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Actuarial Adjustment for Sex


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9 replies to this topic

#1 RTK

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Posted 14 February 2005 - 03:35 PM

QDRO provides that alternate payee's award is "subject to actuarial adjustment ... for the Alternate Payee's age, sex, and benefit form selected."

This is the first QDRO I have encountered with an actuarial adjustment for gender. Because of the unisexing of the actuarial assumptions and factors after Manhart, Norris etc, my knee jerk reaction was "holy cow" or something like that. On second thought, the alternate payee is not an employee and thus not covered by (?) by Title VII and EPA sex discrimination provisions.

Anyone reviewed this issue?

#2 QDROphile

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Posted 14 February 2005 - 03:53 PM

Disregard the reference and use the plan's usual actuarial factors.

#3 MGB

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Posted 14 February 2005 - 05:41 PM

"Actuarial adjustment for sex"...hmmm...I am sure all of the connotations running through my mind don't come anywhere close to the "actuarial adjustment for gender."

Seriously, there is no reason to ignore it. The adjustment for gender under the plan is already built into the unisex tables -- zero. Just because it is zero doesn't mean it isn't being recognized in the calculation.

On a fully subsidized early retirement factor, haven't you ever said the "early retirement adjustment is zero"? And, aren't you recognizing that it is an early retirement even though the adjustment is zero?

#4 vebaguru

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Posted 15 February 2005 - 01:49 AM

I believe that the Manhart and subsequent rulings do not apply to all benefit plans but to govermental plans and plans in "interstate commerce" (ie, 15 employees +). How large is the plan you are reviewing?

On the other hand, why not put in an actuarial adjustment for smokers? Or for ZIP code (redlining)? Where do we stop?

#5 MGB

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Posted 15 February 2005 - 02:26 PM

It doesn't make any difference if Manhart applies or not, nor what the DRO says (prior to accepting it as a QDRO). You must follow plan provisions.

#6 RTK

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Posted 17 February 2005 - 01:24 PM

Thanks for the replies. I would have responded sooner, but for some reason my e-mail notification no longer works. Probably because of security upgrades. More questions for system folks.

I've already had one interesting conversation with the plan manager on the mechanics of the "actuarial adjustment for sex". The plan is a multiemployer pension plan. The plan wants to take the gender adjustment so that a QDRO does not increase costs.

Basic plan assumptions are 6.5% interest and 51 Group Annuity Mortality Table. AE optional forms are determined by factor tables based on GA 51 Male for participants and GA 51 female for spouse/annuitants.

The QDRO adjustments are based on GA 51 Mortality at 6.5% interest. Separate tables were developed for male participant/female alternate payee and female participant/male alternate payee. The factors are based on participant's age and alternate payee's age at benefit commencement date. For example, factor for age 65 female alternate payee and age 65 male participant is 91.86%, and factor for age 65 male alternate payee and age 65 female participant is 108.86%. This adjustment for gender is built into factors used to adust for difference in ages between participant and alternate payee.

When I wade through all of this, I think the basic question is whether sex distinct tables can be used in determining whether (as required by IRC and ERISA) a dro "does not require the plan to provide increased benefits (determined on the basis of actuarial value)"? There may actually be two questions: Can plan assumptions always be used for this purpose? And if yes, can the plan adopt sex distinct factors for the QDRO adjustment even though unisex assumptions or factors are used to calculate AE benefits for participants. (I do not know if sex distinct tables are used for funding purposes.)

Skipping over the first question, the basic prohibition against sex distinct tables stems from Title VII and and EPA prohibiting discrimination against "any individual with respect to his compensation, terms, conditions or privileges of employment, because of such individual's ...sex".

On first blush, assuming the adjustment is always made against the alternate payee's award, there is no discrimination against participant with respect to his compensation. Instead, discrimination is against alternate payee. No problem.

However, EEOC guidelines have taken the position that same fringe benefits must be provided to spouses and families of male employees and spouses and families of female employees. Also, the guidelines (on EPA) state that it is unlawful for employer to have a pension plan which differentiates in benefits on the basis of sex. Of course, the guidelines can only reflect the statutory prohibitions.

And so forth and so forth. I think I'll make up an answer after lunch. I do have a 50-50 shot.

#7 pax

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Posted 17 February 2005 - 05:57 PM

Interesting comments. The actuaries in the bunch would probably agree with you in principle. However, even if you could use such gender distinctions, would you want to? Difficult to explain/defend/apply consistently? My recommendation is to use unisex factors, wherever you get them.

IMHO, the funding assumptions are completely irrelevant to this issue.

#8 Detramental

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Posted 08 March 2005 - 05:43 AM

What do you mean by the bolded/underlined statement? I know how it reads to me.

On first blush, assuming the adjustment is always made against the alternate payee's award, there is no discrimination against participant with respect to his compensation. Instead, discrimination is against alternate payee. No problem.


Edited by Detramental, 09 March 2005 - 06:53 PM.


#9 Kevin Wiggins

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Posted 08 March 2005 - 10:15 AM

I recommend a different approach. Remember that the QDRO is a division of community property or marital property or whatever terms apply to the applicable state at issue. It is a divorce decree that divides the spouses' property. ERISA generally does not care how that property is divided except for the few exceptions in ERISA for the order to be a QDRO (e.g., it cannot require the plan to pay increased benefits).

If the parties want to divide the benefits using actuarial assumptions different from those used by the plan, then I question whether the QDRO clearly specifies the amount of benefits assigned or the method for determining the benefits assigned. I recommend you go back to the parties and ask them to specify the actuarial assumptions they intend to be used in dividing the property. It is better for everyone to understand up front exactly how the benefits for each party will be calculated, and for everyone to agree that everyone understands, and for that understanding to be specified in writing, preferably in the QDRO itself.

Since the plan already has an idea what the parties mean by "actuarial adjustment ... for the Alternate Payee's age, sex, and benefit form selected," I would start from there.

As to whether you can use sex distinct tables for determining whether the DRO provides increased benefits, I'm not an actuary, so I can talk the talk, but it seems to me you have to use the actuarial assumptions set forth in the plan to determine the maximum available benefits and go from there.

#10 Larry M

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Posted 10 March 2005 - 02:09 AM

[QUOTE: On first blush, assuming the adjustment is always made against the alternate payee's award, there is no discrimination against participant with respect to his compensation. Instead, discrimination is against alternate payee. No problem.]

There is discrimination with respect to participants of opposite gender.

Assume two couples, both H&W are the same age; one couple's H is a participant in the plan and the other couple's W is a particpant.

By coincidence, both couples submit qdro's created by the same set of attorneys who drew up your qdro.

If you apply sex-distinct factors to determine the optional forms, then participant H and participant W will retain different benefits within the plan.

Whether this is illegal discrimination, I leave to the attorneys