Pension Valuations

[mctoe]

Divorcing individual has a defined benefit plan (government) and a pension valuation was prepared by a company.  The pension valuation company used "customary" factors in performing the calculation.  The PV of the pension prepared by the company was $2.1 mil.  The pension plan calculates the PV of the pension  at $1.3 mil.  Clearly, a large discrepancy.  Does anyone know if an argument could be made to use the lower value since that is how it is valued by the plan?     

[Larry Starr]

10 hours ago, mctoe said:

Divorcing individual has a defined benefit plan (government) and a pension valuation was prepared by a company.  The pension valuation company used "customary" factors in performing the calculation.  The PV of the pension prepared by the company was $2.1 mil.  The pension plan calculates the PV of the pension  at $1.3 mil.  Clearly, a large discrepancy.  Does anyone know if an argument could be made to use the lower value since that is how it is valued by the plan?     

This is an issue for the court and the parties.  One side got a valuation of $2.1. The other side got one of $1.3  Now they fight it out before the judge.  Arguments will be made by both sides trying to justify their numbers.  The judge will decide and maybe will just decide to split the payments and not use any lump sums.  This is not our issue; it is the divorcing parties issues.  When I am hired as an expert in divorce cases and do my own valuation, I justify it to the court when requested, but it is the judge who decides what numbers to accept.

[Susan L.]

It would be helpful to take a look at the actuarial assumptions used in each valuation.  Governmental pension plans use a relatively high investment rate of return assumption (i.e., the discount rate) while private consulting actuaries will likely use lower return assumptions, such as those used by DB plans in the private sector.  Granted, the court will decide, but the court will hopefully listen to arguments:  arguments in favor of one value versus the other may depend on how successfully the attorneys can rationalize or pick apart the assumptions used (and explain them).

[QDROphile]

Government plans are susceptible to all sorts of funny ways to value and account for costs and benefits.  Maybe the judge will know that, especially if it has been a public issue, as it is in many states as the states (or other government bodies) start feeling the realities of underfunding that cannot be disguised or hoped away any more.  Larry Starr is correct about the process in a divorce proceeding.

[Larry Starr]

21 hours ago, Susan L. said:

It would be helpful to take a look at the actuarial assumptions used in each valuation.  Governmental pension plans use a relatively high investment rate of return assumption (i.e., the discount rate) while private consulting actuaries will likely use lower return assumptions, such as those used by DB plans in the private sector.  Granted, the court will decide, but the court will hopefully listen to arguments:  arguments in favor of one value versus the other may depend on how successfully the attorneys can rationalize or pick apart the assumptions used (and explain them).

I have to say that the court systems, which should be "fair", often are just not educated enough to make the "right" decision.  Frankly, it often comes down to who is the better expert.  I know that I am a "good" expert; I can make things understandable and easily gain a rapport with the judge.  I have seen experts on the other side who are also good, but more often, they are not just bad, they are TERRIBLE. They actually often don't understand the law, nor do they understand the nature of how DB plans can be divided and on what basis. Too often I am up against a university economics professor who really is not adequately armed to deal with ERISA plans (disclosure: I also have an MBA in economics and finance, but that really does not qualify anyone to talk about DB valuations).  It is often a shame that the better expert wins the day (of course, it is fine because that is often me in my cases and I know I did it the "right" way).  I have seen other cases that came my way AFTER the initial court hearing and BOTH experts were terrible.  It is often laughable as to what they provided as their "analysis" to the court and how inaccurately they determined their values (leaving out certain provisions of the plan, for example, that affect the valuation).  Just one of my pet peeves....

[mctoe]

On 11/15/2018 at 5:15 PM, Susan L. said:

It would be helpful to take a look at the actuarial assumptions used in each valuation.  Governmental pension plans use a relatively high investment rate of return assumption (i.e., the discount rate) while private consulting actuaries will likely use lower return assumptions, such as those used by DB plans in the private sector.  Granted, the court will decide, but the court will hopefully listen to arguments:  arguments in favor of one value versus the other may depend on how successfully the attorneys can rationalize or pick apart the assumptions used (and explain them).

The plan uses a 7% discount rate and an old mortality table-GAM 83.  The pension valuation company used a 2.85% discount rate and RP 2000.