Generate Pension Report Create Account Log In How It Works Online Demo Sample Report Download Pension Form Print Pension Form QDRO Request Forms FREE Download Book Basics of Pensions In Depth Analysis Special Issues Actuarial Standards Sample Authorizations Pension FAQs QDRO FAQs Glossary Join Our Mailing List About Our Company About Our Analysts Contact Us Phone Consultations Our Fee Schedule Testimony Your Privacy Security Terms of Use Customer Support	Mechanics of Immediate Offset Valuing Pensions for Equitable Distribution When using the Immediate Offset Method of distribution, the pensionholder is awarded sole interest in his/her retirement benefits, and the spouse is given cash or another asset of equal value in lieu of his/her interest in the pension. In order to use this method, the present value of the retirement benefits must be determined. Valuation of Defined Benefit Plans - Present Value In order to determine the value of a benefit under a Defined Benefit Plan as of a specific date, the appraiser determines the present value (worth) of receiving a future pension benefit. This present value is determined using an appropriate interest rate and actuarial tables to measure lifespan. Following is a step-by-step analysis of the present value process. Step 1: Determine the Amount of the Benefit Step 1 requires the appraiser to determine the amount of the retirement benefit that will be received by the pensionholder in the future. If the pensionholder has already retired, the actual amount being received can be used in the analysis. However, if the pensionholder has not retired, it is necessary to estimate the amount the pensionholder will probably receive in the future. The amount to be received by the pensionholder can be affected by a number of different options. Therefore, the appraiser must make certain assumptions concerning the manner in which the benefits will be paid at a later date. Date of Retirement: One of the more important assumptions to be made in the analysis is the pensionholder's date of retirement. The assumed date of retirement should be an estimate of the most likely date the pensionholder will retire based upon the circumstances of the individual. The most commonly used date is the actual normal retirement date used by the plan in question. However, any other date could be used if such other date is deemed to be a more appropriate date relative to the facts of the case in question. For instance, some courts have ruled that the earliest possible retirement date available under the plan should be used as the retirement date. Tax Consequences: Opinions are divided on the extent to which future tax consequences should be included in the valuation process. Retirement benefits are taxed when distributed to the pensionholder. Therefore, there is no question that the tax consequences associated with these benefits can play a role in the valuation process. The question, however, relates to the manner in which tax liability should be considered. Most court's have concluded that it is inappropriate to apply a hypothetical tax that would be applicable to liquidation of the plan benefits. Since the plan benefits are not actually liquidated, such a tax could be excessive and would most likely not reflect the actual tax that will some day be paid on these benefits. The Court may attempt to determine the tax that will actually be paid in the future or use a tax rate applicable to the facts at hand at the time of the valuation. A unanimous rule of thumb has not been established with respect to adjusting these value relative to future tax consequences. However, it is indisputable that such should play a role in the valuation process. Duration of Benefits: In addition to making assumptions concerning the options that will be exercised by the pensionholder, the valuator must also determine the length of time to which benefits will be distributed. Most defined benefit plans pay a retirement benefit beginning on the date of retirement and ceasing on the date of death. Therefore, actuarial tables can be used to estimate the total lifespan of the pensionholder, which in turn will illustrate the total period of time benefits will be received. Step 2: Discount to Present Value Step 2 employs the mathematics involved in discounting the expected future stream of income to present value. Step 3: Mortality Discount Step 3 employs a discount for mortality. This discount reflects the chance that the pensionholder will not live long enough to retire and actually begin receiving benefits. Obviously, this step is unnecessary if the pensionholder has actually retired and begun receiving benefits. This discount is based upon the statistics found in actuarial tables. Step 4: Discount for Vesting Status - If Applicable. In a case where the benefits are not fully vested, the value must be further reduced to reflect the fact that if the pensionholder were to leave employment, he/she would not actually be entitled to the benefits being valued. If the benefits are partially vested, this discount should only be applied against the unvested portion. Step 5: Apply a Coverture Fraction - If Applicable In cases which take place in states which support a Dual Property Model for asset distribution, it is necessary to determine which part of the present value of the pension benefit is attributable to the period of marriage. This is accomplished by using a coverture fraction. Such fraction compares the period of time married and employed to the total period of time employed as of the date the marriage ended. The resulting percentage would be applied to the present value to determine that portion of the present value figure which can be attributed to the period of marriage. In cases which take place in states which support an All Property Model for asset distribution, this step is not necessary. Under this model, all property owned by either party on the date the marriage ended would be considered marital property subject to distribution. Therefore, differentiating between that portion of the pension which was attributable to only the period of marriage would be unnecessary. Return to In Depth Analysis

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