Defined Benefit Plan value?

[Guest Sandylou]

How is the value calculated on a Defined Benefit Plan in a divorce action? Are Health, medical, benefits figured in to it?

[Larry M]

There are many ways by which a benefit is valued in a divorce action. It depends upon rules, regulations, laws and customs of the state (and sometimes the court within the state) of jurisdiction.

Generally, the value of the benefit to the participant is calculated as the value of the benefit earned to the specified date (usually the date of separation, or divorce or whatever has been agreed upon). In a community property state, such as California, the "community property" is usually the portion which has been earned during the marriage. This is calculated either by taking the pro rata share of the benefit earned or, sometimes, by determining the increase in benefit earned during the marriage.

The result may be the amount which is equivalent to the value of the lump sum payable as of that date determined

a.in accordance with the plan's definition of actuarial values,

b. same as a, except using the current level of salary, instead of the plan's "average salary". [this usually provides a higher value],

c. in accordance with the actuarial values determined by statute,

d. in accordance with the actuary's best estimate, using his/her own reasonable assumptions, or

e. using a benefit which assumes the particpant's salary will increase in the future and basing the earned benefit upon the proportionate share of the projected final retirement benefit.

It may take into account any subsidies for such items as early retirement or other enhancements.

With respect to your second question, in California, a community properety state, the courts have considered retiree medical benefits to be part of the community - which means they, too, are valued.

[Guest PAUL DUGAN]

We provide several 100 of these calculations a year for dozens of attornies in numerous courts. It is our policy to value benefits based on satutory minimum lump sums as if the EE terminated on the date of divorce (usually the date of seperation) even if the plan did not allow Lump Sums as if the EE terminated employment on that date.

I am sorry to say that we have run in to a number of "Pension experts" that base there calculations using assumptions and methods on who they are doing the calc for(the spouse or the participant).

[david rigby]

Paul's comments make good sense.

Another point is to review the document to see whether it defines a lump sum calculation. (It might not be defined as the statutory minimum that Paul mentioned.)