In a 5-4 split decision, the United States Supreme Court ruled that Kentucky's state retirement plan did not violate the Age Discrimination in Employment Act of 1967 ("ADEA") by increasing the years of service for employees who become disabled before they are eligible for normal retirement benefits. Kentucky Retirement Systems et al. v. Equal Employment Opportunity Commission, No. 06-1037 (June 19, 2008).

Kentucky's state retirement plan provides that "hazardous position" employees, such as police officers, firefighters, paramedics and correctional facility workers, are permitted to receive normal retirement benefits after working 20 years or attaining 55 years of age with five years of service. However, if an employee becomes disabled before meeting the requirements for a normal retirement, the plan will impute the additional years of service needed for the employee to receive normal retirement benefits.

Charles Lickteig, a hazardous position employee in the Sheriff's Department, who continued working after becoming eligible for normal retirement at age 55, became disabled and retired at age 61. Since Mr. Lickteig became disabled after he was eligible to receive normal retirement benefits, the retirement plan based his pension on his actual years of service and final pay.  In response, Mr. Lickteig filed a complaint with the Equal Employment Opportunity Commission ("EEOC"), alleging that the retirement plan's failure to impute additional years of service discriminated against him because of his age.  The EEOC filed suit against the Kentucky Retirement Systems, alleging that the state retirement plan violated the ADEA because it failed to impute years of service solely because Mr. Lickteig became disabled after age 55. The Supreme Court ultimately rejected the EEOC’s claim.

The court began by observing that in Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993), it held that decisions motivated by pension status are analytically distinct from decisions based on age, even though pension status frequently turns on years of service, which typically goes hand in hand with age. Thus, in Hazen Paper, the court ruled that an employee claiming age related "disparate treatment" must prove that age "actually motivated the employer's decision." 507 U.S. at 610.

Applying the Hazen Paper standard, the court stated that "[w]here an employer adopts a pension plan that includes age as a factor, and that employer then treats employees differently based on pension status, a plaintiff, to state a disparate treatment claim under the ADEA, must adduce sufficient evidence to show that the differential treatment was ‘actually motivated’ by age, not pension status." Slip op. at 11. The court then concluded that because the Kentucky retirement plan offered the disability benefit to all employees working in hazardous positions on the same nondiscriminatory terms, and age factored into the analysis only because the normal retirement rules permissibly consider age, pension status rather than age lawfully motivated the disparate treatment.

Therefore, the general rule to keep in mind when adopting or amending a pension plan is that the plan may differentiate between younger and older workers if the difference is due to pension status, rather than age, even if pension status is tied to age.