What Is your pension worth (in court)?
CIA General Meeting C5-IP
M. Kavanagh
L. Rivest
What is your pension worth (in court)?
• The court decides
• based on laws, rules, precedents• as interpreted • to the particular facts of the case
What is your pension worth (in court)?
• The actuary opines
• as an expert on pension valuation• in order to assist the court in deciding
• The actuary does not decide.
What is your pension worth (in court)?
• The first items to consider are the laws, rules and precedents for valuation.
• These vary by province,
• and the type of law suit.
What is your pension worth (in court)?
• Ontario is the area I am most familiar with
• I have seen three separate approaches – Tort ( Wrongdoing) rules
• wrongful death• wrongful dismissal
– Family Law• marriage breakdown
What is your pension worth (in court)? Tort Actions
• These actions deal with past and future payments.
• Rules of evidence vary significantly
• Probably the most financially significant difference is the interest rate
What is your pension worth (in court)? Tort Actions (Ontario)
• Past and Present are separated by the start date of the trial.
• Past interest rates– may be pre-judgment interest Court
rules( tiresome)-Courts of Justice Act-Rules of Civil Procedure
– may be 2% per month compounded monthly( for some accident payments)
What is your pension worth (in court)? Family Law On Marriage Breakdown
• "property" means any interest, present or future, vested or contingent, in real or personal property...
• (c) in the case of a spouse's rights under a pension plan that have vested, the spouse's interest in the plan including contributions made by other persons; ("bien")
• source --http://www.canlii.org
What is your pension worth (in court)? Family Law On Marriage Breakup
• "net family property" means the value of all the property, except property described in subsection (2), that a spouse owns on the valuation date, after deducting,...
• the value of property, ..., that the spouse owned on the date of the marriage, .., calculated as of the date of the marriage; ("biens familiaux nets")
• --http://www.canlii.org
What is your pension worth (in court)? Family Law On Marriage Breakup
• Courts have accepted:– CIA marriage breakdown standards the basic
approach to be used for Family Law Act suits, with specified interest and mortality approach .
• Types – Defined contribution
– Defined benefit
– Mixed
What is your pension worth (in court)? Background Family Law
• Defined Contribution– accepted values are accumulated contributions
– plus interest
• Defined Benefit– Courts accept the actuarial approach specified
in the marriage breakdown standards
• mixed– Which feature predominates?
What is your pension worth (in court)? Background Family Law
• Defined Benefit– fundamental items are
• plan rules for pension being valued
• interest rates
– based on Federal bonds for 15 years then 3.25% or 6%
• mortality table- 1983 GAM
• plan member ( and spouse sometimes) data
What is your pension worth (in court)? Defined Benefit Practical 1
• Sources of information– Employee annual statements
– Plan texts( some are on internet)
– Employee booklets
– Marriage breakdown reports• get authorization to get information
What is your pension worth (in court)? Defined Benefit Practical 2
• Missing – Ad hoc Indexing practices
– Early retirement rights
– Special Situations - e.g. Air Canada
– Special administrative rights• plan closings, getting rid of employees
– Marriage and separation dates • use cohabitation or not?
What is your pension worth (in court)? Defined Benefit Practical 3
• Missing – Retirement Compensation Arrangements
– Should retirement gratuities be considered?
What is your pension worth (in court)? Defined Benefit Practical 4
• Valuation Steps– What was the pension as of the date of
separation?( total and components?)• Test your calculations against annual statement
– Hindsight evidence not generally allowed but court may take account of special situations.
What is your pension worth (in court)? Defined Benefit Practical 5
• Valuation Steps- Assumptions– Interest rates depend on indexing provisions
and practice.( consider the effect of extremes where uncertain)
– Mortality Table is specified. ( Actuary is not per se qualified to give opinion on actual expected adjustment to table. ) May consider optional mortality conditionally -for information.
What is your pension worth (in court)? Defined Benefit Practical 5
• Valuation Steps- Total PensionValue– Earliest undiscounted age
• discuss age and qualifiers
• what about subsidized early retirement ( 2% per year)
– What happens before this age or after max age?
– Death Benefits to the Member’s Estate• Commuted value or similar
– Is the difference material
What is your pension worth (in court)? Defined Benefit Practical 6
• Valuation Steps- Total PensionValue– Service Discount- not generally accepted but
not tested in court since 1987 revisions.
– Excess Contributions• Note also that pension allocated to pre-1987 must
not be less than the value of the contributions plus interest
• post 1986 pension value must take up only 50% of those contributions plus interest
• Balance are deemed to be excess and usually are added to the value of the pension.
What is your pension worth (in court)? Defined Benefit Practical 7
• Valuation Steps- Pre-Marital Allocation– the usual approach is pro-rata on service
following Supreme Court case Best vs Best
– in case of a pension in pay, with vested survivor rights, lower court decided to use value added for surviorship rights. i.e. 0% pre-marital
• There are equity arguments for both.
• Our reports say based on legal precedent and following a lower case. ( not actuarial issue)
What is your pension worth (in court)? Defined Benefit Practical 7
• Valuation Steps- Income Tax Adjustment– this is the least uniform approach
• one method
– to project income to 65
– add CPP and adjusted OAS
– plus other income if advised of it or source
– calculate separation year tax rate for this with Old Age, and pension adjustment.
– Use the resulting tax rate for all retirement ages.
What is your pension worth (in court)? Defined Benefit Practical 8
• The report-– The report is aimed at Judges, lawyers and
clients.
– Keep it simple but complete.
What is your pension worth (in court)? Marriage Breakdown Rationale
• The later section of the presentation was not able to be given due to lack of time .