The True Value of a Pension During Divorce

A pension may be worth more or is more complicated than the amount that appears on the annual statement. A present value calculation will determine the proper value upon retirement. This is the true value.

The present value calculation is useful in determining whether it is best for the parties to swap other marital assets in exchange for the non-employee spouse’s waiver of pension benefits. However, many attorneys fail to properly analyze the basis for the calculation. The present value calculation is generally based on the analysis of the risk associated with the plan, the discount rate applied (the higher the discount rate the lower the present value) and the mortality table used.

Other factors also come into play, such as the possibility of early retirement subsidies, future cost of living adjustments, the member’s compensation history, the likelihood of the member suffering a disability, and prior QDROs/DROS, to name a few.

In determining the validity of the present value calculation, it may be more advantageous for the parties to agree on an immediate offset of other marital assets in exchange for a waiver of pension benefits, or, conversely, agree to a deferred distribution at the time of the member’s retirement. It is important to carefully consider these factors before deciding to accept an immediate offset or a deferred distribution.

A present value calculation may not even be necessary when the pension is the only significant marital asset because there is no reason for an alternate payee to accept any settlement other than a deferred distribution, which requires the QDRO to divide the pension.

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