The U.S. Supreme Court heard arguments last week in a case that could have broad ramifications for the nation’s retirement systems for educators.
The case focuses on the longstanding practice in the insurance industry of providing lower annuity benefits to women because they live longer than men. (For other Court action, see related story, this page.)
According to a report by the Rand Corporation for the National Institute of Education in 1980, all state-operated teacher-retirement systems offer annuity options that use sex-based mortality tables to determine benefits.
If a teacher does not select an alternative pension option, his or her pension is automatically paid out under an annuity format, according to the Rand study. (See Education Week, October 20, 1982.)
Periodic Benefits Unequal
Though men and women put the same amount of money into annuity programs, they do not receive equal periodic benefits because, according to the sex-based actuarial tables used to determine benefits, women, on the average, live longer than men and thus collect benefits over a longer period of time.
The case heard last week was brought by an Arizona state employee named Nathalie Norris, who discovered after joining the state’s optional annuity program that she would receive $320 a month for life, compared with the $354 that a male in the program would receive for the same investment.
Ms. Norris’s class action charges that the state plan’s use of sex-based mortality tables violates Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment on the basis of sex and race.
“Amounts paid [into a pension system] or [received from one] cannot be based on aggregates or sex-based annuity tables,” argued Amy Jo Gittler, the lawyer representing Ms. Norris in Arizona Governing Committee for Tax Deferred Annuity and Deferred Compensation Plans v. Nathalie Norris.
“We must treat individuals as individuals, not as group statistics,’' she told the Justices.
Ms. Gittler said that “Arizona is providing a discriminatory fringe benefit to its employees” by offering to pay women $34 less per month than men. Under the annuity program that Ms. Norris signed up for in 1975, she would receive about "$8,000 less than a similarly situated man” if both lived to be 85, Ms. Gittler said.
She argued that the issues involved in the Norris case are similar to those in Los Angeles Department of Water and Power v. Manhart, a 1978 pension case in which the Court held that the city of Los Angeles could not require women to pay more money into its pension program to receive the same benefits as men after retirement.
In both cases, Ms. Gittler said, “It was the employers who created the plan and solicited bids,” and it was the employer who relied on “explicit sex-based classification.”
Ms. Norris, who works for the Arizona Department of Economic Security, filed her suit on the day the Court handed down its decision in Los Angeles v. Manhart.
John L. Endicott, the lawyer representing the state of Arizona, told the Justices that the two pension cases differ in several important respects.
No Third-Party Involvement
He said that in Manhart no private insurance company, or “third party,” was involved and that the state of Arizona offered employees several options, including a lump-sum payment following retirement, a monthly payment for a fixed number of months, and the lifetime annuity.
“Permitting someone to do something is not discriminatory,” he said.
Mr. Endicott argued that the state of Arizona is not to blame for having used sex-based tables. Because the state contracted with a third party, the insurance companies, to establish the program, “the employers are not responsible for the fact that the insurance market treats women differently than men,” he said.
He added that every insurance company in the state uses sex-based mortality tables.
Ms. Norris and other women, he said, are “using Title VII to punish employers for what the insurance industry has done.”
The question of sex bias in actuarially based programs, Mr. Endicott added, is a “social and political Continued on problem for the legislatures and the Congress.” A Supreme Court ruling on the matter, he argued, could “bankrupt and render insolvent ... employer-funded plans.”
Congress is considering legislation that would make it illegal for insurance companies to use sex-based actuarial tables. Insurance-company executives argue that such legislation would cost millions of dollars, would “revolutionize” the industry, and would be “catastrophic” if made retroactive.
The Reagan Administration, in a friend-of-the-court brief filed on behalf of Diana L. Spirt in Spirt v. Teachers Insurance and Annuity Association and College Retirement Equities Fund (tiaa\cref)--a similar case involving the pension program that most college and independent-school faculty members belong to--has indicated that it, too, would like to see an end to the use of sex-based mortality tables.
‘Same Discrimination’
In its brief in the Spirt case, the Reagan Administration argued that “whether a woman contributes a greater amount of her compensation than a man for an equal benefit or contributes an equal amount for a lesser benefit, the use of sex-based actuarial tables in calculating periodic benefits results in the same discrimination.”
The high court has not yet agreed to hear the Spirt case and could send it back to a lower court for reconsideration following its ruling in the Norris case.
Even if the Court decides to uphold the rulings of a federal district court and the U.S. Court of Appeals for the Ninth Circuit that Arizona’s annuity program constitutes discrimination in employment, the use of the tables would not be eliminated throughout the insurance industry. That is because Title VII’s prohibition against discrimination is directed to employers only and does not apply to the insurance firms with which they may do business.
Authority Limited
Moreover, a federal law now limits the government’s authority to regulate insurance companies.
In their oral arguments before the Supreme Court, lawyers for both sides agreed that, should the Court determine that the sex-based actuarial programs are illegal for employers, any remedies granted to women should be “prospective rather than retrospective.”
Mr. Endicott said that “retroactive” benefits would cause chaos in the actuarial programs and require an infusion of funds not accounted for under current “actuarial assumptions” used to determine benefits.
Ms. Gittler said that “there is nothing retroactive about the relief we are asking for.”
According to a friend-of-the-court brief in the case filed by the American Academy of Actuaries, the types of prospective relief that might be considered by the Justices include:
Changing benefits only for employees who retire after the date of the Court’s order, a move that would base benefits for all employees who are still working on unisex factors and create the need for “widespread and substantial adjustments of currently anticipated benefits";
Requiring that benefits accrued after the date of the Court’s order or benefits based on contributions made after that date be altered to base benefits partly on unisex factors and partly on sex-distinct factors; and
Applying the Court’s order only to employees hired after the date of the order, which would have the least impact on an annuity system.
Union Support
Three teachers’ unions--the American Association of University Professors, the American Federation of Teachers, and the National Education Association--as well as the American Civil Liberties Union and more than 20 other civil-liberties and women’s-rights groups have filed friend-of-the-court briefs in support of Ms. Norris.
The state retirement systems of New York and California, tiaa-cref, and representatives of the insurance industry have filed briefs on behalf of the Arizona governing committee.
