Divorce  Financial Planning
Home Page
Home Page
Conferences
ADFP Member Handbook
Join The ADFP
Chapters
ADFP
Upcoming Events
Webinars
Board Of Directors
Professional Members
Contact Us
Privacy Notice

Find a Member
ADFP Blog
Press Releases
Financial Planning
Alimony/Spousal Maintenance
Divorce & Insurance
Social Security
Collaborative Divorce
Forensic Divorce Accounting
Divorce Articles
Divorce Calculators
Divorce Handbook
Client Handbook
Divorce Dictionary
Featured Sites



The Association of Divorce Financial Planners (ADFP) is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be addressed to the National Registry of CPE Sponsors, 150 Fourth Avenue North, Suite 700, Nashville, TN, 37219-2417. Web site: www.nasbatools.com.



How Defined Benefit Plans are Valued

In order to determine the value of a benefit under a Defined Benefit Plan as of a specific date, the valuator actuarially determines the present value of receiving a future pension benefit (monthly income upon retirement). Or, said another way, the valuator determines how much money must be invested today so that when the employee retires there will be enough money in the plan so that he/she can withdraw monthly from the plan the amount of money he/she is entitled to receive for the remainder of his/her lifetime. In determining the present value, the pension appraiser takes into consideration mortality, age on date of valuation and separation, normal retirement age, the monthly entitlement upon retirement, an appropriate interest rate and etc.

TYPICAL SCENARIO:
The Jones' were married on April 30, 1970. Mr. Jones has been employed by the XYZ Company since April 15, 1965. On April 1, 1996, the Jones' separated. As of the date of separation, Mr. Jones had accrued a vested benefit of $842.14 per month payable at age 62. He was born on April 2, 1940. What is the present value of Mr. Jones' defined pension benefit? The services of a pension appraiser are secured to determine the present value of the defined pension benefit by the P.B.G.C. Actuarial and Mortality Tables Method, Life Expectancy Method , GATT Method or a Specific Method dictated by State Law.

DESCRIPTION OF APPRAISAL METHODS

LIFE EXPECTANCY TABLE APPRAISAL

This approach is based upon the use of Life Expectancy Tables. Present Value is determined as follows: (Six Step Process)

(1.) Calculate the amount of the monthly pension benefit if it were assumed that the pension holder was at retirement age with a fully vested pension based upon compensation and plan provisions as of the Date the Marriage Ended.

(2.) The pension holders 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.

(3.) An appropriate interest rate is used to determine the present value of the monthly benefit as of the Date of Valuation.

(4.) The present value is then discounted for mortality and disability (if applicable).

(5.) The present value is reduced if the plan has not vested.

(6.) If a portion of the pension was earned outside the marriage, a coverture fraction is applied.

MORTALITY TABLE APPRAISAL

This approach is based upon the use of Mortality Tables. Present Value is determined as follows: (Four Step Process)

(1.) Calculate the amount of the monthly pension benefit if it were assumed that the pension holder was at retirement age with a fully vested pension based upon compensation and plan provisions as of the Date the Marriage Ended.

(2.) Mortality Tables and the application of an appropriate interest rate are utilized to determine present value.

(3.) The present value is reduced if the plan is not vested.

(4.) If a portion of the pension was earned outside the marriage, a coverture fraction is applied.

GENERAL COMMENTS ABOUT THE DIFFERENT APPRAISAL METHODS

From an actuarial standpoint, the use of mortality tables is preferable to the use of life expectancy tables. However, case law in some states dictates the use of Life Expectancy Tables.

Return to the Pensions Page