, 259 (2d Cir. 1982); Puckett v. United
Air Lines, Inc., 704 F. Supp. 145, 147 (D. 111. 1989) (post-ADEA modification means

that employer will have to provide proof of non-age-based reasons for discrimination).

147. 842 F.2d 1480 (3d Cir. 1988).



184 INDIANA LAW REVIEW [Vol. 24:161

benefit plan, adopted in 1973 and amended in 1984, which provided
neither disability benefits until age sixty-five for those disabled before

age sixty, nor disability benefits as required by the interpretive regu-

lations.'"**

The district court granted the city's motion for summary judgment
and held that by establishing an economic or business purpose or valid

reason for the challenged plan, the employer disproved subterfuge, even

though it failed to meet every detail of the cost justification requirement

of the regulations.*'*^ By invoking the section 4(f)(2) defense, the defendant
bore the burden of proving that it acted in observance of a bona fide

plan and that the plan was not a subterfuge. *^° As in Betts, the only
dispute on appeal concerned whether the plan was a subterfuge to evade

the purposes of the ADEA.'^' Because Congress did not define '* sub-

terfuge,'* the court considered reference to the legislative history and

governing regulations appropriate.'"

After reviewing the legislative history and the agency interpretations,

the court held that in order to disprove subterfuge an employer had to

cost-justify its reduced levels of benefits for older workers by establishing

a relationship between the general cost savings data and the reductions

of the particular plan.'" The court recognized that cost justification

provided an objective or quantifiable reason for the employer's decision

to provide lower benefits to older workers. The legislative explanations

of the purpose of the section 4(f)(2) exemption and the federal regulations

148. Id. See 29 C.F.R. § 860.120(0(iii) (1989) (disability plan does not violate the

ADEA if employer provides disability benefits until age 65 where disability occurred at
or before age 60; for disabilities occurring after age 60, benefits cease five years after

disablement or at age 70, whichever occurs first).

149. Mt. Lebanon, 651 F. Supp. 1259, 1263 (W.D. Pa. 1987).

150. Mt. Lebanon, 842 F.2d at 1488.

151. In Betts, the parties conceded that the plan was bona fide because it existed

and paid substantial benefits. 109 S. Ct. at 2860. Accord McMann, 434 U.S. at 194;
EEOC V. Fox Point-Bayside School Dist., 772 F.2d 1294, 1302 (7th Cir. 1985); EEOC
V. Home Ins. Co., 672 F.2d 252, 260 (2d Cir. 1982); EEOC v. Baltimore & Ohio R.R.,
632 F.2d 1107, 1111 (4th Cir. 1980), cert, denied, 454 U.S. 825 (1981); Smart v. Porter

Paint Co., 630 F.2d 490, 494 (7th Cir. 1980).

The parties also conceded that the employer's actions were taken in observance of

the terms of the plan. Betts, 109 S. Ct. at 2860.

152. Mt. Lebanon, 842 F.2d at 1484-89.

153. Id. at 1492. Accord Karlen v. City Colleges of Chicago, 837 F.2d 314, 319

(7th Cir. 1988), cert, denied sub nom. Cook County College Local No. 1600 v. City
Colleges of Chicago, 108 S. Ct. 2038 (1988) (when employer uses age as basis for varying

retirement benefits, he must prove a close correlation between age and cost in order to

quaUfy for § 4(f)(2)); Puckett v. United Air Lines, Inc., 704 F. Supp. 145, 148 (D. 111.

1989) (clear weight of authority supports position that § 4(0(2) exempts liability for age-

based actions only when employer can justify with age-based cost considerations).



1990] AGE DISCRIMINATION ACT 185

supported this position. '^"^ Thus, the proper means of disproving sub-

terfuge was to require the employer to produce evidence proving that

it reduced benefit levels for older workers only *'to the extent necessary

to achieve approximate equivalency in cost[s] for older and younger

workers."'"

Unlike the Betts majority, the Third Circuit deferred to the regu-

lations and accepted them as an accurate expression of legislative intent. '^^

The practical value of the cost justification rule, in the court's view,

was that it provided a straightforward method of quantifying a reason

other than age for the employer's decision to provide lower benefits to

older workers. '^^ Failure to require this proof would mean that an
employer could institute a bona fide benefit plan, but then evade the

ADEA's purpose of eliminating arbitrary age discrimination by reducing
benefits for older workers beyond the level necessary to achieve ap-

proximate equivalency.'^*

This is precisely the evil that results from Betts — by removing
benefit plans entirely from the scope of the Act (except in the Hmited

sense that a plan might be a subterfuge to discriminate in the areas of

hiring, wages, promotions, or other terms, conditions, and privileges of

employment) Betts condones arbitrary discrimination in the provision of

benefits. The Betts majority failed to recognize cost justification as a

valuable objective means of disproving the subjective element of sub-

terfuge.

The Seventh Circuit also endorsed the cost justification principle

as a valid means of disproving subterfuge. In Karlen v. City Colleges

of Chicago, ^^^ three faculty members in their sixties challenged the
colleges' early retirement program. '^^ The plan paid benefits consisting

of a lump sum equal to a percentage of the retiree's accumulated sick
pay and provided group insurance coverage to early retirees. The

benefits available dropped off dramatically if the employee delayed

retirement until age sixty-five or later. '^' The plaintiffs contended that

154. Mt. Lebanon, 842 F.2d at 1492-93.

155. 29 C.F.R. § 860.120(a)(1) (1982) (recodified at 29 C.F.R. § 1625.10(a)(1) (1989)).

156. Mt. Lebanon, 842 F,2d at 1492-93 ("An agency's interpretation is especially
important where its specialization is a significant factor supporting the issuance of the

regulations." The cost-justification requirement is the type of long-standing and contem-

poraneous interpretation deserving recognition.).

157. Id. at 1493.

158. Id. at 1492.

159. 837 F.2d 314 (7th Cir. 1988), cert, denied sub nom. Cook County College
Local No. 1600 v. City Colleges of Chicago, 108 S. Ct. 2038 (1988).

160. Karlen, 837 F.2d at 315-16.

161. Id. at 316. The early retirement program was open to any faculty member



186 INDIANA LAW REVIEW [Vol. 24:161

these provisions constituted a subterfuge to evade the purposes of the

ADEA.'"
The employer asserted that the purpose of these provisions was to

realize financial savings by replacing older faculty members who earned
high salaries with younger faculty members at the lower end of the
salary scale.'" The court stated that the employer's proffered reasons

or motives for the plan provisions were relevant to the subterfuge language

of the section 4(0(2) defense:'^ were these provisions designed to dis-

criminate against faculty members age 65 or older? Although the court

acknowledged that the employer might have good reasons to vary benefits,

it pointed out that the reasons were relevant only to the section 4(f)(2)

defense. '^^ The defendant had both the burden of production and per-

suasion on the elements of the defense.'^

The court noted that, although the ADEA did not forbid employers
to vary employee benefits based on the cost to the employer even if

older workers were disadvantaged, the employer was required to cost

justify the plan.'^^ If the employer varied benefits based on age, rather

than cost, salary, or years of service, the employer had to prove a ** close

correlation between age and cost if he want[ed] to shelter in the safe

harbor of section 4(f)(2). '"^^ The court relied specifically on the cost

justification rule found in the interpretive regulations. If the employer

was unable to prove a close correlation between age and costs, it strongly

implied that the plan was a subterfuge. *^^ The court suggested that the

plan was a subterfuge intended to reinstitute, in effect, a mandatory

retirement age of sixty-five and held that the defendants had not submitted

enough evidence for a reasonable jury to find no subterfuge. ^^^ Karlen

thus illustrates the tension between the objective and subjective com-

ponents of subterfuge. An employer unable to objectively justify its

between 55 and 69 years of age who had been employed full-time for ten years. Members

who retired between the ages of 55 and 58 were entitled to receive a lump sum equal to
50*^0 of accumulated sick pay, in addition to a pension. This lump sum percentage increased

up to 60% for 59 year olds, to 80<^o for ages 60 to 64, then diminished to 45% for
those who retired at age 65 or later. The plan also provided group insurance coverage
up to age 70 for those who retired between the ages of 55 and 64, but those who retired
at 65 or later received no insurance coverage.

162. Id. at 319.

163. Id. at 316.

164. Id. at 319.

165. Id. at 318.

166. Id.

167. Id. at 319 ("[llf, because older workers cost more, the result of the employer's

economizing efforts is disadvantageous to older workers, that is simply how the cookie
crumbles.").

168. Id. (citing 29 C.F.R. § 1625.10(a)(1), (d)(l)-(3)).

169. Id.

170. Id. at 320.



1990] AGE DISCRIMINATION ACT 187

disparate treatment of older workers in benefit plans was subjectively

more likely to be engaged in arbitrary discrimination.

The Betts majority rejected the cost justification rule, in part, because

it was an objective requirement the Court considered inconsistent with

the subjective definition of subterfuge.'^' Like Karlen, Crosland v. Charlotte

Eye, Ear & Throat Hospital^^^ illustrated the interaction of the cost
justification rule with the employer's subjective intent. Crosland involved

a challenge to a defined benefit plan'^^ that excluded the fifty-eight year

old plaintiff from participation because she was hired after age fifty-

three. '^"^ The defendant employer presented evidence to prove that the

costs of covering older employees was so great that the plan would not

have been adopted if the hospital had included them.'^^ The hospital

maintained that it presented proper proof of economic justification and

thus was entitled to the protection of section 4(f)(2). '^^

The court agreed that an employer could disprove subterfuge by

showing a business or economic purpose for its specifically challenged

terms and rejected the plaintiff's argument that section 4(f)(2) was not

intended to protect an employer's age-based exclusions of older workers

from benefit plans. '^^ Although the court relied on a plain reading of the

section 4(f)(2) exemption, •''^ it acknowledged that perhaps the statute was

not so plain. Therefore, the court turned to the legislative history for

additional support.

The court found that Congress intended for employers to hire older

employees without incurring extraordinary expenses '^^ by including them

171. 109 S. Ct. at 2863.

172. 686 F.2d 208 (4th Cir. 1982).

173. A defined benefit plan is a type of retirement plan which has age-related costs.
Under this type of plan, an employee's annual retirement benefit is calculated using a formula

that factors in salary and years of service. The employee is entitled to a benefit of a fixed

annual amount, calculated at the time of retirement. The older the employee when hired,

the less time is available before retirement for accrual of the funds that will supply the

benefit. Thus, an employer would be forced to make higher payments into the retirement

plan for that employee. This is the type of problem that Congress addressed in the legislative

history of the ADEA and its amendments. See generally Note, Interpreting Section 4(f)(2)
of the ADEA: Does Anyone Have a Plan?, 135 U. Pa. L. Rev. 1044, 1076 (1987).

174. Crosland, 686 F.2d at 209.

175. Id. at 210.

176. Id. at 212.

177. Id. at 215.

178. Based on its plain reading, the court concluded that "[a]ge based-exclusions from

participation in [benefit] plans are not specifically exempted from the conditional protection"

of § 4(f)(2). See id. at 213-14. See also 29 U.S.C. § 623(f)(2) ("[i]t shall not be unlawful

... to observe the terms of . . . any bona fide employee benefit plan . . . which is not a

subterfuge to evade the purposes of this chapter, except that no such employee benefit plan

shall excuse the failure to hire any individual ... or permit the involuntary retirement of

any individual . . . because of the age of such individual").

179. See supra notes 73-83 and accompanying text.



188 INDIANA LAW REVIEW [Vol. 24:161

in all benefit plans. Unlike the Betts holding that exempted all bona fide

benefit plans from the Act, the Crosland court found that age-based

exclusions from benefit plans were to be treated as "any other violation

of the ADEA to which a defense might be sought" in the section 4(f)(2)
exemption.'*^

An employer could qualify for the defense by proving that cost, rather
than age, explained the otherwise discriminatory practice.'^' An employer
could escape liability for excluding the plaintiff from the retirement plan

by showing that the plan was not a subterfuge because a "legitimate

business, or economic purpose . . . objectively assessed, reasonably justified

j^
"182 jj^g employee would then be permitted to rebut the defendant's

affirmative defense by showing the employer's motives were unlawful.'*^

Thus, the two components of subterfuge, objective cost justification and

subjective intent, interact so that, where there is no objective justification

for a discriminatory benefit plan, it will not qualify for the section 4(f)(2)

defense.

B. Section 4(f)(2) Does Not Exempt All Benefit Plans

As the section 4(f)(2) case law indicates, no case has interpreted the

exemption as anything other than an affirmative defense which places the

burden on the defendant to disprove subterfuge. Nor did any case suggest
that Congress did not intend to include bona fide employee benefit plans

in the purview of the ADEA. Thus, the Betts holding which "immunize[d]
virtually all employee benefit programs from liability under the ADEA"
was all the more surprising. '^"^ The dissent viewed the majority's selective

180. Crosland, 686 F.2d at 214.

181. Id. at 215. See also 29 C.F.R. § 860 (1989).

182. Crosland, 686 F.2d at 215. The Second Circuit advanced the "legitimate business

reason" justification as a general means of disproving subterfuge in EEOC v. Home Ins.
Co., 672 F.2d 252, 260-61 (2d Cir. 1982). An employer invoking the § 4(0(2) defense had
to show a reasonable business explanation for the age-based discrimination or the court

would be compelled to conclude that the plan was a subterfuge. Id. at 260. Cf. Henn v.

National Geographic Society, 819 F.2d 824 (7th Cir. 1987) (employer must justify discrim-

inatory early retirement program by showing both sound business purpose for structure and

absence of subterfuge); Cipriano v. Board of Educ, 785 F.2d 51, 58 (2d Cir. 1986) (employer

must show plan is not a subterfuge by showing legitimate business reason for structuring

plan as it did, regulations require employer to cost-justify age-based distinctions in employee

benefit plans); Smart v. Porter Paint Co., 630 F.2d 490, 496-97 (7th Cir. 1980) (employer

must disprove subterfuge by submitting evidence of purpose of post-Act amendment; evidence

is not limited to economic or business purpose, may be legal in nature).
Requiring an employer to cost justify its reduced benefit schedule to disprove subterfuge

objectifies the legitimate business purpose. Mt. Lebanon, 842 F.2d at 1493.

183. Crosland, 686 F.2d at 215.

184. 109 S. Ct. at 2869 (Marshall, J., dissenting).



1990] AGE DISCRIMINATION ACT 189

use of the legislative history as "so manipulative as virtually to invite a

charge of result-orientation."'^^

In creating a broader exemption for benefit plans, the Court followed

this chain of reasoning: The phrase "compensation, terms, conditions, or

privileges of employment" in section 4(a)(1) of the Act can be read as

encompassing employee benefit plans. If so, given that section 4(a)(1)

prohibits arbitrary age-based discrimination, then any benefit plan offering

unequal benefits to older and younger workers is arbitrary and prohibited

by the ADEA. Section 4(f)(2), which allows such discrimination based on
age, is therefore inconsistent with section 4(a)(1) unless section 4(0(2) is

viewed as a complete exemption for bona fide benefit plans. Therefore,

Congress must have intended to exclude all benefit plans from the purview

of the ADEA so long as the plan was not a means to discriminate in
other non-fringe benefit areas of the employment relationship. '«^ The Court

then engaged in a brief, selective reading of the legislative history, and

concluded that this reading confirmed the Court's broad reading of section

4(0(2).
'^^

However, the Court overlooked some important points. First, section

4(0(2) is not inconsistent with the ADEA's general prohibition of arbitrary
age discrimination if it is interpreted as requiring some justification for

the seemingly arbitrary discrimination. If an employer who discriminates
by providing different levels of benefits to employees of different ages

but can show a valid, objective reason other than age for the differences

in benefits, then its actions cannot be arbitrary. The cost justification

rule provides an objective method for assessing a plan in terms of whether,

subjectively, the employer intends to discriminate arbitrarily. A plan that
is objectively justified is not a subterfuge and is exempt from charges of

discrimination. The existence of the section 4(0 defenses reflects a legislative

judgment that not all forms of discrimination are arbitrary.

Secondly, Congress intentionally amended the administration version

of the bill to allow employers flexibility in providing bona fide, non-

subterfuge benefit plans. Congress acted specifically to include an ex-

emption for the observation of only bona fide employee benefit plans

when it could have just as easily included a specific exemption for all

employee benefit plans. The legislative history of the 1967 enactment of

the ADEA shows that Congress was concerned that the administration
version of the ADEA contained no provision for observation of bona
fide employee benefit plans. Without such a provision, employers con-

tinuing the common practice of varying benefit levels to account for the

185. Id.

186. Id. at 2866.

187. Id. at 2867.



190 INDIANA LAW REVIEW [Vol. 24:161

increased costs of providing benefits to older workers would automatically

violate the ADEA. This affirmative act of amending the administration
bill to provide an exemption only for plans that qualified for the language

of section 4(f)(2) demonstrated that Congress did not intend to exempt

all bona fide benefit plans.

Lastly, the Court's decision to broaden the exemption, and thus narrow

the scope of the ADEA, is directly opposed to the idea that exceptions
to remedial social legislation be narrowly construed. '^^ Congress intended

the section 4(f)(2) exemption to give employers flexibility in providing

employee benefits to the older workers they would hire in accordance

with the purposes of the Act.^*^ The purpose of the exemption was not

to provide a large area of the employment relationship in which employers

were free to discriminate without any reason or justification. Rather, its

purpose was to **maximize employment possibilities without working undue

hardship on employers in providing special and costly benefits.'''^ An
unquahfied exemption is surely not what Congress meant by a

*

'degree

of flexibility. "1^1

As a result of Betts, employers are free to discriminate in the area

of employee benefits if that discrimination does not extend into the

forbidden territory of hiring, discharge, terms, conditions, and privileges

of employment. '^2 To adopt this reading of the statute is to ignore the
fact that the ADEA prohibits arbitrary discrimination. The Court, in
effect, rewrote section 4(f)(2) to provide an unqualified exemption for

discrimination in employee benefit plans and, in the process, intruded on

legislative and administrative functions best left to those branches of

government.

C The Burden of Proof

By carving out an exemption for all benefit plans that do not dis-

criminate in the areas of hiring, wages, promotions, or discharge, the

Court eliminated the need for the employer to establish a defense to

charges of age-based discrimination in benefit plans. If, as decided by

the Court, age-based discrimination in providing employee benefits does

not violate the Act, no defense is necessary. Thus, in the majority's view,

section 4(f)(2), which had been accepted unfailingly as an affirmative

188. McMann, 434 U.S. at 217-18 (Marshall, J., dissenting) (quoting Piedmont &
Northern R. Co. v. ICC, 286 U.S. 299, 311-312 (1932)) (exemptions from remedial statutes

should be narrowed and limited to effect the reniedy intended).

189. Senate Hearings, supra note 69, at 27; 113 Cong. Rec. 7077 (1967).

190. 113 Cong. Rec. 34,746 (1967) (remarks of Rep. Daniels).

191. Senate Hearings, supra note 69, at 27 (statement of Sen. Javits).

192. Betts, 109 S. Ct. at 2865.



1990] AGE DISCRIMINATION ACT 191

defense before Betts, was not an affirmative defense at all.'^^ Instead,

section 4(f)(2) was merely "a description of the type of employer conduct

that is prohibited in the employee benefit plan context. "'^''

The Court also placed an additional burden on employees challenging

benefit plans as discriminatory. Because the employer is no longer required

to disprove subterfuge, the plaintiff now bears the burden of proving
that the employer, in reducing benefit levels to older workers, actually

intended to discriminate in a nonbenefit area of the employment rela-

tionship.'^^ This presents a plaintiff with a difficult task because in most

cases direct evidence of the employer's subjective motivation is difficult,

if not impossible, to acquire.'^ By requiring the plaintiff to prove the

additional element of the employer's actual intent, the Court has made
it more difficult for plaintiffs to establish a prima facie case of discrim-

ination.*^^

The Court concluded that the plaintiff must prove actual intent to

discriminate in a nonbenefit area of employment by looking to Title VII

precedent on bona fide seniority systems. '^^ Title VII cases may provide
guidance in construing the ADEA because "[tjhere are important simi-
larities between the two statutes . . . both in their aims — the elimination
of discrimination from the workplace — and in their substantive prohi-
bitions.'"^

The Court concluded that because the language of section 703(h) of

Title Y\V^ and section 4(f)(2) were similar, the interpretation of section
703(h) should control interpretation of section 4(f)(2). ^^^ The Court has

interpreted section 703(h) not as an affirmative defense, but as a definitional

193. Id. at 2868; see 29 C.F.R. § 860.120(a)(1) (1989); see also Sexton v. Beatrice

Foods Co., 630 F.2d 478 (7th Cir. 1980); Smart v. Porter, 630 F.2d 490 (7th Cir. 1980).

194. Betts, 109 S. Ct. at 2868.

195. Id.

196. Mt. Lebanon, 842 F.2d at 1482.

197. See Note, Proving Discrimination under the Age Discrimination in Employment
Act, 17 Ariz. L. Rev. 495, 503-04 (1975) (better view is that proof of discriminatory intent

not required for ADEA violation; as with Title VII, Congress was concerned with consequences
of employment practices, not simply the motivation).

198. Betts, 109 S. Ct. at 2868.

199. Lorillard v. Pons, 434 U.S. 575, 584 (1978) (the prohibitions of the ADEA were
derived in haec verba from Title VII); accord Oscar Mayer & Co. v. Evans, 441 U.S. 750,
756 (1979) (Title Vll and the ADEA are equivalent in language and goal).

200. 42 U.S.C. § 2000e-2(h) (1982 & Supp. V 1987) provides in part:
[I]t shall not be an unlawful employment practice for an employer to apply

different standards of compensation, or different terms, conditions, or privileges

of employment pursuant to a bona fide seniority system . . . provided that such

differences are not the result of an intention to discriminate because of race,

color, religion, sex, or national origin.

201. Betts, 109 S. Ct. at 2868.



192 INDIANA LAW REVIEW [Vol. 24:161

provision that merely lists the types of illegal and prohibited employer

practices.^°^ Under Title VII, an employee must prove the employer's

discriminatory intent when challenging actions taken pursuant to bona
fide seniority systems. ^^^ Therefore, the plaintiff must prove actual dis-

criminatory intent in challenging a benefit plan as a subterfuge.^^ The

Court reached this conclusion despite noting that section 4(f)(2), like section

703(h), appears on first reading to be an affirmative defense.^°^ In ad-

dressing section 703(h), the Court rejected the affirmative defense inter-

pretation because it considered itself bound by previous case law that did

not consider it an affirmative defense.^^

The Betts Court was not bound by any such precedent. In fact, the

Court, in characterizing section 4(f)(2) as a definitional provision, like

section 703(h), overlooked its own prior interpretations of bona fide
seniority systems under the ADEA.^^ Section 4(f)(2) contains exemptions
for bona fide benefit plans and bona fide seniority systems. The Court

has referred to section 4(f)(2) in cases involving challenges to employment

practices under seniority systems as an affirmative defense. ^^^ Yet it con-

sidered the same exemption when appUed to bona fide benefit plans as
merely a definitional provision. It is inconsistent for the Court to interpret

the same language as requiring an employer to mount an affirmative

defense in one situation and not the other.

The Court has also referred to the **ADEA's five affirmative de-

fenses, "^^ including the bona fide benefit plan defense. The Court's

characterization of section 4(f)(2) as a definitional provision leaves open

the question of whether the other heretofore affirmative defenses of section

4(f) are to be treated as merely definitional provisions as well.

An employee challenging a discriminatory benefit plan provision, such
as the PERS disability plan, should not bear the burden of proving the
employer's actual intent to discriminate in a nonbenefit aspect of em-

ployment. Section 4(f)(2) is more properly considered an affirmative defense

to charges of age discrimination. After the employee has established a

prima facie case, the burden shifts to the employer to estabhsh "clearly

202. Lorance v. A.T.&T. Technologies, Inc. 109 S. Ct. 2261, 2267 (1989); accord

Franks v. Bowman Transp. Co., 424 U.S. 747, 758 (1976).
203. Lorance, 109 S. Ct. at 2267; accord Pullman-Standard v. Swint, 456 U.S. 273,

289 (1982); American Tobacco Co. v. Patterson, 456 U.S. 63, 65 (1982); Trans Worid Air

Lines, Inc. v. Hardison, 432 U.S. 63, 82 (1977); Franks, 424 U.S. at 758.

204. Betts, 109 S. Ct. at 2868.

205. Id. See Lorance, 109 S. Ct. at 2267 (a "plausible, and perhaps the most natural

reading of § 703(h)" was as an affirmative defense).

206. Lorance, 109 S. Ct. at 2267.

207. Trans World Air Lines, Inc. v. Thurston, 469 U.S. Ill, 121 (1985).

208. Id.

209. Id.



1990] AGE DISCRIMINATION ACT 193

and unmistakably'' each element of the section 4(f)(2) defense.^'^ An
employee may establish a prima facie violation of the ADEA in three
ways:^'* 1) by direct evidence of discrimination because of age; 2) by

circumstantial evidence which establishes an inference that age was a

determinative factor in the employer's treatment of the employee;^'^ and

3) by statistical proof of a pattern of discrimination.^'^

In Betts, the plaintiff had direct evidence of age-based disparate

treatment — the PERS statutory benefit plan which allocated disability
benefits differently depending on the employee's age. This established a

prima facie case of discrimination.^'"^ The discrimination was intentional

210. See supra note 6 for the text of the five affirmative defenses. 29 C.F.R. § 860. 120(aXl)

(1989).

211. Buckley v. Hospital Corp. of Am., Inc.. 758 F.2d 1525, 1529 (11th Cir. 1985);
see generally Smith & Leggette, Recent Issues in Litigation Under the ADEA, 41 Omo St.
L.J. 349, 371-80 (1980).

212. Loeb v. Textron, Inc., 600 F.2d 1003, 1019 (1st Cir. 1979). The circumstantial

evidence approach to establishing a prima facie case follows the pattern established in Title

VII cases in McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). McDonnell Douglas

dealt with disparate treatment, the type of discrimination in which an employer intentionally

treats an employee unfavorably because of an impermissible factor, such as age. Proof of

the employer's motive is necessary to establish a disparate treatment claim. McDonnell

Douglas allows the plaintiff to prove motive by circumstantial evidence. Then the employer

must come forward and articulate a legitimate, non-discriminatory reason for the disparate

treatment. However, the burden of persuasion remains on the plaintiff at all times. Accord

Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248, 256 (1981). The McDonnell

Douglas formula can be used in ADEA cases, but it should not be applied automatically.
See, e.g., Loeb, 600 F.2d at 1019 (McDonnell Douglas should not be viewed as the format

into which all cases of discrimination must fit); Laugesen v. Anaconda Co., 510 F.2d 307,

312 (6th Cir. 1975) (McDonnell Douglas may be applied to ADEA cases but not automatically).
In an ADEA case, an employee must establish that age was a determining factor in

the employer's decision. Metz v. Transit Mix, Inc., 828 F.2d 1202, 1204 (7th Cir. 1987).

213. This type of discrimination, disparate impact, is also derived from a Title VII

analysis. Griggs v. Duke Power Co., 401 U.S. 424 (1971). No showing of intent is needed
to establish disparate impact, which occurs when faciaUy-neutral employment policies are

discriminatory in application. The Griggs Court held that Title VII proscribes overt dis-

crimination as well as practices that are fair in form but discriminatory in practice because

Congress, in enacting Title VII, was concerned with the consequences of employment practices,

not only the motivation. See id. at 431-32. Once the plaintiff, by the use of statistical

evidence, proves disparate impact, the employer bears the burden of producing evidence of

a business justification for the employment practice. The plaintiff retains the burden of

persuasion at all times. The employee may then rebut with a showing of nondiscriminatory
alternatives. Wards Cove Packing Co., Inc. v. Atonio, 109 S. Ct. 2115, 2126 (1989) (Stevens,

J., dissenting).

Disparate impact analysis has been applied to ADEA litigation. See, e.g., EEOC v.
Borden's, Inc., 724 F.2d 1390, 1394-95 (9th Ck. 1984); GeUer v. Markham, 635 F.2d 1027,

1032 (2d Cir. 1980), cert, denied, 451 U.S. 945 (1981) (Rehnquist, J., dissenting from denial

of certiorari).

214. Cf. Karlen v. City Colleges of Chicago, 837 F.2d 314, 318 (7th Cir.), cert, denied



194 INDIANA LAW REVIEW [Vol. 24:161

in the sense that the policy was purposefully drafted to deny participation

to certain employees.^*' The Supreme Court has held that when there is
direct evidence of age discrimination, the burdens of persuasion and

production shift to the employer to show why age is a factor in its
employment policy.^*^ There will always be direct evidence of the terms

of a benefit plan because the EEOC regulations require the employer to
maintain copies or memos of employee benefit plans.^'^ Thus, an employer
must prove the elements of section 4(f)(2) as an affirmative defense to

escape liability for age discrimination.

An employer may establish the section 4(f)(2) defense by showing that
it varied benefit levels pursuant to the terms of a bona fide benefit plan

that was not a subterfuge to evade the purposes of the ADEA.^^* In

BettSy the plaintiff conceded that the PERS plan was both bona fide, in
that it existed and paid substantial benefits,^'^ and that PERS*s refusal

to grant plaintiffs application for disability benefits was an action to

observe the terms of the plan.^ The only disputed element was the

subterfuge element.

Under the prevailing view of section 4(f)(2) as an affirmative defense,

an employer must disprove subterfuge. This can be done by requiring the

employer to show cost justification for the discriminatory aspects of the

benefit plan. Cost justification provides a straightforward method of

ascertaining an employer's motive.^' The Betts majority rejected the ob-

jective cost justification requirement, stating that it was inconsistent with

the subjective definition of subterfuge.^ Both the subjective and objective

elements of subterfuge can be given effect without rejecting the admin-

sub nom. Cook County Colleges Local No. 1600 v. City Colleges of Chicago, 108 S. Ct.

2038 (1988) (evidence that persons of a particular age are eligible to participate in a benefit

plan, but those over that age are not, is prima facie age discrimination).

215. EEOC V. Borden's, Inc., 724 F.2d 1390, 1396 (9th Cir. 1984) (a severance pay
policy that was purposefully drafted to deny benefits to employees older than 55 provided

all the intent necessary to support a finding of disparate treatment).

216. Trans World Air Lines, Inc. v. Thurston, 469 U.S. Ill, 121 (1985) (employer

has opportunity to rebut direct evidence by proving an affirmative defense).

217. 29 C.F.R. § 1627.3(b)(2) (1989).

218. 42 U.S.C. § 623(f)(2) (1982 & Supp. V 1987).
219. Some courts have held that a plan that pays substantial benefits cannot be a

subterfuge. Cf. Patterson v. Independent School Dist., 742 F.2d 465 (8th Cir. 1984) (an

unreasonably infinitesimal benefit plan would brand a plan a subterfuge). But cf. Cipriano

V. Board of Educ, 785 F.2d 51, 57 (2d Cir. 1986) (mere fact that plan is bona fide does

not establish that it is not a subterfuge); EEOC v. Home Ins. Co., 672 F.2d 252, 260 (2d
Cir. 1982) (to assume bona fide and not a subterfuge mean the same thing is to ignore

both the language of statute and stated purpose of Congress).

220. Betts, 109 S. Ct. at 2860.

221. Mt. Lebanon, 842 F.2d 1480, 1494 (3d Cir. 1988).

222. Betts, 109 S. Ct. at 2863.



1990] AGE DISCRIMINATION ACT 195

istrative regulations or altering the nature of section 4(f)(2). The proper

role of intent is to rebut the defendant's affirmative defense. If the

employer proves that its plan is not arbitrary by showing cost justification,

the plaintiff may try to show that "the actual motivation for ... the
plan was an ongoing scheme, plan, stratagem, or artifice of evasion. "^23

But to require the plaintiff to prove the employer's intent as an initial

matter deprives the ADEA of much of its effectiveness.

IV. Conclusion

By expanding the exemption for bona fide benefit plans to include
all plans that do not discriminate in a nonbenefit aspect of employment,

the Supreme Court contradicted the principle that exceptions from remedial

legislation must be narrowly construed.^ In rejecting the Department of

Labor and EEOC regulations incorporating the cost justification principle
as unsupported by the statutory language and the legislative history, the

majority misconstrued legislative intent. Although the existence of the

section 4(f) exemptions indicates that Congress viewed some types of

discrimination in benefit plans as acceptable, "an unqualified exemption

contravenes Congress's overarching goal of protecting older workers against

arbitrary discrimination."^^ Only employers that can prove that discrim-

inatory plan provisions are objectively justified by the increased costs of

providing benefits to older workers should qualify for the section 4(f)(2)

defense.

As a result of Betts, employers are now free to discriminate in providing
employee benefits to older workers for whatever reason, be it the employer's

simple desire to cut costs or its "abject hostility based on unfounded

stereotypes" of older workers.^ Indeed, one case has already followed

Betts and rejected an employee's challenge to a post-ADEA retirement
plan modification granting workers retiring at later ages lesser benefits

than workers with the same length of service retiring at earlier ages.^^^

Congress should act to overrule the specific holdings of Betts in much
the same .way that it acted in 1978 to overrule the McMann decision.

223. Crosland v. Charlotte Eye, Ear & Throat Hosp., 686 F.2d 208, 216 (4th Cir.
1982); see also Player, supra note 6, at Il'i-IA (even a plan that is objectively reasonable

can be a subterfuge if the employer uses it for improper reasons or to secure an improper

goal).

224. Senate Hearings, supra note 69; 113 Cong. Rec. 7077 (1967); 29 C.F.R.

§ 1625.10(a)(1) (1989).

225. Betts, 109 S. Ct. 2854, 2873 (1989).

226. Id. at 2869.

227. Robinson v. County of Fresno, 882 F.2d 444, 447 (9th Cir. 1989) (plaintiff was

unable to show that the change in benefits formula demonstrated an intent to discriminate

in any non-fringe benefits area of employment).



196 INDIANA LAW REVIEW [Vol. 24:161

Congress should eliminate the confusion surrounding the subterfuge element

of section 4(f)(2) by providing a clear definition, addressing the role of

intent in the subterfuge analysis, and specifying how and by whom the
presence or absence of subterfuge is to be demonstrated. Placing the

burden of disproving subterfuge on the employer would place the burden

on the party most likely to have access to evidence of intent. Addition

of the cost justification language of the administrative regulations would

provide an objective means of proving whether a discriminatory plan is

arbitrary.

The Betts decision has not gone unnoticed by Congress. Work has
already begun on the Older Workers Benefit Protection Act,^^ which

would amend the ADEA to clarify the protections given older workers
regarding employee benefit plans. Congress must quickly correct the tre-

mendous injustice done to the millions of older workers as as result of

the virtual ADEA immunity granted to employers by the Betts decision.
In the words of Representative Clay, one of the cosponsors of the House

bill, **Congress must rescind this gift [to employers] before employers*

dreams become older workers' nightmares. "^^

^^ Catherine Reese Urban*

228. S. 1511, 101st Cong., 1st Sess. (1989) (introduced by Sen. David Pryor on Aug.

3, 1989); H.R. 3200, 101st Cong., 1st Sess. (1989) (introduced by Reps. Roybal, Hawkins,

and Clay on Aug. 4, 1989).

229. 135 Cong. Rec. H2880 (daily ed. Aug. 4, 1989) (statement of Rep. Clay).
* B.S., Temple University, 1978; J.D. candidate, Indiana University School of Law-

Indianapolis, 1991.

** After this Note went to press. President Bush signed into law the Older Workers

Benefit Protection Act (the ''Act"), Pub. L. No. 101-433, on October 16, 1990. Congress

found legislative action "necessary to restore the original congressional intent in passing and

amending the Age Discrimination in Employment Act of 1967, which was to prohibit

discrimination against older workers in all employee benefits except when age-based reductions

in employee benefit plans are justified by significant cost consideration." Pub. L. No. 101-

433, § 101. The Act incorporated a new § 4(f)(2), which provides as follows:

(2) to take any action otherwise prohibited under subsection (a), (b), (c), or (e)

of this section —
(A) to observe the terms of a bona fide seniority system that is not intended

to evade the purposes of this Act ... or

(B) to observe the terms of a bona fide employee benefit plan —
(i) where, for each benefit or benefit package, the actual amount of payment

made or cost incurred on behalf of an older worker is no less than that

made or incurred on behalf of a younger worker, as permissible under

[29 C.F.R. § 1625.10] (as in effect on June 22, 1989). . . .

A new subsection (k) specifically states that a seniority system of employee benefit
plan shall comply with this Act regardless of the date such system or plan was adopted,

thus rejecting the McMann chronological test of subterfuge.