Opinion ID: 1145441
Heading Depth: 3
Heading Rank: 2

Heading: The Problem of Estimating Present Value; Practical Problems with Reserved Jurisdiction

Text: In addition to the equal sharing of the risk theory, another advantage sometimes mentioned for the reserved jurisdiction method is that it avoids the often difficult problems encountered in calculating the present value, at the time of dissolution, of the spouses' community interest in a defined-benefit pension plan. E.g., Fabina, supra, 63 Ind.L.J. at 144 (Since [under the reserved jurisdiction method] only the formula for division is determined at the time of divorce, the complex calculation of valuation is avoided and speculation is eliminated.). Proponents of the reserved jurisdiction approach point out that calculating a present-value lump sum involves at least one, and possibly several, assumptions about such factors as the appropriate interest rate to use in performing a discounted present-value computation, as well as factors concerning mortality, probability of continued employment, probability of vesting, and the like. These assumptions are invariably somewhat speculative; and, say the proponents, such speculation, along with difficult mathematical computations built on them, can be avoided by simply opting to wait and see. Joseph Ruggles makes this argument forcefully, urging that retirement plans are different from other community assets and that Schweitzer provides the perfect different treatment retirement plans should be accorded in divorce actions by avoiding speculation and by freeing the parties (and their attorneys) from the time-consuming and expensive task of litigating, with expert witnesses, over the various assumptions and appropriate methods of discounting in order to adduce evidence of present value. It cannot be denied that in many respects retirement plans are sui generis and are, as Joseph argues, different from other assets whose current values may be more easily fixed. The basic right in a retirement plan is the right to receive a stream of monthly payments at some time in the future. The right is not alienable (except to the extent provided by the REA), and it is subject to various contingencies. When a plan is vested and matured, the first contingency, obviously, is that the employee actually retire and begin receiving payments. However, as Gillmore and Koelsch observed, this condition is entirely within the employee spouse's unilateral control, so we believe that it should not be considered in computing the present value of the employee's interest. Before actual retirement, the right to receive an income stream from the pension plan is also subject to the contingency that the employee's interest will become vested, then the contingency that it will mature, and all along the contingency that the employee will not die. This last contingency most definitely is not within the employee's control; and, as discussed more fully below, we believe it should be taken into account in estimating present value. [13] These contingencies can be evaluated and accounted for using accepted actuarial and statistical techniques. See Johnson v. Johnson, 131 Ariz. 38, 42, 638 P.2d 705, 709 (1981) (en banc) (Various actuarial calculations are used to discount the present value of the retirement plan to reflect contingencies affecting the eventual payout, including discounts for mortality, interest, probability of vesting, and probability of continued employment. (footnotes omitted)); Carter & Myers, supra, at 112 & n. 130, 116-18 (discussing discounting for time value of money and expected values, using standard statistical techniques to discount for probability that given contingency will occur); Murray Projector, Valuation of Retirement Benefits in Marriage Dissolutions, 50 L.A.B.Bull. 229, 233-37 (1975) (discussing discounting for mortality (based on probability that employee of given age will survive to required age) and for plan vesting (based on probability that employee will continue employment for period required to become vested)). It is true that various assumptions must be made in arriving at the present value of a nonemployee spouse's community interest in a retirement plan. There are various contingencies which may affect that present value, the effect of which must be quantified, in many or most cases through the use of expert testimony. However, we do not believe that an expert's informed making of assumptions and evaluation of them based on accepted actuarial and statistical techniques render the outcome any more unacceptably speculative than, say, the computation of earning capacity to establish damages in a personal injury or wrongful death case. See Carter & Myers, supra, at 117 n. 167. In some cases (we give examples below), a trial court may have little choice but to defer distribution and enter a pay as it comes in order. In many other circumstances, however, we believe, for the reasons discussed above in connection with long-accepted community property principles, that an immediate and outright distribution will better serve the parties', and the court's, interests. Finally, we note that the reserved jurisdiction method raises many problems not apparent from its deceptively simple formulation. DiFranza & Parkyn, supra, 55 Cal.St.B.J. at 469 (discussing several such problems, including potential tax consequences). [14] As one commentator has observed: [C]onsider the practical problems of such a long wait [between divorce and actual receipt of retirement benefits]. Her [the nonemployee spouse's] lawyer may die, retire, or leave his firm. His files may be lost or accidentally destroyed, as may those of the court. The waiting spouse may move out of the Court's jurisdiction or simply forget about the distant pension rights. .... Even when the husband has not yet retired, he has the ability to frustrate the wife's receipt of her as-yet-unpaid portion of the retirement benefits. He can change jobs, move across the country, or even, as in some instances, retire in a foreign land; the ensuing legal battle to acquire jurisdiction over the plan administrator and former husband, in order to compel compliance, can be a nightmare. Hardie, supra, 53 Cal.St.B.J. at 110-11.