Decision in a woman's favor seen benefiting mostly working men

The road to equality not only leads uphill; it makes some ironic switchbacks along the way. The US Supreme Court found last July that Nathalie Norris, an Arizona state employee, had been illegally discriminated against on the basis of sex in an annuity she obtained through her employer.

But most of the benefits resulting from this decision, observers say, will go to working men, rather than working women.

Ms. Norris discovered that the annuity she bought through her employer to supplement her basic pension would pay her less per month than it would a man because of women's greater life expectancy. The annuity was a lump-sum benefit actuarially converted; that is, divided up into regular payments on the basis of life expectancy. In the Norris case, there was an identical benefit for both sexes but it was divided differently according to sex. Men got higher payments than women on the assumption they would get fewer payments.

The Supreme Court found this illegal, since the law requires employers to treat employees as individuals rather than as a class, even if the assumption about the class - greater longevity for women, in this case - is valid. The court also rejected the state's argument that it was only acting as intermediary for the insurance company and wasn't responsible for its discrimination.

But one of the ironies of the case is that the kind of annuity in which the court ruling would give women an advantage will probably disappear soon, says Judith Mazo, vice-president and research director for the Martin E. Segal Company, a consulting firm in New York.

Why? She explains it this way: The Supreme Court has forbidden only employers , not insurance companies, to discriminate in annuities. Men offered a choice between a lump sum and an annuity through their employer can take their benefit money and run to an insurance company to buy an annuity there with a higher monthly payout. Women will do better to stay with an employer-sponsored annuity required to treat men and women equally.

But here's the catch: Employers setting up annuity programs are still allowed to use separate mortality tables for men and women as long as each individual in the group is treated equally.

If the group is half male and half female, each individual will receive monthly payments calculated for a life expectancy midway between the statistical norm for men and that for women.

But as men desert the employer-sponsored program, the covered group will be largely female, with greater average life expectancy - and lower monthly annuity payments. Women will be left thinking, ''This is where I came in.''

Ms. Mazo predicts that all this will make employers decide to drop the annuity option.

However, Amy Gittler of the Arizona Center for Law in the Public Interest, who argued the case for Nathalie Norris, argues that the threat of men deserting group plans has been much overblown. ''This is one of those dire consequences they predicted (if Ms. Norris won her suit). But the ruling has been in effect since Aug. 1, and when I've asked people to give me an example of this kind of thing happening, nobody's been able to.''

She maintains that the advantages of group rates will keep men from striking out on their own.

Moreover, Jack Wells, an economist at the General Accounting Office, suggests that an employer dropping an annuity option could be found in breach of contract. He does expect some men to leave group plans, for a variety of reasons , but says it is unclear how many.

If you think all this is complicated, hang on; it gets worse.

People trying to hack their way through this jungle need to grasp the distinction between defined benefit programs and defined contribution programs. Employees of large private corporations generally have the former; defined contribution programs are more typical at smaller concerns (unincorporated law firms, for example), or nonprofit organizations. The assumption is that a large profitmaking concern can afford a magnanimity that nonprofits cannot.

Defined benefit programs account for most of the benefit dollars going to America's working people and their spouses, ''the vast majority,'' as Ms. Mazo puts it.

What we think of as ''basic pensions'' are generally defined benefit programs. The employer typically tells the employee something like, ''We'll pay you x percent of the average of your last five years' salary per year for the rest of your life.'' It's then up to the employer to figure out how to fund such a commitment. There is generally no sex-discrimination problem with such a plan.

Under defined contribution plans, which are often offered in conjunction with a modest basic pension program, employees elect to set aside part of their earnings, which may get a partial match from the employer, and which are then invested until retirement. Then the money is either turned over as a lump sum, or actuarially converted to an annuity and paid out monthly. The annuity over which Ms. Norris took Arizona to the Supreme Court was of this type.

The Supreme Court ruling means that women with this type of annuity can expect their regular checks to be higher, as women workers' mortality rates are blended with those of their male co-workers. Because participants in the Arizona plan incur considerable tax liability if they take a lump sum (the plan is not IRS-qualified for tax-free rollover into an individual retirement account), male participants will have no incentive to leave the plan.

But remember that defined contribution plans are the small slice of the pie. ''With unisex tables, men will gain in defined benefit plans, and women will gain in defined contribution plans,'' says Mr. Wells.

In a defined contribution program the ''normal benefit'' is a lump sum that may, optionally, be converted to monthly payments. In a defined benefits program , the ''normal benefit'' is a monthly payment. Lump sums, as such, are very rare in defined benefits programs. But joint-and-survivor benefits (pensions which continue to the spouse after the employee's death) and early retirement benefits are calculated by turning monthly payments into a lump sum and then dividing it back into (reduced) monthly payments. With unisex mortality tables, that intermediate-stage lump sum will be higher for men now.

''The most significant impact of the Norris decision will be in the way joint-and-survivor benefits are calculated,'' Mr. Wells says. Private employers must allow workers the option to take a cut in pensions to provide joint-and-survivor benefits. Historically, more men than women have taken this option, but it has cost women only a relatively small cut in their basic pensions.

With unisex mortality tables, women who want to leave their pensions to their widowers will be figured into a largely male pool whose members have a much greater statistical likelihood of predeceasing their spouses than would an all-female group. Women will have to take a substantially bigger cut than in the past, and men will take a slightly smaller cut.

To the immense relief of the insurance industry, the court ruling was prospective rather than retroactive. It directed that benefits derived from contributions collected after Aug. 1 ''be calculated without regard to the sex of the employee.''

However, pending federal legislation would prohibit insurance companies from discriminating by sex. Sex-neutral mortality tables would keep men from deserting group annuity plans as discussed above. As introduced, the legislation - HR 100 and S 372 - would, in effect, make the Norris decision retroactive; it would require benefits to those retired before Aug. 1, 1983, to be sex-equalized , along with benefits accrued before Aug. 1 to those now working. Equalization would be achieved by ''topping up'' rather than averaging. Both topping up and retroactivity are subject to compromise, though, and advocates of the bills charge the insurance industry with using the word ''retroactivity'' to scare people.

The GAO has estimated the cost of equalizing employee benefits in accord with the pending bills at ''$7.7 billion to $11 billion in increased liabilities to pension plans.'' Of this, for every dollar that would go to women, $3 would go to men.

However, when it is recognized that many benefit dollars going to retired working men end up as benefits to widows, the figures look significantly different. The GAO's Mr. Wells cites one study which, counting all benefits to married people of either sex as shared between men and women, estimated that under unisex rules and ''topping up,'' 56 to 58 percent of all benefits would go to women.

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