The U.S. Equal Employment Opportunity Commission (EEOC or Commission) agrees with the jurisdictional statement of Baltimore County (County).

Statement of the Issues

The County requires all employees to contribute to a defined-benefit pension plan. The percentage amount of the employee’s required contribution varies based on the age of the employee at the time he or she joins the system. Older enrollees have to contribute more of their salary to the plan than younger enrollees solely because of their age – even though the employee’s age at the time of enrollment does not necessarily determine either retirement eligibility or the amount of the employee’s ultimate pension benefits. The EEOC filed this suit alleging that the County’s plan thus penalizes older workers in violation of the Age Discrimination in Employment Act of 1967 (ADEA). See 29 U.S.C. §§ 621–634. This questions presented by this appeal are:

1. Has the County established a non-age-based rationale that justifies its policy of requiring employees who were older when they were hired to contribute more to the County’s pension system because of their age at hire?

2. Has the County met its burden of proving that its practice of requiring employees older at hire to contribute more is lawful under section 4(l)(1) of the ADEA, which permits employers to subsidize the actuarially reduced retirement benefits of employees who retire before reaching a plan’s normal retirement age?

Statement of the Case

This is an interlocutory appeal from a district court order granting the EEOC summary judgment with respect to liability in this ADEA enforcement action. The EEOC filed suit against the County in September 2007 to challenge the County’s practice of requiring employees who were older when they were hired to contribute larger percentages of their salaries toward their retirement benefits than employees younger when hired are required to contribute. R-1. After the district court denied the County’s initial motion to dismiss, R-79, the parties filed cross-motions for full or partial summary judgment. R.92–93. The district court granted the County’s motion in January 2009, ruling that this case is governed by Kentucky Retirement Systems v. EEOC, 554 U.S. 135 (2008), and that the higher contribution rates required of employees older when hired were justified by the “time value of money.” JA-108–13.

The Commission appealed. In June 2010 this Court vacated the district court’s order, ruling that the higher contribution rates are not justified by the time value of money, at least insofar as employees who were hired at different ages can retire after completing the same number of years of service. JA-216–18. This Court then remanded for a determination as to whether the County’s policy requiring older workers to make greater pension contributions than younger workers solely because of their age could be justified by other “permissible financial considerations.”

On remand, the parties engaged in discovery and then again filed cross-motions for summary judgment. R-172, 175. The district court granted the Commission’s motion for summary judgment with respect to liability, ruling that the County has not pointed to any non-age-based financial considerations that justify the higher contribution rates assessed against employees who were older when hired. JA-407–11. At the County’s request, the district court certified that order for an interlocutory appeal under 28 U.S.C. § 1292(b), JA-413–16, and this Court then granted the County’s petition for such an appeal. JA-417.

Statement of Facts

A. The history of the ERS

Baltimore County has a defined-benefit pension plan known as the Employees’ Retirement System (ERS). All regular employees hired in and after 1945 have had to join the system. JA-910. The 1945 plan provided that an employee turning 65 could retire and receive a “service retirement allowance” irrespective of the number of years the employee had worked for the County. JA-833–34, 841.

Over the succeeding decades, the County has changed the system’s provisions in various ways. For example, starting in 1959, county police officers and firefighters could retire at age 60 or after thirty years of service. JA-1099–100. Starting in 1973, general employees could retire at age 60 or after thirty years of service irrespective of age, and police and firefighters could retire at age 55 or at age 50 with twenty years of service. JA-1110. By 1990, police and correctional officers could retire after twenty years of service irrespective of age. JA-1062.

Since at least the early 1970s, the County has consistently described these rules, including both the rules based solely on age and those based solely on years of service, as determining its employees’ eligibility for “normal service retirement.” JA-1110 (document dated 1973),[1] 1059 (document dated 1993),[2] 1068 (2007), & 1074 (2010). In 1990, the County added a new option for its general employees, separate from the basic “normal service retirement” option, called “early retirement.” To receive an unreduced pension, an employee had to wait until she turned 60 or accumulated thirty years of service, but an employee who was at least 55 years old and had twenty years of service could retire early and receive a reduced pension. JA-1118 (document dated 1990), 1060 (1993),[3] 1069 (2007), & 1075 (2010). The County consistently referred to this option as its “early retirement” option. Id.

B. The employee contribution rates

Starting when the ERS was first established in 1945, the County required regular employees to join and contribute a percentage of their salaries to the system. The percentage contribution each employee was required to make varied depending upon the employee’s age at the time he enrolled in the plan. JA-424, Balt. Cnty. Code § 5-1-203(1) (“The rate of contribution of the employee shall be determined by the employee’s age at the time the employee actually joins the system . . . .”); JA-837 (an employee’s “rate of contribution would remain constant throughout active service”); JA-839 (1945 rates). For example, a man hired to be a clerk at age 20 in 1945 had to contribute only 3.05% of his salary each year, while a man hired to be a clerk at age 60 had to contribute 5.65%. JA-839.

Buck Consultants, the firm that has served as the actuary for the ERS since its founding, stated that the employee contribution rates initially were calculated in 1945 assuming that each employee would continue working for the County until he turned 65, and then retire. That was an appropriate assumption in 1945, since turning 65 was then the only way to become eligible for retirement benefits.[4] Buck testified that it was involved in only one recalculation of the ERS’s employee contribution rates between 1945 and 2007: in 1977. JA-549–50.[5] According to Buck, the rates were recalculated in 1977 because interest rates available in the market had increased over the years and the County decided to assume that the employees’ contributions would accumulate 5% interest each year rather than only 4%. JA-552–53. Since the contributions would grow faster, the contribution rates could be reduced. The County spread that savings evenly among all its employees by reducing each pre-1977 employee contribution rate by 7.65%. JA-552–54, 812.

It is undisputed that since the new contribution rates adopted in 1977 were based on the pre-1977 rates, the new rates also varied – and increased – with an employee’s age upon joining the system. JA-821. [6] For example, employees who enrolled in the system at age 20 had to contribute only 4.42% of their salary, while employees enrolled at age 55 had to contribute 7.23%. JA-821.

In May 2007 the County changed the employee contribution rates for employees hired after July 1, 2007, so that all employees hired after that date contribute the same percentage of their salary to the plan no matter how old they were when they joined the system. JA-408. The County did not, however, change the employee contribution rates that apply to the employees hired before July 2007. JA-408. The County has never recalculated the mandatory employee contribution rates for these employees to account for the fact that since 1959 (for police and firefighters) and 1973 (for general employees) the employees have not had to work until they turn 60 to become eligible for unreduced normal-service-retirement benefits, because many of them became eligible for those benefits before turning 60 – as a result of completing the required number of years of service.

C. This Court’s prior decision

Correctional officers Richard Bosse and Wayne Lee each filed a charge with the EEOC (Bosse in April 1999 and Lee in January 2000) alleging that the ERS discriminates against him on the basis of his age. JA-40 & 67. The Commission investigated and issued determinations in March 2006 finding an ADEA violation against the class of employees who were 40 or older when they enrolled. JA-72–75. Conciliation proved unsuccessful, and the EEOC filed this lawsuit in September 2007.

In January 2009, the district court granted summary judgment to the County. It ruled that even though the employee contribution rates were expressly based on how old an employee was when she joined the system, the age figures stood for pension status (i.e., the number of years remaining until the employee became eligible for retirement benefits), and the varying employee contribution rates were lawfully based on the time value of money. JA-110–12.

In June 2010, this Court vacated and remanded. JA-218. The Court explained that under its service-based retirement provisions, the ERS requires two employees of different ages to pay different percentages of their salary to the plan even though the different percentages cannot be justified by the time value of money. JA-218. For example, this Court pointed out, if officer A becomes a correctional officer when he is 20 and the same day officer B becomes a correctional officer at age 40, the two officers can each retire twenty years later. If their salary history is the same, their annual retirement benefit will be the same. However, officer B has to contribute more of his salary each year than officer A does. “This disparity,” the Court ruled, “is not justified by the time value of money because both employees contribute for the same twenty years.” JA-218.

Since this Court was unable to locate in the record “permissible financial considerations” that justify the higher contribution rates the County charges employees older at hire in such situations, it remanded “for the district court to decide whether the ERS is supported by such considerations.” JA-218.

D. The district court’s decision on remand

On remand, the district court ruled that the ERS’s employee contribution rates violate the ADEA. JA-409–10. A plaintiff seeking to establish an ADEA violation, the court noted, must prove that age “‘actually motivated the employer’s decision.’” JA-410 (quoting Hazen Paper Co. v. Biggins, 507 U.S. 604, 610 (1993)). The EEOC has met that burden here, the court ruled, by showing that “the ERS . . . is facially discriminatory.” JA-410. An employee’s contribution rate is expressly based on how old the employee was when hired, and that age no longer stands for the employee’s pension status. JA-410.

The ERS requires employees who were older when they were hired to contribute a larger percentage of their salary toward their retirement benefits. JA-407. The court noted that this was lawful in the ERS’s early years because during that period an employee’s age at hire dictated his pension status, and the varying contribution rates were justified by the time value of money. JA-409.

But in 1973 the County allowed its general employees to retire with unreduced benefits after completing thirty years of service. JA-407–08. This provision, the court ruled, “decouple[d] an employee’s age from his or her years until retirement.” JA-409. Under this provision, the district court pointed out – echoing this Court’s earlier holding – two employees of different ages hired at the same time can retire at the same time, and their different contribution rates thus could not be justified by the time value of money. JA-409.

Focusing on the question this Court directed it to address on remand, the district court concluded that the County simply could not “adduce non-age-related financial considerations that justify the disparity in contribution rates between older and younger workers.” R.196 at 5; App-15. The district court noted that on remand the County had been given an opportunity to conduct full discovery, including a comprehensive rule 30(b)(6) deposition of Buck Consultants (the firm that has been the ERS’s actuary since its inception), and it still “has come forward with no evidence demonstrating why two workers with the same number of years until retirement eligibility should be required to contribute to the ERS at different rates.” Id. The court acknowledged that the County offered the calculations in an August 2000 letter from Buck to show that the 1977 rate recalculations favored employees who were older when hired because under the new rates older new hires paid lower rates than they would have if the new rates had been calculated using normal actuarial principles. JA-409–10. But the calculations in the August 2000 letter, the court pointed out, “assum[e] a uniform retirement age of 60” and “do[ ] not address the impact” of the service-based retirement provisions. JA-410.

The court found that the County never adjusted the contribution rates to take account of the service-based retirement options and “never submitted calculations that attempt to demonstrate that requiring higher contributions from older workers could be financially justified after the [service-based] retirement option was added.” JA-409. “[T]here are [therefore],” the court concluded, “no non-age-related financial considerations that justify the disparity in contribution rates between [workers who were] older and younger [when hired].” JA-410.

The district court did state that the County’s “generous early retirement option based on years of service . . . is explicitly authorized by § 4(l) of the ADEA . . . .” R.196 at 6; App-15 (quoting 29 U.S.C. § 623(l)(1)(A)(ii)(I)). However, the court then also concluded that “[t]his provision of the ADEA, which authorizes employers to subsidize employees’ early retirement benefits, does not authorize employers to charge older hires a greater contribution rate than younger hires for the non-subsidized portion of their retirement benefit.” R.196 at 6; App-15. Accordingly, the court concluded, “age is the ‘but-for’ cause of the disparate treatment, [and] the ERS violates the ADEA.” JA-410.

Summary of Argument

The district court correctly ruled that the County has offered no legitimate financial consideration to justify the challenged contribution rates. While an employee’s age when hired could be viewed as standing for her pension status in the ERS’s very early years, the plan amendments allowing employees to receive unreduced “normal service retirement” benefits after completing twenty or thirty years of service severed that link. An employee’s age at hire has not determined her pension status for decades.

Alternatively, the County maintains that the challenged contribution rates are lawful under section 4(l)(1) of the ADEA. But the district court correctly rejected this argument as well. Congress enacted section 4(l)(1) to allow employers to continue (where appropriate) the established practice of encouraging employees who were approaching normal retirement age to retire “early” by subsidizing the benefits they would receive – which, absent the subsidy, would have been substantially reduced based on normal actuarial principles. Section 4(l)(1) is irrelevant to the Commission’s claim here for several reasons: First, the ERS’s service-based retirement provisions are not the type of early-retirement benefits that Congress addressed in section 4(l)(1), and the County has – up until very recently – never treated them as early-retirement provisions. It has instead treated them as part of its “normal service retirement” package. Second, the ERS has since 1990 had an early-retirement option of the type Congress did address in section 4(l)(1), and it consistently called that option its “early retirement” option. The County has chosen not to subsidize those benefits. Third, section 4(l)(1) is irrelevant here because it regulates voluntary contributions by the employer, not involuntary contributions by the employees. It authorizes employers to subsidize the benefits that employees choosing early retirement receive, but it does not authorize employers to require employees who were older when hired to contribute more to receive those benefits.

Argument

I. Standard of review

This Court reviews district court summary judgment orders de novo. Baldwin v. City of Greensboro, 714 F.3d 828, 833 (4th Cir. 2013). However, where, as here, this Court has previously resolved particular legal disputes between the parties, those legal conclusions are “law of the case.” Winston v. Preston, 683 F.3d 489, 498 (4th Cir. 2012); see also United States v. Aramony, 166 F.3d 655, 661 (4th Cir. 1999) (law-of-the-case doctrine “posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case”).

II. The ERS violates the ADEA because on its face it requires employees who were older when hired to contribute a larger portion of their salaries than younger workers must contribute for the same retirement benefit (all other considerations being equal).

The ADEA prohibits employers from discriminating “against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age.” 29 U.S.C. § 623(a)(1). “The term ‘compensation, terms, conditions, or privileges of employment’ encompasses all employee benefits, including such benefits provided pursuant to a bona fide employee benefit plan.” 29 U.S.C. § 630(l). An employer is therefore barred from giving older employees, because of their age, lower benefits than it gives otherwise similar younger employees, or from making the older employees pay more for the same benefits. See, e.g., Stokes v. Westinghouse Savannah River Co., 206 F.3d 420, 426 (4th Cir. 2000) (quoting §§ 623(a)(1) & 630(l)); cf. City of Los Angeles, Dep’t of Water & Power v. Manhart, 435 U.S. 702, 705-09 (1978) (where employer required female employees to make higher contributions to pension plan than male employees, resulting in lower take-home pay for female employees, employer violated § 703(a) of Title VII, even though the higher contributions were based on accurate actuarial considerations). Indeed, requiring older employees to pay more for the same pension benefits is expressly prohibited by the Commission’s ADEA regulations. See 29 C.F.R. § 1625.10(d)(4)(i).[7]

Here, it is undisputed that the County deducts a larger percentage from the paychecks of employees who were older when hired than it deducts from the paychecks of employees who were younger when hired. JA-821. The larger contributions that the County requires its older new hires to make are based expressly on how old those employees were when they joined the system. JA-821. As this Court has already recognized, all other factors being equal, older plan participants pay more for the same pension benefits. JA-218. The disparate contribution rates are thus explicitly age-based. Cf. Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 177-78 (2009) (an employer takes an adverse action “because of” age where age is the “but for” cause of the challenged practice). The ERS, on its face, penalizes older workers because of their age and thus violates the ADEA. See, e.g., Hazen Paper Co. v. Biggins, 507 U.S. 604, 610 (1993) (while an ADEA plaintiff might show that disparate treatment was “actually motivated” by age with evidence of “an ad hoc, informal” age-based animus, a plaintiff also can prove disparate treatment was age-based with evidence that the employer “relied upon a formal, facially discriminatory policy requiring adverse treatment of employees with that trait”).

The County disagrees, arguing that the Supreme Court’s decision in Kentucky Retirement compels a contrary outcome. The County contends that the district court erred by not applying the factors discussed in Kentucky Retirement. BC brf. at 23–24. However, the County has simply misread that case.

Kentucky Retirement applies only where the disparate treatment is based on eligibility for a pension – and a corresponding disparity in the amount of benefits – that happens to turn in part on an employee’s age. See 554 U.S. at 143 (“Thus we must decide whether a plan that (1) lawfully makes age in part a condition of pension eligibility, and (2) treats workers differently in light of their pension status, (3) automatically discriminates because of age.”). The Court there was “dealing . . . with the quite special case of differential treatment based on pension status, where pension status – with the explicit blessing of the ADEA – itself turns, in part, on age.” Id. at 148.

This isn’t that type of case at all. The EEOC is not challenging disparate treatment based on pension status; it instead challenges the County’s ongoing older-worker penalty – its requirement that workers older at hire contribute a greater percentage of their salaries than workers younger at hire for the same pension benefits. The mere fact that both this case and Kentucky Retirement generally involve pensions cannot make Kentucky Retirement controlling. To the contrary, its holding is simply inapplicable here. Since the challenged contribution rates are not determined by the employees’ pension status, the district court was correct not to apply the Kentucky Retirement factors. See EEOC v. Minn. Dep’t of Corr., 702 F. Supp. 2d 1082, 1086–87 (D. Minn. 2010) (Kentucky Retirement governs only when the challenged differential is based on pension status and does not apply where the differential is based solely on age and is therefore facially discriminatory); Mona Shores Bd. of Educ. v. Mona Shores Teachers Educ. Ass’n, No. 271592, 20008 WL 3009890, at *4–5 (Mich. App. Aug. 5, 2008) (Kentucky Retirement and its six factors do not “provide us guidance” in analyzing plan provision that expressly reduces benefits based on employee’s age at retirement).

Moreover, nothing in Kentucky Retirement suggests that an employer does not violate the ADEA when it adopts a policy that, like the ERS, is facially discriminatory. Quite the opposite, Kentucky Retirement explicitly reaffirmed the Supreme Court’s longstanding precedent that policies or practices which on their face require disparate treatment on the basis of a prohibited characteristic like age violate federal anti-discrimination laws (absent an applicable defense). 554 U.S. at 147–48 (“It bears emphasizing that our opinion in no way unsettles the rule that a statute or policy that facially discriminates based on age suffices to show disparate treatment under the ADEA.”). Of course, disparate treatment based on age can also be shown through evidence that an employer was subjectively motivated by age-based animus, such as negative stereotypes about older workers. See, e.g., id. at 155–56; Hazen Paper, 507 U.S. at 610. But that is not the sort of challenge the Commission is bringing here.

The County acknowledges that disparate treatment based on age can be established with evidence either of a facially discriminatory policy and/or of a more individualized animus-based intent. BC brf. at 20 & n.5. And it purports to recognize that the EEOC’s claim involves the former, not the latter. BC brf. at 20. However, the County goes on to conflate the two concepts. The County seems to define “actually motivated by age” in this context as requiring a subjective bias against older workers – an age-based animus. BC brf. at 22-23 (“Like Hazen Paper, Kentucky Retirement Systems is premised on the observation that the ADEA is designed to prevent forms of employment discrimination that are based on stigmatizing stereotypes of age.”).

That is not the law. Here, the challenged contribution rates explicitly vary with an employee’s age on joining the system. The Commission has therefore shown that the employees’ ages actually motivated the challenged contribution rates. See Int’l Union, United Auto. Workers v. Johnson Controls, Inc., 499 U.S. 187, 199 (1991) (facially discriminatory policy is unlawful even in “the absence of a malevolent motive”); Cmty. Servs., Inc. v. Wind Gap Mun. Auth., 421 F.3d 170, 177 (3d Cir. 2005) (where challenged policy discriminates on its face, plaintiff need not prove subjective discriminatory animus); Jankovitz v. Des Moines Indep. Cmty. Sch. Dist., 421 F.3d 649, 653 (8th Cir. 2005) (where challenged policy is facially discriminatory, “intent to discriminate can be presumed”); Minn. Dep’t of Corr., 702 F. Supp. 2d at 1087 (“The plan here is facially discriminatory, and the EEOC need not otherwise prove the [defendant’s] intent.”). Absent some statutory defense, therefore, the ERS facially violates the ADEA, regardless of whether its older-worker penalty was motivated by negative stereotypes or other animus.

The County’s erroneous premise – that the ERS cannot be facially discriminatory on the basis of age because the County harbored no subjective intent to disadvantage older workers – infects its entire analysis. The County argues, for example, that the penalty older workers pay cannot be age-based because the age-based figures in its employee-contribution-rate table are merely stand-ins for the number of years that will pass until the employee is eligible for normal service retirement. BC brf. at 24. The County clings to this “time value of money” rationale for the ongoing older-worker penalty, contending that it “fully explained the reasoning behind the member contributions rates.” BC brf. at 25.

However, this Court has already rejected this argument once before. As this Court previously held, “[t]his disparity is not justified by the time value of money . . . .” JA-218 (emphasis added). This Court vacated the district court’s initial grant of summary judgment for the County because it had been premised on this faulty justification. Id. In effect, this Court held, the disparate contribution rates actually do discriminate on the basis of age – absent some other “permissible financial consideration” for the older-worker penalty. This ruling, as law of the case, relieves this Court from having to reopen an issue it has already resolved. Winston, 683 F.3d at 498.

Nor is there any compelling reason to revisit that settled issue. The age figures in the employee-contribution-rate table have not been accurate stand-ins for the number of years until retirement for decades. In the early years of the ERS, a county employee could become eligible for full retirement benefits only by working for the County until he became 65 (later 60) years old. Under that regime, the employee’s age on joining the system usually did accurately predict the number of years he would have to work before becoming eligible for retirement. An employee hired at age 20 would have to work forty-five years while an employee hired at age 50 would have to work only fifteen.

Starting in 1959, however, police officers and firefighters could retire before turning 60 if they completed thirty years of service. JA-1099–100. The same became true for general employees starting in 1973. JA-1110. By 1990, police and correctional officers could retire after twenty years of service irrespective of age. JA-1062. The County could therefore no longer assume, as Buck’s actuarial model does, that an employee would work for the County until he reached the solely-age-based retirement age.

Consider the general employees hired after 1973 who could retire on turning 60 or after thirty years of service. JA-1110. Buck’s actuarial model assumes that all those employees would work for the County until they turned 60. However, any employee who was younger than 30 when hired actually could retire before turning 60. For example, a person who started working for the County at age 18 could retire at age 48. But the County never recalculated the employee contribution rates to take into account the fact that its employees could now retire after working for twenty or thirty years. Consequently, once county employees could retire based on years of service, their age at hire was no longer an accurate predictor of the number of years they had to continue working before they became eligible for unreduced retirement benefits.

More important, the provisions allowing retirement based on years of service significantly undermined the assumptions that the County and Buck made when they calculated the employee contribution rates. Buck’s model assumes that employee A, hired at age 20, will work for forty years and retire at age 60, and employee B, hired at age 40, will also retire at age 60 and thus will work for only twenty years. JA-821–22. Their life expectancies at retirement will be similar, since they will both retire at age 60. Employee A’s contribution rate, however, can be lower because he will contribute for twice as many years and his contributions will earn compound interest for twice as long. JA-821–24.[8]

But if A and B are both police or correctional officers, they can each retire after twenty years of service. This changes the entire calculation. Now they both make contributions and earn interest for the same twenty years, but A retires at age 40 and has a significantly longer life expectancy than B, who retires at 60. JA-635. If the County expects each employee to fund the same percentage of his retirement benefits, the County would presumably need to have A, who was younger when hired and will be receiving benefits for many more years, contribute a larger, not smaller, percentage of his salary than B.

The County acknowledges that it did not recalculate the employee contribution rates to take into account retirement eligibility based on years of service.[9] The County seeks to justify or excuse this failure by pointing out that it cannot predict when a new employee is hired whether he will retire after completing the required number of years of service or instead continue working until (or past) the age-based retirement age. BC brf. at 29. The Court should reject this attempted justification. It is the fundamental role of an actuary to assess the probability and cost of future events that cannot be predicted on an individual basis. See, e.g., Anderson, Judy Feldman & Robert L. Brown, “Risk and Insurance,” pp. 2–3, 14–15 (2005), available from the Society of Actuaries at www.soa.org/files/pdf/P-21-05.pdf (role of actuary is to use mathematical, statistical and business skills to determine the frequency and severity distributions for future events not predictable on individual basis); cf. Manhart, 435 U.S. at 710 (observing that “insurance is concerned with events that are individually unpredictable”). And here, Buck’s testimony shows that when it calculates employee contribution rates, the firm routinely takes into account aspects of the employees’ future careers that cannot be predicted on an individual basis at the time of hire.[10] Moreover, eliminating the older-worker penalty is obviously feasible: the County has done just that for workers hired after this litigation commenced, and there is nothing in the record to suggest that this reform has compromised the viability of the system.

In sum, the challenged employee contribution rates are based expressly on the employee’s age on joining the system. An employee’s age on joining the system has not been an accurate proxy for his pension status for decades. There is no other permissible financial consideration that can justify the older-worker penalty at issue here. As the district court found, the County on remand, despite ample opportunity, offered no evidence of any other such rationale.

Instead, on remand, the County continued to insist that the “time value of money” justified the ERS’s disparate contributions rates, despite this Court’s clear ruling to the contrary. See, e.g., R.175-1 at 2 (asserting that “the member contribution rates under the plan were based on a legally permissible consideration until July 2007, i.e., the time value of money”); R.187 at 1, 5. The County read this Court’s ruling as merely “question[ing] the time value of money rationale.” R.175-1 at 4; see also id. at 15 (alleging that this Court viewed its hypothetical involving the 20-year-old contributing at 4.42% and the 40-year-old contributing at 5.57% as only “potentially inconsistent” with a valid “time value of money” rationale (emphasis added)). Indeed, in its opening brief in this appeal, the County continues to claim that this Court previously “did not question the district court’s finding with respect to the time value of money determination . . . .” BC brf. at 10. Of course, this Court’s contrary ruling is law of the case. And nothing in Kentucky Retirement or any intervening development compels a different outcome. The district court’s summary judgment ruling as to liability thus must be affirmed.

III. Section 4(l)(1) is irrelevant here, as it allows the employer to subsidize early retirement benefits – not to explicitly penalize older workers by making them pay greater contributions than younger workers to receive the same normal retirement benefits.

The County belatedly attempts to establish the legitimacy of the plan’s age-based contribution rates with an alternative legal argument – that this facet of the ERS must be lawful because it is authorized by section 4(l)(1) of the ADEA.[11] This provision allows employers to make certain kinds of otherwise unlawful contributions to early retirement benefits. But, as the district court rightly recognized, this section of the statute does not authorize employers to require employees who were older when hired to contribute a higher percentage of their salaries solely because they were older when they were hired. The district court’s ruling on this point should be affirmed.

Under section 4(l)(1), “[i]t shall not be a violation of subsection (a), (b), (c), or (e) of this section solely because . . . a defined benefit plan . . . provides for payments that constitute the subsidized portion of an early retirement benefit.” 29 U.S.C. § 623(l)(1)(A)(ii)(l). Section 4(l)(1) thus provides employers with an affirmative defense to a claim of age discrimination. See, e.g., S. Rep. No. 101-263 (1990), reprinted in 1990 U.S.C.C.A.N. 1509, 1535, 1990 WL 171790 at 1535 (legislative history confirming that section 4(l) is an affirmative defense); see also Meacham v. Knolls Atomic Power Lab., 554 U.S. 84, 91 (2008) (“[T]he burden of proving justification or exemption under a special exception to the prohibitions of a statute [such as the ADEA] generally rests on one who claims its benefits . . . .”). Because it is an affirmative defense, the County bears the burden of proving it. Thus, to avoid summary judgment, the County would have to show that a genuine issue of fact exists as to the viability of the defense. The County cannot meet that burden here.

Congress added section 4(l)(1) because employers and actuaries expressed concern that early drafts of the Older Workers Benefit Protection Act would “deal a devastating blow to numerous currently accepted benefit arrangements and design practices, such as early retirement subsidies . . . .” JA-967 (Prepared Statement of the Ass’n of Private Pension & Welfare Plans, Joint Hearing on S. 1511 Before the S. Subcomm. on Labor of the Comm. on Labor & Human Res., 101st Cong., S. Hearing No. 101-308 (1989) (statement by Fred Rumack)). Fred Rumack, then the Director of Tax and Legal Services for Buck Consultants, described what it means for an employer to subsidize early retirement benefits:

If no subsidy is provided, the benefit of an employee who elects to retire at age 55 rather than at age 65 (assuming this is the plan’s normal retirement age) will be actuarially reduced to reflect the fact that the employee would be receiving payments earlier and over a longer period than an employee who retired at age 65. . . . Under a subsidized early retirement program, the employer provides a subsidy so the actuarial reduction of benefits for long-term workers who retire early is reduced or eliminated.

JA-966, 974–75 (emphasis added).

Rumack gave the illustration of a defined-benefit pension plan in which an employee who retired at age 65 with thirty years of service would receive a pension of $800 a month. If the employer provided no subsidy, an employee who retired at age 55 with the same years of service and salary history would receive only $288 a month. JA-974. If the employer wanted to encourage its employees to retire before they turned 65, it could subsidize the benefits for early retirees, “generally providing increased benefits to participants who are age 55 through 64.” JA-975. If cost justification were the only defense to a claim of discriminatory benefits, Rumack explained, these subsidies would be unlawful. JA-975. Employers would be treating younger workers more favorably than older ones, in violation of the statute’s core prohibition.

Congress responded by expressly allowing employers to subsidize early retirement benefits in this fashion. The House Committee on Education and Labor stated in its report:

The portion of the benefit that could be actuarially reduced, but is not, constitutes the subsidized portion of an early retirement benefit within the meaning of this bill.

Even though such plans provide subsidies only for employees who retire prior to the normal retirement age, the Committee intends to approve these early retirement benefits.

H.R. Rep. No. 101-664, § V.A.3.a, at 37 (1990), 1990 WL 200383.

Thus, section 4(l)(1) allows employers to subsidize the retirement benefits received by employees who retire before the plan’s normal retirement age. It would be relevant here if the EEOC were alleging that the County is violating the ADEA by discriminating on the basis of age in the contributions it makes toward the benefits received by employees who retire early – i.e., before their “normal” retirement date. But that is not the Commission’s claim in this case. Rather, the EEOC’s claim is that the County is violating the act by requiring employees who were older when hired to contribute a larger percentage of their salaries to the ERS (than employees who were younger when hired have to) to achieve the same benefit under the County’s normal retirement plan provisions. Section 4(l) is simply inapposite in this scenario. In pressing its purported section 4(l)(1) defense, the County is trying to fit the proverbial square peg into a round hole.

Moreover, nothing in the statute or legislative history suggests that this limited exemption for this single pension practice provides a defense for other pension practices that are age-discriminatory. Otherwise, an employer would be free to set up a contribution system where, for example, the employer makes all contributions for all new hires under age 40 while the employee makes all contributions for all new hires over age 40, so long as the employer is subsidizing any portion of an so-called “early” retirement benefit. This reading of the exemption cannot be correct. Nothing in the statute or legislative history suggests that this limited exemption permitting employer subsidies was intended to override, for example, the express prohibition on requiring older employees to make greater contributions than younger workers to employee benefit plans. See 29 C.F.R. § 1625.10(d)(4)(i) (incorporated by reference into 29 U.S.C. § 623(f)(2)).

Simply put, section 4(l)(1) does not apply because there is no claim in this case concerning the County’s subsidy of true “early” retirement benefits in the section 4(l)(1) sense. The EEOC is challenging the contributions that the ERS requires its employees to make to help fund their normal service retirement benefits. The County now maintains that the plan provisions making employees eligible for full retirement benefits based solely on years of service were early retirement provisions, governed by section 4(l)(1). BC brf. at 7, 25–30. But these years-of-service eligibility rules did not result in actuarially reduced benefits, and the County has consistently described them and treated them as rules determining eligibility for normal service retirement and unreduced benefits.

In the system’s early years, employees became eligible for retirement benefits only by attaining a certain age. Starting in 1959 (for police and firefighters) and 1973 (for general employees), however, the County’s employees also became eligible for full retirement benefits after thirty (and later twenty) years of service (or based on some combination of age and years of service). There is no evidence that the County adopted these new eligibility rules to shrink its workforce by encouraging its employees to retire before they became eligible for unreduced retirement benefits – the situation Congress had in mind in enacting the section 4(l)(1) safe harbor. And except for one early period for general employees,[12] there is no evidence that employees who retired after completing twenty or thirty years of service had to settle for actuarially reduced retirement benefits. There thus is no evidence that the County is “subsidizing” any “reduced” benefits at all.

Perhaps not surprisingly, therefore, there likewise is no evidence that the County considered these service-based eligibility rules “early” retirement options at all, either when they were adopted or during the decades they were in force. On the contrary, the County and its actuary have consistently described these rules as rules determining eligibility for “normal service retirement” and for full (not actuarially reduced) retirement benefits. The relevant provision in the 2005 version of the county code stated that “the normal service retirement age [for a general employee is] the age of sixty [60] or . . . the age at which the member completes thirty [30] years of creditable service, whichever is earlier.” JA-432 (Balt. Cnty. Code § 5-1-213) (emphasis and text in first brackets added). The actuary’s annual valuation of the ERS issued in late 1973 stated: “The normal service retirement age is age 60 or the age at which the member completes 30 years of creditable service for general employees . . . .” JA-1110. The valuation issued in 1988 likewise said general employees were eligible for the “normal retirement allowance” at “[a]ge 60 or completion of 30 years of creditable service.” JA-1114.

The ERS’s summary of plan benefits in 1993 again used the “normal service retirement” label: “Members are eligible for normal service retirement after the attainment of age 60 or after 30 years of service.” JA-1059. The summary of plan provisions that the ERS issued for general employees in mid-2007 used the same label. JA-1068 (stating, under the heading “Normal Service Retirement Benefits . . . ,” “Members are eligible for normal service retirement after the attainment of age 60 with 5 years of creditable service or after 30 years of creditable service regardless of age.”). So did the summary issued in mid-2010, JA-1074 (same language as in 2007 summary), well after the Commission filed this lawsuit. Indeed, the County described the plan this way in the brief it filed in this Court in October 2009, explaining that “[G]eneral County employees are eligible for a normal retirement benefit at age 60 or the completion of 30 years of creditable service regardless of age.” JA-125 (emphasis added).

Perhaps the most convincing evidence that the service-based eligibility rules discussed above do not provide the type of early retirement benefits that section 4(l)(1) addresses – and that the County (up until very recently) did not view them as providing that kind of benefit – is that the ERS has had an actual, genuine, and completely separate “early retirement” option since 1990. During most of that time general employees have been eligible for unreduced “normal service retirement” benefits on turning 60 or completing thirty years of service. But the ERS has also allowed its general employees to retire before reaching their normal service retirement age. Employees have been able to retire if they are at least 55 years old and have at least twenty years of service. But because they are retiring before attaining their normal service retirement age, the benefits they receive are reduced. The relevant county ordinance stated: “A member may retire before attaining the member’s normal service retirement age provided that . . . the member has attained age fifty-five [55] and completed twenty [20] or more years of creditable service.” JA-432 (Balt. Cnty. Code § 5-1-213) (emphasis added). The 1993 ERS information pamphlet contained this description:

Members who wish to retire before the above mentioned eligibility requirements [age 60 or 30 years of service] may do so after the attainment of age 55 and after completing 20 years of service. However, the retirement allowance will be reduced by 5% for every year prior to age 60 or 30 years of service, whichever results in the lesser reduction.

JA-1060.

The County has consistently labeled this an “early retirement” option. See JA-1060 (1993 ERS information pamphlet) (provision just quoted appears under heading “Early Retirement”); JA-1069 (2007 ERS summary of plan provisions) (almost identical provision under same heading); JA-1075 (2010 ERS summary of plan provisions) (almost identical provision under same heading). And this is precisely the type of early retirement benefit that Congress addressed in section 4(l)(1): retirement benefits that are actuarially reduced because the employee retires before attaining the plan’s normal retirement age. Compare Rumack’s description of early retirement benefits in 1990 supra at p. 31. If the County had chosen not to reduce those benefits and to subsidize them, then section 4(l) theoretically would provide a safe harbor for any unlawful age discrimination that otherwise would result. But the County’s true early-retirement option is not at issue in this case. And section 4(l) is simply inapplicable in the context of a challenge to age-based disparate treatment involving normal retirement benefits.

In sum, Congress added section 4(l)(1) in 1990 to permit employers to continue an established practice: encouraging employees above a certain age (usually 55) to retire early (i.e., before reaching the plan’s normal retirement age) by subsidizing the benefits those employees receive, benefits that without the subsidy would be actuarially reduced because the employees are retiring early. The County has had this kind of early retirement option for its general employees since 1990, but it has chosen not to subsidize the actuarially reduced benefits that employees choosing that early-retirement option receive. And since the challenged plan provisions are not “early retirement” options in any event, the section 4(l)(1) defense is irrelevant here. Try as it might, the County cannot transform what it has always called (and what is in substance) a typical normal retirement benefit into a special section-4(l)-type benefit just by belatedly – only in litigation – labeling it an “Unreduced Early Retirement Benefit.” BC brf. at 17, 25, 28.

Conclusion

The County’s “two rights can’t make a violation” defense, while catchy, is ultimately unavailing. BC brf. at 17–18, 30. This Court has already found that the ERS’s older-worker penalty cannot be justified by the County’s “time value of money” mantra. Even if the different employee contribution rates were justified by non-age-based financial considerations in the ERS’s early years, the rationale justifying those different rates dissolved decades ago, and the County has provided no evidence whatsoever of any other permissible financial consideration. Further, the County’s attempts at alchemy aside, nothing in the actual record remotely suggests that the normal retirement benefit provisions at issue qualify as the type of early retirement incentive plan Congress had in mind in enacting section 4(l). There is no safe harbor to shelter the County from continuing to subject workers who were older when hired to a pension-contribution penalty just because of their age.

For the foregoing reasons, this Court should affirm the district court’s grant of summary judgment to the EEOC with respect to liability, and remand for further proceedings.

[1] “The normal service retirement age is age 60 or the age at which the member completes 30 years of creditable service for general employees, and age 55 or age 50 after the completion of 20 years of creditable service for policemen and firemen.” JA-1110.

[2] “Members are eligible for normal service retirement after the attainment of age 60 or after 30 years of service.” JA-1059.

[3] “EARLY RETIREMENT.

“Members who wish to retire before the above mentioned eligibility requirements [i.e., age 60 or 30 years of service] may do so after the attainment of age 55 and after completing 20 years of service. However, the retirement allowance will be reduced by 5% for every year prior to age 60 or 30 years of service, whichever results in the lesser reduction.” JA-1060.

[4]The work papers documenting the calculation of the employee contribution rates adopted in 1945 evidently have not survived. Nevertheless, Buck Consultants testified that the rates would have been calculated using the following steps: (a) Starting with the employee’s first-year salary and using assumed rates of salary increases and interest, compute the employee’s total career earnings (JA-821–22 (steps 1–3)); (b) Calculate the retirement benefit the ERS will provide for the employee at age 65 and the amount of money needed to purchase an annuity providing one-half that level of benefits (JA-822 (steps 4–7)); and (c) Calculate the level annual contribution (expressed as a percentage of the employee’s salary) that will accumulate, with interest, to purchase that annuity at age 65 (JA-822 (step 8)).

[5] The record shows that the employee contribution rates in fact increased one or more times between 1945 and 1976. Compare JA-839 (1945 rates for persons hired at age 20 and age 55 as male clerks were 3.05% and 5.65%) and JA-819 (1976 rates for employees hired at age 20 and age 55 were 4.79% and 7.83%). The record does not explain the timing of, or the basis for, these pre-1977 increases. In any event, the 1976 rates, like the 1945 rates, increased steadily with the employee’s age on joining the system. JA-819.

[6] The county asserts that this 1977 adjustment in employee contribution rates favored employees who were older at hire because it resulted in rates that allowed those employees to contribute a smaller percentage of the cost of their projected pensions than employees younger at hire had to contribute. BC brf. at 5–6, 13–14. However, the evidence the county proffered does not support that conclusion.

The table that the county includes in its brief, BC brf. at 6, comes from an August 2000 letter that Buck drafted to assist the county in responding to the charges underlying this lawsuit. JA-820–24. The letter states that in calculating the rate figures in column C of the table, Buck assumed that all general employees and correctional officers would work until they turned 60. JA-821–24. But this is a counterfactual assumption. In 2000 general employees could retire after thirty years of service and correctional officers could retire after twenty years of service. JA-1062, 1110.

Buck’s failure to take the service-based retirement options into account means that the figures in column C (and therefore in column D) do not reflect the employee contribution rates necessary to fund the actual retirement benefits that the ERS provided. The table accordingly does not support the county’s assertion that the rates adopted in 1977 favored employees who were older when hired over employees who were younger when hired. Moreover, the Commission moved to strike this letter as inadmissible hearsay. R-179. After granting the Commission summary judgment on liability, the district court denied this motion as moot. JA-412-B.

[7] That regulation states: “An older employee within the protected age group may not be required as a condition of employment to make greater contributions than a younger employee in support of an employee benefit plan.” The Commission directed the district court’s attention to this regulation in both rounds of summary judgment briefing. R-93 at 18–21, R-172 at 29 n.11.

[8] Employee A will of course receive significantly larger retirement benefits because the benefit level is based on years of service.

[9] The county has suggested there is no authority that compelled it to recalculate the employee contribution rates when it added the service-based-retirement options. BC Pet. for Interloc. Appeal 9. The authority that compelled the county to recalculate the rates is the ADEA as amended by the Older Workers Benefit Protection Act, which stated that the OWBPA's employee-benefit-plan amendments would govern state and county pension plans, and which gave states and counties two years to bring their pension plans into compliance. Pub. L. 101-433, § 105(c).

[10] For example, Buck projects how the employees’ salaries will increase over a period of years and even decades. JA-821, step 1. Any particular employee’s salary may increase faster than this projection or more slowly. Buck’s inability to predict how rapidly a particular employee’s salary will increase does not prevent the firm from taking account of the fact that employees’ salaries generally do increase over time. Similarly, Buck stated that if it were to recalculate the employee contribution rates on an actuarial basis, it would factor in employee mortality, both pre- and post-retirement, and the “probability” that an employee would withdraw from the system before becoming eligible for retirement benefits. JA-563–64. These are also factors that Buck cannot predict on an individual basis when an employee is hired.

[11] The county did not assert this section 4(l)(1) defense in the first round of summary judgment briefing in the district court or in its first appeal to this Court.

[12] In 1961 the county’s general employees were eligible for full benefits at age 60 and for reduced benefits after thirty years of service. JA-1105. Starting in 1973, completing thirty years of service entitled general employees to unreduced benefits. JA-1110.