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Category: Justice Content: FACT SHEET H.2970, “An Act to Provide for Equitable Coverage in Annuity Policies” What this Legislation Does This legislation requires that state regulated annuity policies sold to residents of Massachusetts must be gender-neutral in all the terms and conditions of the contracts, including premiums and benefits. What is an Annuity? An annuity is a contract in which an insurance company, in exchange for premium payment(s), agrees to future payouts either as one lump sum or as a series of payouts which can be as income for life or as income for a period certain. The premiums paid into an annuity, less applicable charges, grow tax-deferred until the insurance company begins making payments under the terms of the contract. An annuity is not a savings account nor is it a life or health insurance policy. Annuities are most often bought for future retirement income because only an annuity can pay an income that can be guaranteed to last as long as you live. Immediate or Deferred Payout Options: Immediate annuities are funded with a lump-sum premium payment and the annuity begins to pay benefits right away. Deferred annuities are funded with any number of premium payments during an accumulation phase and the annuity pays benefits at some future date when the accumulation phase is ended under the terms of the contract. Both immediate and deferred annuities can pay benefits as an income for life or as an income for a fixed period of time. Fixed or Variable Interest Rate: Fixed annuities pay a guaranteed interest that is set when the annuity is issued. Variable annuities pay a variable interest rate based on a bond or equity index or on the performance of a mutual fund. Why We Need This Legislation Under federal law, all employment based annuities such as social security and pension plans must be gender-neutral1. The insurance industry in Massachusetts, however, does not even market gender-neutral individual policies that will provide an income for life. So, men and women have no choice but to purchase annuities with sex-based underwriting if they want to supplement their gender-neutral retirement benefits, earned at work, with a private individual annuity that provides additional income for life. Annuities sold to women do not give them the same value as those sold to men. A woman either pays a bigger premium than a man to get an equivalent monthly annuity payment or she pays the same premium as a man but gets a smaller monthly annuity. Example: The average payout to a 65-year old female purchasing an annuity in 1999 for $100,000 was $667.36 per month for life, while a 65-year old male would get $734.70 per month for life.2 The price of being female is $67.41 less per month for life, or 10%, without any discounts in the costs of living for housing, food, clothing, transportation, or medical expenses, to offset this reduced annuity income stream. Gender-based underwriting practices contribute to the feminization of poverty. Recent data shows that the median income from all sources of retirement income, for those receiving benefits, is $12,360 for Massachusetts women over age 65 while that for men is $24,024.3 Some of this income gap is due to the frequency of women’s interrupted employment history and their concentration in low paid jobs, both of which reduce retirement benefits. Some of the income gap, however, results from archaic social policy that allows the insurance industry to short change women’s privately purchased annuity benefits. Insurance Industry Arguments The insurance industry argues that women live longer than men. However, 84% of men and women have matched ages at death with 8% of men dying earlier and 8% of women dying later. Only some women live longer than men. All women, however, are penalized with a reduced standard of living, no matter what their lifespan is, while all men get a larger monthly benefit, even though only a few die earlier than women. Race and religion are also important predictors of mortality, but it is illegal and politically unacceptable to use those factors in setting underwriting practices. Voters Support Equality In 1976, the Massachusetts voters ratified the Equal Right Amendment which prohibits classification on the basis of race, color, religion, sex, or national origin. The insurance industry, however, ignores the ERA and still practices sex discrimination in the terms and conditions of the annuity policies it sells. This legislation, requiring equitable coverage in annuity policies, would help to correct this significant economic inequity in women’s retirement income. (1) In the area of pension plans, the United States Supreme Court ruled that sex-based classifications in pensions are discriminatory with respect to contributions (Los Angeles Dept. Of Water & Power v. Manhart, 435 US 702 (1978)) and to benefits (AZ Governing Committee v. Norris, 463 UW 1073 (1983)) (2) Information from “The Annuity Shopper cited by Jeffrey R. Brown; “How Should We Insure Longevity Risk in Pensions and Social Security” published by Center for Retirement Research at Boston College, Aug 2000, No 4. (3) “Status of Women in Massachusetts”, Institute for Women’s Policy Research, 2002.