What Is The Rate Of Interest Used To Value A Pension In Divorce?
Posted on Jan 18, 2012 1:58pm PST
Q. Kim C., of Alabama wants to know: What is the rate of interest used
to value a pension in divorce?
A. Brett, from the QDRO Department of Pension Evaluators & QDROS Of
Troyan, Inc Associates Group replies: "U.S. Government bond rates are ideal for valuing pension plans
in divorce, because they are the only rates that are guaranteed to span
over long periods of time. Actuarial Standard of Practice states that,
unless another assumption is clearly warranted by the facts and circumstances,
an interest rate for valuing retirement plan benefits in domestic relations
actions should be a low-risk rate of investment return.
Various pension experts suggest the 30-year or 20-year U.S. Treasury Bond
Constant Maturity Rate for the month of the valuation date. There is an
inverse relationship between interest rates and present values. A lower
interest rate results in a higher present value and a higher interest
rate results in a lower present value. Between October 2008 and December
2008, the 20-year U.S. Treasury Bond constant maturity rates slid to the
extent that a pension valuation in December would result in a valuation
that was 60 percent greater than the same valuation would have shown in October.
So, while DC plan accounts such as 401(k) plans are plummeting in value,
calculated values for pension plans are rising. Troyan now has updated
its ACCUCALC software for advanced 401(k) tracing reports."
Brett Disdale
Lead QDRO Consultant
DISCLAIMER: Any legal information on this blog has been prepared by Troyan from informational purposes only and should not be construed as legal advice. The material posted on this website is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Note that sending an e-mail to Troyan does not create an attorney-client relationship, and none will be formed unless there is an agreement between the firm and the individual.