Are there different methods of determining the present value of a pension? How are the methods different?
Yes. There are three commonly recognized methods for determining the present value of a defined benefit plan for use in equitable distribution. These methods are referred to as: (i) the Life Expectancy Method; (ii) the PBGC Actuarial and Mortality Tables Method; and (iii) the GATT Method. Pension Appraisers, inc. offers all three of these methods of valuation to their clients.
A brief description of the methods and their differences follows:
The Life Expectancy Method uses life expectancy tables to measure the employee’s projected lifespan, and the rate on A-Rated General Obligation Municipal Bonds as a discount rate.
The PBGC Actuarial and Mortality Tables Method uses the GAM 83 Mortality Tables to measure the employee’s projected lifespan, and the interest rates published and used by the Pension Benefit Guaranty Corporation as discount rates.
The GATT Method uses the GAM 83 Mortality Tables to measure the employee’s projected lifespan, and the 30-Year Treasury Bond rate as a discount rate.
As you can see, the differences in these methods lies within the tables used to measure the projected lifespan and the interest rates used to discount to present value.