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  • Pension Valuation Help

    Hi Everyone,

    Thank you for all your help so far it has proved to be a great asset. I have another question pertaining to pensions. I had my pension valuated as requested by my exes attorney, but he put the tax rate at only 20%, yet every case I have seen the rate has been at least 24% this makes my Net Family Property 0 at 24% tax rate. Can I arbitrarily change the tax rate on my own submitted valuation to what is appearing in CanLii cases to the more accepable 24% I can't afford another as it's around $500 for another valuation.

    Thanks,
    Mcbroke

  • #2
    I believe you could. By maintaining a lower tax rate, it over values the pension. It is something that could go overlooked. Did you have a professional pension evaluator value the pension. There are several methods to evaluate same, and often the parties can't agree and the method to use gets disputed.

    Comment


    • #3
      Came across this article on pension values

      Pensions are a part of property under the Family Law Act of Ontario (and in other Canadian jurisdictions). As an aspect of property, pensions must be valued for family law property division purposes. The recent case of Bascello v. Bascello (1995), 26 O. R. (3d) 342, has once again brought to the fore the difficulties inherent in valuation of pensions. Justice Kurisko undertakes an exhaustive analysis of the case law and the Ontario Law Reform Commission Report on Pensions. This case is required reading for those who wish to gain an appreciation of the debate extant in pension valuation circles. I will not attempt to give an exhaustive analysis of the decision. Rather, permit me to present some important practice points (alluded to in the case) for the family law practitioner:

      Indexing: Consider carefully the issue of whether or not the pension will be indexed after retirement. The differences in value between ‘no indexing’, to ‘part indexing’, to ‘full indexing’ can be staggering.

      In Bascello, assuming a retirement age of 55, one actuary valued no indexing at $55,157.00 and full indexing at $146,580.

      Where there is no contractual and legislative right to post retirement indexing (as in many private sector plans), talk to whomever you can to ascertain the prospects of future indexing. Gather your evidence and present it in first instance to your actuary and ultimately, to the court.

      Remember, full indexing = higher value.
      Pre-Retirement Indexing Net Interest Rates: In Bascello, the judge treated this private sector pension plan as fully indexed prior to retirement even though it was not. Mel Norton, who is the Chairperson of the Canadian Institute of Actuaries (CIA) Committee on Actuarial Evidence, lambastes this departure from accepted actuarial standards of practice. He states: "It seems particularly unfortunate that Kurisko J. chose to follow the concepts of one non-conformist actuary, rather than the collective wisdom of the Canadian actuarial profession."

      Be prepared to present argument as to why your client’s pension should not be valued on the basis that is fully indexed prior to retirement when the plan does not have such a feature.

      Contingencies: Bascello differentiates between general and specific contingencies. In Bascello, vesting was 34 months post valuation date but vesting had occurred by the time of trial. Nonetheless, the judge stated (correctly I submit) that "post-valuation day events are to be disregarded". Since there was a small general risk of the pension not vesting 34 months hence, the judge applied a discount of 2 per cent.

      In a rather striking departure from legal precedent, the judge allowed a further 30% discount to the "as if vested" present value of the pension for post-vesting date contingencies such as early employment termination, premature death, illness and possibility that wages would not keep up with inflation. If you want to access such a discount, be prepared to argue why Bascello should be followed in this respect.

      If you are relying on a contingency specific to your client’s situation, then get that evidence and inform your actuary! Contingencies, according to Justice Kurisko in Bascello, can affect value. Interview your client. Interview the witnesses. Present the evidence to your actuary.

      (Most judges have not directly addressed the contingency issue, as did Kurisko, J. Now there is a strong precedent for this approach. Acting for the pensioned spouse requires counsel to present these arguments until the Court of Appeal opines otherwise. Mel Norton, on the other hand, was not enamoured particularly with Kurisko J.’s ‘contingency’ approach.)

      Age of Retirement: The non pensioned spouse will invariably maintain that the intended retirement date is the earliest date possible. (This gives a greater present value to the pension.) The judge stated that "a presumption that favours either the earliest or the latest date is unfair" and he indicated fairness dictated the middle date between the two extremes. But in Bascello, there was no evidence of intended retirement date from either party.

      It is incumbent upon counsel to thoroughly investigate all the facts including the intentions of the parties prior to their separation with respect to probable retirement dates, etc.

      Garner the evidence that is helpful to one’s client.

      If the evidence is not helpful, consider advocating the fairness position of the mid point, as in Bascello.
      The Ontario Court of Appeal recently dealt with the age of retirement problem. In Kennedy v. Kennedy, unreported, 4 March 1996, digested at [1996] O.J. No. 764, the court disagreed with the trial judge's automatic imposition of the earliest possible retirement date as in Forster v. Forster (1987), 11 R.F.L. (3d) 121 (Ont. Gen. Div.). The court held that there is no "presumption in favour of the earliest possible retirement date."

      Tax Rate: In Bascello, counsel did not lead evidence as to what the likely tax rate upon retirement would be. The judge used 25% which is not inconsistent with other cases. The writer has seen as low as 19% and higher rates, depending on projected income levels at retirement.

      If your pensioned client is going to have income above the norm and his/her tax rate will be higher, then make sure you inform your actuary so that the higher tax rate can be used in the report.

      Higher tax = lower pension value = lower equalization payment.

      Prejudgment Interest: In Bascello, the husband persisted in what the judge ultimately found to be an unrealistically low value. Therefore, some prejudgment interest was ordered.

      Do not assume that since we are dealing with a non liquid asset that the court will not award some amount of prejudgment interest for some period of time.

      Review Bascello early during your case to appreciate some of the factors which a court may consider in awarding interest. Calculate the cost of delay (in its widest sense).

      General Approach reflected by the above: Justice Kurisko did not agree with the approach of Mr. Dibben, the pensioned spouse’s actuary. Mr. Dibben had employed a "strict termination method". The trial decision of Salib v. Cross (1993), 15 O.R. (3d) 521 (Gen. Div.) is alluded to but is not accepted by Justice Kurisko as the correct approach.

      However, our Court of Appeal has since dealt with Salib - (1995), 27 O.R. (3d) 255 and stated:
      "In adopting the former method [ie. "termination method of valuation"]…the trial judge gave careful reasons as to why she felt it was the more appropriate method having regard to the particular facts of this case. … We can find no reason for interfering with her treatment of the valuation of the respondent’s pension."

      In a recent General Division decision - Sauder v. Sauder, unreported, 1 May 1996, Court File No. A4123/93, Sudbury, Meehan, J. - the judge accepts the approach of the ‘losing’ actuary in Bascello, Mr. Dibben. The judge stated:
      "…I am not willing to use the approach set out in Bascello, because of the reluctance of Mr. Dibben to do so."

      The judge then adopted the trial decision of Justice Chapnik in Salib v. Cross and noted that the latter decision was upheld by the Ontario Court of Appeal.

      Although Bascello is not the last word, counsel should pay heed to the approaches used there and the comments of the trial judge with respect to the areas of evidence which were omitted by counsel.
      Last edited by logicalvelocity; 05-11-2006, 11:14 PM.

      Comment

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