Pension Valuations

Pension valuations are used in determining the value of a retirement plan to offset it against the value of other marital assets. They most often pertain to defined benefit pension plans.

WFA Econometric Group team is nationally recognized as experts in valuating pensions and 401(k)s in divorce. We have testified from Illinois, Wisconsin, Iowa among many other states. We have also provided valuations in Germany, England, New Zealand, and many other countries. WFA Econometric Group prevails because we base our valuations on common sense and court-tested methodologies.

Defined Contribution Plans

Retirement plans fall under the broad classification of either Defined Benefit or Defined Contribution plans. A Defined Contribution Pension Plan requires a “contribution” to be made now, with the future value of the benefits left uncertain. Generally, the account balance of any given point in time is the present value. However, this isn't very easy when pre-marital contributions are involved.

When a pre-marital portion exists, it is important to remember that 401(k) plan administrators will NOT calculate marital values or contributions between two points. No program or application is equipped to determine varying contributions and earnings on many funds within a 401(k)/TSP account. Therefore, calculations have to be made separately by an outside expert. WFA Econometric Group has been calculating marital values of defined contribution plans for 30 years and provides highly defendable results.

Generally, calculating the marital component of a 401(k) account favors the plan participant because of the growth of the pre-marital portion. The fee for such calculations is a fraction of the amount determined non-marital and the amount saved by the participant’s spouse.

Defined Benefit Plans

A Defined Benefit Plan must pay a monthly benefit at a certain retirement age. In most cases, it’s based on the employee’s length of service and salary. Defined Benefit Plans are generally 100% employer funded, but calculating the present value of the monthly benefit is a two-stage process. Miscalculating a present value can lead to mistakes resulting in an inequitable distribution of assets by tens of thousands of dollars in many cases.

Pension valuations, or the value of a lifetime income stream, are not as speculative as many would think. Mathematically, most of the present value is in the near-term cash flows, with the cash flows further into the future having less influence on the present value. Other factors, such as cost-of-living adjustments, mortality (probability of death), and retirement age, play an important role in determining an accurate value for an offset.

Cost-of-living adjustments (COLAs) or post-retirement increases applied to the monthly retirement benefit will increase the present value. Keep in mind that nearly all government plans have COLAs, whereas most private non-governmental plans do not.

Government-Defined Benefit Plans

From municipal, state, and federal pensions to military and State Department, WFA Econometric Group has the experience to accomplish your clients' goals of offsetting the values. We provide options and alternatives to valuation to strengthen your client’s position.

WFA Econometric Group provides accurate pension valuations for divorces in any state.

Do You Need a Pension Valuation?

WFA Econometric Group does not just provide a number or a computer-generated form letter. We will provide all the relevant text and supporting statements necessary to enhance your negotiating position. Although we will not alter the present values by altering assumptions, we will emphasize certain points of interest that can result in substantial savings for your client.

For instance:

If you’re representing the plan participant who is already receiving a pension, it's important to check whether your client's soon-to-be ex-spouse was named as a survivor beneficiary at the time of retirement. most often cannot be changed once made, so if the ex-spouse is named as a survivor, you'll need to subtract the value of the survivor annuity that they will receive upon the participant's death from the overall present value of the pension.

If you represent the non-plan participant spouse, be certain whether the plan applies cost-of-living adjustments to the retirement benefits that incorporate this into their calculations. Cost-of-living-adjustments (COLA) can increase the present value up to 40% or more, depending on the size of the COLA.

If you represent the non-plan participant spouse, you may emphasize the present value at the earliest retirement age since this could result in a present value larger than the present value at the normal retirement age. Our studies have shown that when the early retirement benefit is more than approximately 42% of the normal retirement benefit, the present value will be larger at the earlier retirement age. An argument for emphasizing the earliest retirement age, aside from the fact that several state judicial systems will only consider the earliest retirement age, is eligibility, where the participant has the non-forfeitable right to retire at that point.

Other factors that come into play and should be accounted for include:

  • Marriage Coverture Adjustment (length of marriage vs. length of service)

  • Marital Value of a 401(k) or similar plan

  • Discount rate to determine the present value

  • Appropriate Retirement Age for corresponding monthly pension benefit

Consider WFA Econometric Group when valuing City, County, Federal, or State Retirement System Plans.

Accurate and Impartial Evaluations

Our goal is to provide accurate and impartial evaluations. We do not aim to manipulate pension calculations solely to artificially increase or decrease the result. Pension valuation parameters are uniform, and the procedure is standardized yet able to account for any individual anomalies.