Enter your facts in the fields provided for (reminder to use the recalculate button each time you need to view the changes you've made)
Monthly Pension Amount. Enter the monthly pension amount at retirement (obtained from client's benefits department),
Annual Cost of Living Adjustment. Enter the percentage for the annual cost of living adjustment if needed (government & some teacher pensions are adjusted for inflation),
Age Pension Starts. Age when the pension will begin
Age at the Valuation Date. Enter the age at the valuation date (date of divorce or date of separation depending on state law). Note that the age entered will be used to automatically calculate line 11, Date Pension Receipts Begin. You may change the date on line 11 as needed.
Gender. Select the gender.
Annual Interest Rate for Valuing Pension. Enter the annual interest rate for valuing the pension. (See Interest Rates for Valuing Pension). The PBGC interest rates may be found at www.pbgc.gov.
Unisex Table on Output. Select Yes or No to print and include the unisex compare. Note that the results on the right will display the Unisex values regardless of this selection. Selecting Yes will allow the Unisex comparisons to appear on the report.
Date Pension Contribution Began. Enter the date the employee's pension actually began.
Date Marriage Began. Enter the date the parties were married.
End of Marriage Date. Enter the dissolution or separation date of the marriage according to state law. Note: This date is the date used for determining the estimated pension receipts date.
Date Pension Receipts will Begin. This field will automatically be calculated based on the entries in lines 3, 4 and 10. If you want another date, simply double click on the field to show a peach/maze colored field and then enter the desired date and recalculate. This date is when the party will actually begin receiving payments from the pension. It's also used in calculating the true marital days to obtain the percent of the marital portion on line 12. If you want to revert back to the automated date, double click on the field and it will return to the default value.
Percent of Marital Portion. This item is automatically calculated based on the number of days determined in lines 10 and 11 above. You may override this value on line 14, if deemed necessary.
Marital Allocation (must equal 100%).
Pension Owner. Enter a percent allocation identifying how the pension value of the marital portion will be allocated between the parties. Note that the software will always default new cases as 100% ownership to the Pension Owner which is presumed in the left field and the Spouse in the right field.
Spouse. Enter a percent allocation identifying how the pension value will be allocated between the parties. The total of 13 Owner and 13 Spouse must equal 100%.
Marital Portion of Pension. Enter the marital portion of the pension only if it differs from that automatically calculated on line 12 above. This will allow you to see the presumed percentage and the overridden percentage.
Combined Federal and State Tax Rate. Enter a combined Federal and state income tax rate should your Courts want after-tax values (OR, WI & KS and possibly others). Note: If this field remain at 0%, lines 15 and 16 of the report displaying After-Tax Marital portion will not appear on screen or in the report. You must enter a % value on this line to see the After-Tax Marital Portion.
Note: Consult an actuary if this allocation factor is complicated.
This report is an estimate of the present value of a defined benefit pension plan (Buy-out Value).
Note: This is not intended to replace an actuary, but it will prepare an estimate of a pension's value using life expectancy tables and an adjustment to more closely replicate an actuarial valuation.
An actuarial valuation will be more accurate, because such estimate will be prepared to reflect very specific case facts. Use this feature for "ballpark estimates." Do not use it to replace an actuarial valuation. The program valuation is expected to be within 1% of an actuarial valuation. (See Getting Professional Assistance - Pension Valuation)
For figuring life expectancy, the software will take the age when the pension begins and use the UP-94 mortality table which is used by the IRS for certain pension valuations as set forth in Revenue Ruling 2001-62.
There is no right or wrong mortality table for pension valuation, but the UP-94 table used by the IRS and the GAM 83 table used in the pre-2004 version of Divorce Math Calculation are widely accepted.
UP stands for "Uninsured Pensioners." The UP-94 table is a recently published mortality table from the Society of Actuaries.
The software will prepare a valuation using either male or female life expectancy and mortality tables and also prepares a valuation based on unisex tables.
Note: Pension valuation in divorce is usually based on M/F Tables.
The life expectancy table (UP-94) is used to determine how long the person will live given a particular age at the beginning of the pension benefit period. Female tables assume a longer life expectancy than the male tables and unisex tables average the life expectancies and are used by many plans due to nondiscrimination provisions.
Mortality tables measure the probability that an individual at a certain age will live until some future age and this factor lowers the present value of the pension at the date of retirement for individuals who are not yet old enough to retire.
The software uses the UP-94 mortality table for M/F mortality and a blended Unisex table as developed by an actuary. Life expectancy tables are based on these mortality tables and were furnished by an actuary.
If a change to the life expectancy tables contained in the program is desired, change the values in lines 1 and 2 by double-clicking and recalculating.
Enter the number of months you want to use as a life expectancy and recalculate. The figure you enter will change colors to mauve which means you have changed a formula in the software. To return the original program formula, double-click on the field you changed, and recalculate. The default formula will then be restored. (See Tools menu).
This version uses updated mortality tables from 1994. In general, male valuations are about 8% higher than the 1983 mortality tables, while female valuations have increased by less than 1%. Female valuations continue to be significantly greater than male pension values reflecting the continuing trend for women to live longer than men although this disparity is shrinking.
A summary of the different valuations is shown below:
The figures below are based on a retirement age of 65 and a 5% discount rate.
|
Current Age |
Old Value GAM 83 |
New Value UP-94 |
% Increase 83 vs. 94 |
|
35 |
$25,693 |
$27,876 |
8.5% |
|
45 |
42,383 |
45,909 |
8.3% |
|
50 |
54,863 |
59,130 |
7.8% |
|
Current Age |
Old Value GAM 83 |
New Value UP-94 |
% Increase 83 vs. 94 |
|
35 |
$32,068 |
$32,341 |
0.1% |
|
45 |
52,644 |
53,029 |
0.7% |
|
50 |
67,658 |
68,039 |
0.6% |
|
Current Age |
Old Value GAM 83 |
New Value UP-94 |
% Increase 83 vs 94 |
|
35 |
$28,855 |
$29,962 |
3.8% |
|
45 |
47,456 |
49,236 |
3.8% |
|
50 |
61,186 |
63,296 |
3.4% |
See also: