FAQs - Family Law Software


Click on a question to see the answer.

Question: What if I have an employer statement of value that differs from the pension calculation?

Answer: "Statements of value" from employers are almost always different than true actuarial pension value. They are usually lower than the true actuarial value. You can use the employer's statement if:

  • It is higher than our value (which is rare), and the employer is actually offering to buy the pension out for the stated value; or

  • It represents an IRA-like portion of the plan, where it is a real account, which goes up and down based on employee and employer contributions and the markets in which the money is invested, from which the employee may withdraw at his option after reaching a certain age. Then that portion should be entered under IRA/401k; or

  • The client or attorney insists on using it.

Otherwise, just ignore the "statement of value" from employer, and use our pension valuation.

Why would the lump sum value offered by the employer be lower than the true actuarial value?

People are always tempted to go for the lump sum. It is in the company's interest to discharge its obligations as cheaply as possible. So it is in the company's interest to offer a lump sum that has a lower actuarial value than the present value of the pension payments. If the employee takes the lump sum, then the company has discharged its pension obligation at a profit (to the company).

The actuarial value, however, is the "true" value of the proposed stream of pension payments.

In this context, it should also be mentioned that the actuarial value does not include any discounting for the possibility that the company will go bankrupt and not be able to make its payments.

If there is a sense that this is a possibility, that does reduce the value of the proposed stream of pension payments, and in that case, it is conceivable that the company's lump sum offer is actually worth more than the actuarial value of the proposed stream of payments.

How can you evaluate this?

It is complicated, and we do not attempt it. The company could fail at the beginning, middle, or end of the payment stream. The Pension Benefit Guaranty Corporation (PBGC) could assume most, some, or very little of the company's obligation.

But the complexity should not prevent you from taking a guess using your gut feeling. You can say, "let's discount the value by 10% because the company might go bankrupt." If the parties agree on that assessment, then it can be valid for your purpose.