Click on a question to see the answer.
Question: I am going to testify in court about the pension valuation.
Answer: Here are some things you might want to be comfortable about before taking the stand:
1. Interest rate. This is a user entry, although the software will suggest a current 20-year Treasury Bill rate as of the date the pension is first entered into the software. The link below shows 20 year treasury bill rates as of the current moment (look for Treasury Constant Maturities - 20 Year). Federal Reserve Current Interest Rates
The software uses a 20-year Treasury Bill rate because it is a safe long-term interest rate, and what you are doing with a pension valuation is asking the question "what lump sum amount would give the same present value as the stream of payments represented by the pension."
To measure that present value, we use the prototypical safe interest rate, which is the 20 year Treasury Bill rate.
A good argument could also be made for the 30-year Treasury Bill rate. We used 20 years because:
1) A typical life expectancy starting at the typical retirement age of 65-68 would be around 20 years; and
2) For a while, the treasury discontinued issuing 30-year notes, so that 20-year note is a rate that is likely to be continuously available.
2. Mortality Table. The software has several useful help links around the mortality tables. The software selects by default the most commonly used table.
3. Calculation Method. You can scroll to the bottom of the pension valuation screen, and you will find there a link for an audit trail. If you have not done so already, click that link and print out the audit trail for your pension. It shows in detail the math behind the pension valuation, and it is very unlikely that a competing valuation firm will be able to provide that to the court. The better you can understand this, the more ready you will be on the stand to withstand any challenge.
The method used is the most sophisticated method: we calculate the expected value of each year's payment, and then discount all years back to the present for both mortality and time. There is no single "life expectancy" in this method. Methods that use a single "life expectancy" are simpler methods, and cannot accurately account for some factors, such as changing interest rates or cost of living adjustments (COLAs).
There are less sophisticated ways of valuing pensions. There are different ways of valuing pensions. But there is no way that is actuarially "more accurate" than the way used in the software.
Family Law Software's pension valuations have been accepted in courts throughout the country, and, to our knowledge, have never been rejected by a court.