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MARY P. SMITH v. COMMONWEALTH PENNSYLVANIA (02/26/85)

COMMONWEALTH COURT OF PENNSYLVANIA


decided: February 26, 1985.

MARY P. SMITH, INDIVIDUALLY AND AS ADMINISTRATRIX OF THE ESTATE OF FRANK SMITH, PLAINTIFF
v.
COMMONWEALTH OF PENNSYLVANIA, WALTER BARAN, IN HIS OFFICIAL CAPACITY AS SECRETARY OF GENERAL SERVICES, THE DEPARTMENT OF GENERAL SERVICES ET AL., DEFENDANTS

Original Jurisdiction in case of Mary P. Smith, individually and as Administratrix of the Estate of Frank Smith v. Commonwealth of Pennsylvania; Walter Baran, Secretary of General Services; The Department of General Services; Robert C. Wilburn, Secretary of Budget and Administration and Richard Thornburgh, Governor.

COUNSEL

John D. Blumenthal, for plaintiff.

James J. Kutz, Deputy Attorney General, with him, Allen C. Warshaw, Senior Deputy Attorney General, Chief, Litigation Section, and LeRoy S. Zimmerman, Attorney General, for defendants.

President Judge Crumlish, Jr. and Judges Williams, Jr., Craig, MacPhail, Barry and Colins. Opinion by President Judge Crumlish, Jr. This decision was reached prior to the resignation of Judge Williams, Jr. Judge Rogers did not participate in the decision in this case.

Author: Crumlish, Jr.

[ 87 Pa. Commw. Page 644]

Mary P. Smith and the Commonwealth cross motion for summary judgment. We deny Smith's motion and grant the Commonwealth's motion.

Frank Smith, a field representative, was employed by the Pennsylvania Human Relations Commission from December 17, 1970, until his death on April 30, 1982, at the age of sixty-nine.*fn1 On June 11, 1977,

[ 87 Pa. Commw. Page 645]

Smith turned sixty-five and his state employee life insurance coverage was reduced by 50%.

In 1969, the Commonwealth entered into a term life insurance contract for its employees with the Life Insurance Company of North America (LINA). The Commonwealth provides group life insurance coverage for its permanent employees under the State Employees Group Life Insurance Act which sets forth a life insurance benefit schedule based on a Commonwealth employee's annual gross compensation.*fn2 However, the Act also provides that:

[ 87 Pa. Commw. Page 646]

The amount of such life insurance for any insured employee sixty-five years of age or older shall be one-half the amount of life insurance provided under the above schedule.

71 Pa. C.S. § 780.2. This provision was in effect when Frank Smith was hired.

On September 21, 1979, in response to the Federal Age Discrimination in Employment Act (ADEA),*fn3 the Secretary of Budget and Administration order LINA to revise the benefits for employees between ages 65-69.*fn4 As a result, the employees in this group were entitled to 65% of the full coverage rather than 50%. The policy and statute were subsequently amended to reflect this revision.

Upon Frank Smith's death on April 30, 1982, at the age of sixty-nine, the Commonwealth paid his widow, Mary Smith, $13,000.00, representing 65% of the $20,000.00 maximum benefit. Mrs. Smith argues that she is entitled to the balance of $7,000.00.*fn5

The issue in this case is whether the State Employees Group Life Insurance Act violates the equal protection clause of the Fourteenth Amendment of the United States Constitution and Article I, Section 26

[ 87 Pa. Commw. Page 647]

    of the Pennsylvania Constitution.*fn6 Smith contends that the statutory provision which reduces life insurance benefits for insured employees sixty-five years of age or older is unconstitutional in that there is no rational basis for subjecting only those individuals sixty-five years of age or older to the benefit reduction.

Age classification statutes must rationally further a legitimate state purpose. Massachusetts Board of Retirement v. Murgia, 427 U.S. 307 (1976). The Commonwealth contends that its compliance with the ADEA and its actuarial research provide the rational basis for the reduced life insurance coverage for employees between ages 65-69. The Commonwealth refers to the Labor Department's guideline, promulgated in accordance with the ADEA, which provides that fringe benefits could be reduced for older employees to the extent those reductions were justified by increased costs. 29 C.F.R. § 860.120.

Although the federal regulations relied upon were promulgated on May 25, 1979, more than ten years after the enactment of the 1968 amendment to the Commonwealth Group Life Insurance Statute which reduced benefits to those aged sixty-five and over, these regulations reinforce the justification for the Commonwealth's age classification.*fn7

The Commonwealth further contends that the cost of insuring employees increases with the employee's age and this justifies the discriminatory treatment. After conducting its own detailed analysis, the Commonwealth

[ 87 Pa. Commw. Page 648]

    and LINA concluded that the required cost to insure individuals between the ages of 65-69 was in excess of 45% more than the Commonwealth's cost of insuring employees between ages 60-64. However, the Commonwealth arrived at 35% because insurance industry group life monthly calculation rates, which are based on mortality rates, provide for an approximate 35% increase in rates for the 65-69 age group. The Commonwealth argues this amount is actually less than that authorized by the ADEA. The Department of Labor regulations provide:

It is not uncommon for life insurance coverage to remain constant until a specified age, frequently 65, and then be reduced. This practice will not violate the Act (even if reductions start before age 65), provided that the reduction for an employee of a particular age is no greater than is justified by the increased cost of coverage for that employee's specific age bracket encompassing no more than five years. . . . (Emphasis added.)

29 C.F.R. § 860.120(i).

The Commonwealth also argues that a review of LINA's paid claims data indicates that the Commonwealth would have been justified in not raising the amount of coverage from 50% to 65% for employees age sixty-five and older. It notes that during 1969-1974 the cost of insuring employees between ages 60-64 was 52.9% of the cost of insuring employees between ages 65-69. During 1975-1979 the cost of insuring

[ 87 Pa. Commw. Page 649]

    employees between 60-64 was only 50.9% of the cost of insuring employees between ages 65-69.*fn8

Smith opposes the five-year age cost comparison method, noting that the Commonwealth's cost of providing an employee $1,000.00 of insurance at age sixty-four is $3.71, while the cost at age sixty-five is $4.04. This represents an increase in cost of only 8.9%. Smith contends that the Commonwealth's five-year paid claims comparison may be performed in any five-year age bracket and the percentage change would be significant.*fn9 However, the ADEA guidelines authorize the use of the five-year age cost comparison methodology. 29 C.F.R. § 860.120(d)(3).

We hold that the State Employees Group Life Insurance Act rationally furthers a legitimate state purpose.*fn10 Therefore, we deny Smith's motion for summary judgment and grant the Commonwealth's motion for summary judgment.

Order

Mary P. Smith's motion for summary judgment is denied. The Commonwealth of Pennsylvania's motion for summary judgment is granted.

[ 87 Pa. Commw. Page 650]

This decision was reached prior to the resignation of Judge Williams, Jr.

Judge Rogers did not participate in the decision in this case.

Disposition

Motion of plaintiff denied. Motion of Commonwealth granted.


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