President Barack Obama signed on January 29, 2009, the Lilly Ledbetter Fair Pay Act of 2009, which reverses the Supreme Court decision in Ledbetter vs. Goodyear Tire and Rubber Co., 550 U.S. 608 (2007).

In its Ledbetter decision, the Court held that a plaintiff must file a challenge to a compensation decision with the EEOC within the statutory period measured by reference to the decision or be precluded from bringing a lawsuit based on that decision. It also held that the current effects— i.e., reduced pay—of a past discriminatory decision are not actionable in themselves.

With the Fair Pay Act, Congress determined the Ledbetter decision unduly limits the time period in which victims of discrimination can challenge and recover for discriminatory compensation decisions.

Discriminatory Compensation Under Fair Pay Act

The Fair Pay Act provides that, for purposes of Title VII, the Americans with Disabilities Act (ADA) and the Age Discrimination in Employment Act (ADEA), an unlawful act occurs with respect to discriminatory compensation:

• When the discriminatory compensation decision or practice is adopted
• When a person becomes subject to the discriminatory compensation decision or practice
• When a person is affected by application of the discriminatory compensation decision or practice, including each time wages, benefits or other compensation is paid, resulting from the decision or practice

As it relates to pension benefits, the Fair Pay Act states that "nothing in [the] Act is intended to change current law treatment of when pension distributions are considered paid."

The Tomlinson Case

In January 2009, the U.S. District Court for the District of Colorado in Tomlinson v. El Paso Corp. (No. 04-cv-02686-WDM-MEH, Jan. 21, 2009) ruled that participants in a pension plan were time-barred from pursuing an action under the ADEA based upon the claimed discriminatory effect of the conversion of a traditional pension plan into a cash balance pension plan.

The court ruled that the Ledbetter decision foreclosed any claim that an age discriminatory pattern or practice occurred each time pay credits were calculated under the plan. Instead, the court found that the conversion of the pension formula from traditional to cash balance was a discrete benefit-setting decision, and that a charge should have been filed with the EEOC within 300 days of the conversion, and it was not. Because a timely administrative charge is a prerequisite to a lawsuit under the ADEA, the court dismissed the ADEA claim.

After adoption of the Fair Pay Act, on a motion to alter or amend judgment, the court in Tomlinson, 2009 U.S. LEXIS 77341 (D. Colo. Aug. 28, 2009), reversed its earlier decision and reinstated the claim under the ADEA. The court noted that the Fair Pay Act provides that a discriminatory act occurs when an individual is affected by application of a discriminatory compensation decision or other practice, which "could plausibly" include the accrual of pension benefits.

The court distinguished between the accrual of the pension benefits and the payment of pension benefits. The court noted that the Fair Pay Act preserved existing law concerning when a discriminatory pension distribution or payment occurs—that is, at retirement—and that a separate violation does not occur with each pension check. However, the court left open the possibility that each of the decisions to provide for the plan conversion, the conversion itself, and the subsequent pension accruals may allow for an action under the ADEA as amended by the Fair Pay Act.

Too Early—Ripeness under Auerbach and Maki

In the case of a pension benefit, an individual does not feel the impact of a discriminatory plan provision or plan action until that individual starts a pension. Prior to that point, while the individual may get statements and reports of the benefit he or she has accrued under the plan, there is no economic impact on the participant. This has caused some courts to conclude that, until a participant has retired and applied for a retirement benefit, a claim under the ADEA is not ripe.

In Auerbach v. Board of Education of the Harborfields Central School District, 136 F.3d 104 (2^nd Cir. 1998), the court upheld the dismissal of six unretired plaintiff's claims under the ripeness doctrine. Similarly, in Maki v. Allete, Inc., 383 F.3d 740 (8^th Cir. 2004), the Eighth Circuit noted that an employer may amend a discriminatory plan provision up to retirement and thereby eliminate any claimed discrimination. Because it is not known whether an impact exists until retirement, the court suggested that any lawsuit brought before retirement could be dismissed as not ripe.

In Hulteen v. AT&T Corporation, 498 F.3d 1001 (9^th Cir. 2007), overruled on other grounds, 129 S. Ct. 1962 (2009), a pension case, the courted noted that the illegal employment action is the calculation of the pension benefit. Nonetheless, it allowed a claim by a current employee to stand on the basis that injunctive relief was being sought and in such case, "ripeness is determined by examining whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between the parties of sufficient immediacy and reality to warrant the issuance of a declaratory judgment."

Too Late—Pension Calculation as the Beginning of the End

While some courts have precluded lawsuits prior to pension determination, on the flip side, courts generally have not allowed claims based on the lingering effect of a discriminatory practice on ongoing payments. The Supreme Court, in Florida v. Long, 487 U.S. 223 (1988), recognized that the receipt of ongoing pension checks under a pension plan is qualitatively different from ongoing paychecks. As also noted in Maki, pension checks are based on a formula and structure that is applied only once when the individual retires and pension checks flow from that. Under this line of analysis, a pension is considered to be paid when the individual retires and the pension is calculated, not upon payment of each pension check.

Equal Employment Opportunity Commission Updates

The Equal Employment Opportunity Commission's (EEOC) recent change to its Compliance Manual suggests a result similar to that suggested in Tomlinson, which may preclude ripeness arguments in the case of a pension benefit. The EEOC has modified its Compliance Manual Section on Threshold Issues under § 2-IV C.4. "Compensation Discrimination" to read as follows (emphasis added):

An aggrieved individual can bring a charge up to 180/300 days after receiving compensation that is affected by a discriminatory compensation decision or other discriminatory practice, regardless of when the discrimination began. If a charge alleges compensation discrimination under Title VII, the ADA, the Rehabilitation Act, or the ADEA, the filing period begins when any of the following occurs: 1) the employer adopts a discriminatory compensation decision or other discriminatory practice affecting compensation; 2) the charging party becomes subject to a discriminatory compensation decision or other discriminatory practice affecting compensation; or 3) the charging party's compensation is affected by application of a discriminatory compensation decision or other discriminatory practice, including each time wages, benefits, or other compensation is paid, resulting in whole or part from such discriminatory decision or practice.                                                                                        *** These time frames apply to all forms of compensation, including the payment of pension benefits. However, because the congressional findings state that "[n]othing in [the Lilly Ledbetter Fair Pay Act] is intended to change current law treatment of when pension distributions are considered paid," it may be determined that pension benefits are considered paid "upon entering retirement and not upon issuance of each annuity check." Therefore, to avoid potential timeliness issues, an individual who is considering challenging his or her pension benefits is strongly encouraged to file a charge within 180/300 days after retirement.

The Compliance Manual clearly considers pension benefits a form of compensation subject to the Fair Pay Act. It then establishes a filing period for charges starting with the earliest of when the compensation decision or practice is adopted by the employer, the decision or practice becomes effective, or the compensation is paid. The filing period ends the statutory number of days after the participant receives the compensation. In the context of a pension provision, it would appear that a complaint can be filed at any time after the plan amendment is adopted or implemented—and up to the statutory number of days after employment ends and the pension is calculated.

Expect Extended Charge Period

Pending further clarification by the courts, employers should expect that ADEA claims involving pension benefits and any interim plan amendments may be viable for an extended period of time before and after an individual's retirement—from the implementation of the plan or any amendment to 180/300 days following the date of determination of the affected individual's pension at retirement.