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I am an attorney in Green Bay, WI with a small practice drafting QDROs for divorce attorneys. I have run across an interesting situation. Company A's DB plan was frozen effective 10/01/01 when the company was purchased by even larger Company B. The participant/husband  didn't disclose the frozen DB plan during the divorce proceedings (maybe he forgot). I discovered it when requesting documents from Company B for other Company B plans that he participated in.

The frozen payment is only $211.99 beginning at age 65. I haven't been able to get a copy of this particular plan document, but it appears that there is no provision for a lump sum payment. I'm proposing to determine present value of the future stream of payments and settle with non-plan assets. 
 
To determine present value, I used the Social Security Actuarial Life Table to determine that the participant at 53 has 27.5 years left. Accordingly, the $211.99 per month beginning at age 65 will be paid for 186 months until death at 80.5. Using an annual discount rate of 7.5%, that provides a current value of $9,520.78. I recognize that I'm using an ax and not a scalpel, but does this make sense? Also, is 7.5% a reasonable annual discount rate? Thanks for any advice!
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Well..... that is a way to do it, not the preferred actuarially correct method.  But you are in the ball-park.

IMHO, the 7.5% rate is not reasonable, but it might be acceptable to the negotiation, and is certainly favorable to the husband.

BTW, several of the actuaries who contribute to these message boards can provide a detailed service.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Last time I looked, it was actuaries and not attorneys who would, subject to applicable standards of practice, perform calculations of that sort.

I suppose that if neither side trots out an actuary who disagrees with your calculations....

As it does seem to be a relatively small benefit, if the two sides can reach agreement through allocation of non-pension resources, that might be the best approach.

Always check with your actuary first!

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Besides the interest rate, be aware that the method you described is not just "not preferred". Off the top of my head I believe the actuarial standards (or the comments regarding the actuarial standards) make it clear that using that method is actuarially unreasonable.

 

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If I read the original post correctly, no actuaries were involved in performing the calculations.  Estimated value for QDRO purposes does not legally require the preparation of actuarial calculations by qualified actuaries (the way, for example, that the calculation of PBGC premiums does), however preferable it would be to have the calculations prepared by a qualified actuary following the standards of practice.    One presumes that non-actuaries are not bound to follow actuarial standards of practice, but then the results ought not to be called "actuarial". 

If it was for a large benefit, it would probably be a really good idea for one party (or both!) to engage the services of an actuary practicing in that field to get a suitable value in accordance with the standards of practice.  I personally do not practice as an expert witness in that field (i.e., this is not in any way an attempt to solicit business for myself!). 

Always check with your actuary first!

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I think the place to start would be to determine the present value of the benefit under the Plan's stated actuarial assumptions.  The plan has to have valuations prepared and the present value as of the last valuation date may be able to be obtained from the plan administrator.  Also check to see if the participant has that information available on their most recent annual statement of their benefits under the plan. 

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17 minutes ago, NJ Mike said:

I think the place to start would be to determine the present value of the benefit under the Plan's stated actuarial assumptions.  The plan has to have valuations prepared and the present value as of the last valuation date may be able to be obtained from the plan administrator.  Also check to see if the participant has that information available on their most recent annual statement of their benefits under the plan. 

 

Maybe also check the SPD. (I don't know if this information is usually in a DB SPD.)

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The determination of present value in anticipation of preparing a fair settlement agreement is very much a matter of state law and rarely, if ever, involves actuarial equivalence factors contained in a plan document.  Practitioners should tread with caution in this area unless familiar with the state laws that govern.

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Especially if the plan does not offer to distribute benefits in a lump sum, the plan provisions should not control when it becomes necessary to place a dollar value on the benefits payable under the plan.  If one is content to use a non-actuarial but relatively coherent method for valuing the benefits, it may be possible to do so without consulting an actuary practicing in the QDRO area.  Otherwise, such an actuary should be engaged by one or the other of the parties.

Speaking as an enrolled actuary, if the plan administrator (choosing, for whatever reasons, to get involved in a private matter - calculations with respect to the creation of a QDRO NOT being one of the responsibilities of the plan administrator, especially since the interests of the participant and the soon-to-be ex-spouse may be adverse and the plan administrator, no ifs-ands-or-buts, cannot choose to favor one over the other, the fiduciary obligations applying equally to the alternate payee to be and the participant) asks for a value, it certainly seems reasonable to apply the plan's lump sum actuarial equivalence basis.

Always check with your actuary first!

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14 hours ago, Mike Preston said:

And I think it is wholly unreasonable.

I was referring to the applicable 417(e) rates (with the plan's lookback, stability period etc.) to place a lump sum value on the participant's benefit.  Were you referring to the use of something like that, the plan's non-417(e) equivalence basis, or the calculations as done by the original poster?  I would not think that estimating a lump sum value using 417(e) rates would be "wholly unreasonable".

Always check with your actuary first!

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In my neck of the woods, actuarial equivalence doesn't use 417(e) rates so I wasn't referring to use of 417(e), which in some economies could potentially be usable.  

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