Actuarial Standards of Practice (ASOPs) are guidelines established by the Actuarial Standards Board (ASB) for valuation experts to follow when performing professional services. ASOP No. 34 pertains to the selection and use of economic assumptions for pension valuations in domestic relations matters.
Actuarial valuation and life expectancy are related, but they refer to different things. Actuarial valuation is the process of determining the present value of a pension plan or other financial instrument by considering various factors such as the individual’s age, years of service, and the specific terms of the plan. The actuarial present value of pension benefits expected to be paid out in the future is calculated and the clients can consider a buyout or offset of a former spouse’s interest if appropriate.
Life expectancy, on the other hand, is a statistical measure of the average number of years a person is expected to live based on their age, gender, and other factors. Life expectancy is calculated using a “Life Table” for the plan participant (typically from www.ssa.gov). The present value calculations are then performed until the end of the term of the calculated static life expectancy.
As stated in section 3.3.5 of ASOP Rule #34, valuation experts “should not determine a life expectancy from the chosen mortality table and then compute the value of an annuity certain for a term equal to that life expectancy, as it may produce materially inaccurate results.”
It is important to know if your divorce valuation expert follows ASOP Rule #34 when valuing retirement plan benefits in divorce!
Moon, Schwartz and Madden have been court qualified national experts in the actuarial valuation of retirement plan benefits in divorce for over 25 years. Our reports are $325 and takes only a few days to complete. Please contact us with any questions on a new or existing pension valuation.