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What Is The Rate Of Interest Used To Value A Pension In Divorce?

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

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The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.
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