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 --

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") --

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 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.