Opinion Letter on ADEA and Individual Coverage HRAs
The Equal Employment Opportunity Commission (EEOC) has issued an Opinion Letter dated January 7, 2021, to clarify whether the Age Discrimination in Employment Act (ADEA) prohibition against requiring older workers to bear a greater proportion of the cost of a fringe benefit than younger workers will affect contributions to Individual Coverage Health Reimbursement Arrangements (ICHRAs).
The Opinion Letter reviews two scenarios: (1) a defined contribution amount (i.e., fixed), and (2) a contribution based on a percentage of premium cost (with premium cost increasing with age).
In its Opinion Letter, the EEOC clarifies that the ADEA prohibition applies to fringe benefit plans that require employee contributions. Because ICHRAs are funded completely by employer contributions, they are not subject to the ADEA prohibition, and an employer could offer an ICHRA under either of the scenarios described above. In addition, the EEOC clarified that the individual insurance coverage selected by the employee is not administered or selected by the employer, and, therefore, does not trigger a prohibition under ADEA. The EEOC opinion did not consider whether the contribution formulas would be permissible under the requirements of the final health reimbursement arrangement regulations, only the restrictions imposed by the ADEA.