Pension Valuation Methods and Divorce

PBGC Actuarial and Mortality Tables Appraisal

This approach is based upon information promulgated by the Pension Benefit Guaranty Corporation (PBGC), a U.S. Government Agency established by the Employee Retirement Income Security Act of 1974 (ERISA). PBGC administers insurance programs that guarantee the payment of retirement benefits to participants of private pension plans. Present Value is determined as follows:

  • Calculate the amount of the monthly pension benefit assuming the employee was of retirement age and eligible for a fully vested pension based upon compensation and plan provisions as of the Date the Marriage Ended.
  • The PBGC Mortality Tables and Interest Rates are utilized to determine the present value of the immediate and deferred annuities as of the Date of Valuation.
  • The present value is reduced if the plan is not vested.
  • If a portion of the pension was earned outside the marriage, a coverture fraction is applied.

GATT Actuarial and Mortality Tables Appraisal

This method utilizes the interest rate for 30-Year U.S. Treasury Bonds and Group Annuity Mortality Tables (Presently "GAM 83") to determine present value. The steps involved are as follows:

  • Calculate the amount of the monthly pension benefit assuming the employee was of retirement age and eligible for a fully vested pension based upon compensation and plan provisions as of the Date the Marriage Ended.
  • The "GAM 83" mortality tables are utilized to determine present value based upon the 30-Year U.S. Treasury Bond rate as of the Date of Valuation.
  • The present value is reduced if the plan is not vested.
  • If a portion of the pension was earned outside the marriage a coverture fraction is applied.

Life Expectancy Appraisal

This approach is based upon Life Expectancy and the application of Internal Revenue Service Regulation 1.72.9 Annuity Table 1 (Ordinary Life Annuities of One Life).

  • Calculate the amount of the monthly pension benefit assuming the employee was of retirement age and eligible for a fully vested pension based upon compensation and plan provisions as of the Date the Marriage Ended.
  • The employee's life expectancy as of the Date the Marriage Ended is subtracted from the normal retirement age to determine the expected number of months of pension benefits.
  • An appropriate interest rate is used to determine the present value of the monthly benefit as of the Date of Valuation.
  • The present value is then discounted for mortality and disability (if applicable).
  • The present value is reduced if the plan has not vested.
  • If a portion of the pension was earned outside the marriage a coverture fraction is applied.



Suggested Reading
Pension Issues in Divorce Pension Issues in Divorce
When couples get divorced they must decide how to divide their property. Retirement benefits (pensions) often form a substantial part of the parties' total marital estate and many times are the largest single marital asset afforded the couple. Similar to other assets, pensions are typically divisible in cases of divorce to the extent that they are acquired during the period of marriage.

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PENSIONS PROBLEMATIC -- Pensions become problematic because, unlike cash in the bank or stocks and bonds, the rights to them involve 1) classification, 2) valuation and distribution, 3) qualified domestic relations orders (QDROs), and 5) miscellaneous areas of contention, including, for example, postdecree increases.

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