No, not that Norris: One of our clients is a law firm which deals with administrative and compliance issues for qualified plans. For example, they’re the folks that take care of our agency’s 401(k). We’ve always had a good relationship with the firm, and it recently got even better:
Turns out that one of their other clients is a reasonably large local financial services firm, from which a number of folks will be retiring over the next few months and years. They have a “defined contribution” plan, which guarantees a lump sum to each participant, and from which each participant will receive a monthly income. The vehicle of choice for such applications is a Single Premium Immediate Annuity.
SPIA’s are custom made for this. I give the computer (or the carrier) the participant’s age, sex and the lump sum amount, and I get the monthly income that each participant will receive for as long as they live. Simple enough, right?
Not so fast, Buckaroo:
Back in 1983, the Supreme Court handed down what’s come to be known as the Norris Decision. Because women (as a group) outlive men (as a group), the monthly benefit amount which a woman would receive from a given lump sum is less than the amount for the man. Makes sense: the original sum has to last longer, in general.
Norris, though, said that such discrimination violated the ban against sex discrimination in employment in Title VII of the '64 Civil Rights Act. So, an annuity which used gender-specific assumptions was a no-no. The upshot is that in cases which must be Norris-compliant, one needs to use a unisex annuity. Simple enough.
Except that there is no such animal. By definition, annuities which pay a lifetime income are based on the sex of the annuitant. But that doesn’t matter to Norris, which bans such discrimination even if the only annuities available are based on sex-segregated annuity tables.
So now what?
Well, it turns out that there is a plan available that seems to meet the Norris challenge. It was, in fact, designed specifically to do so. The only drawback, if there is one, is that it is a group annuity, which the employer (plan) itself owns. And it is this program which I’ll be looking to as I continue working on this case. My only real problem with this is that I like to have choices for my clients, and this seems to be the only such product on the market.
Still, beats having to say “sorry, I can’t help you.”