WASHINGTON—The Equal Employment Opportunity Commission expects to finalize by late September proposed rules that would clarify employers can offer richer health care benefits to younger retirees than to Medicare-eligible retirees without fear of being sued by the EEOC.

Under the rule the EEOC first proposed last July, health care plan changes affecting retirees eligible for Medicare would be exempt from Age Discrimination in Employment Act enforcement.

The practical effect of the proposed exemption would mean that employers—as is typical—can provide less generous health care benefits to Medicare-eligible retirees or even terminate coverage when retirees reach age 65.

The EEOCfs proposed rules came three years after a ruling by the 3rd U.S. Circuit Court of Appeals in the so-called Erie County case that said the ADEA applied to retiree health care plans. Observers warned if the EEOC enforced the ruling, employers either would cut benefits of retirees ineligible for Medicare to the level provided to older retirees or eliminate coverage altogether in a bid to avoid litigation. The EEOC last year reversed its policy and said it would not enforce the ruling.

In a recent letter to the EEOC, Sens. Charles Grassley, R-Iowa and Sen. Judd Gregg, R-N.H., said they supported the proposed regulation and urged the agency to finalize it.

An EEOC spokesman said the agency is evaluating comments it has received on its proposed rule and will publish a final rule by Sept. 30.