Cross-examining the pension expert.

• Author: Reiss, Jerry

Your opponent calls a "pension expert" to the stand to testify as to the present value of a marital pension benefit. Although you recognize errors in the expert's testimony during direct examination, you may still have difficulty cross-examining that person. This article will attempt to demonstrate issues underlying proper pension valuation to assist with cross-examination. This article will show that the vast majority of persons used as experts fail to follow generally accepted procedures necessary for rendering an expert opinion on pension valuation. Lastly, this article will illuminate mistakes made in the computational methodology. If these failures are properly understood, the practitioner may expose such persons as individuals who are not experts and who do understand retirement plans.

Essential Criteria for Measuring Expertise

Qualified individuals in this area of law have a substantial background in and hands-on work with retirement plans. An inquiry should first be made of the witness' background to determine if this person can justify his or her expertise. A careful detailed examination of the special training and education should be made separate and apart from how many times the expert has testified in this court. Remember that pension expertise is a very specialized area and a person is not qualified merely because that person has a financial background.

While the level of an expert's expertise can vary substantially, there are some standards of training that all attorneys should be familiar with in examining experts: "QPA" means qualified plan administrator, and "QPC" means qualified pension consultant. Both designations are awarded by the Society of Pension Actuaries.

The pension industry itself recognizes the actuary as the most qualified to render present value opinions. Typical actuarial designations include "FSA," fellow of the Society of Actuaries; "ASA," associate, Society of Actuaries; "MSPA," member, Society of Pension Actuaries; "FSPA," fellow, Society of Pension Actuaries; "EA," enrolled actuary, licensed by Congress in ERISA;(1) "FCA," fellow of the Conference of Actuaries; and "MAAA," member of the American Academy of Actuaries.

A good rule of thumb is to carefully scrutinize the expert about the present value calculation. Consider asking the expert to justify in detail why that person used certain assumptions and how the present value result was obtained. The answer should support the present value methodology used.

Be careful about generalizations, particularly as to why a particular table was selected in rendering a present value opinion. The attorney should be cautious when the expert replies that the table is applicable because it is widely used by the government. This is an inappropriate response to the question. Every table has an intended use. The selection of appropriate assumptions is the subject of advanced actuarial work. This is why Congress licensed actuaries and limited the selection of assumptions to actuaries that are licensed under ERISA.(2) Therefore, a true expert should be able to bore the court with voluminous details of why that particular table was selected.

Testimony Confused by Terminology

The attorney should be familiar with appropriate use of valuation terminology. Courts are generally interested in a "fair market value." Many experts claim that the present value of a retirement plan interest is its fair market value, but this is untrue. All retirement plans contain a nonassignment clause preventing the assignment or alienation of the benefit.(3) As such, retirement plans cannot be sold or traded; therefore, they never have a fair market value!

Another source of confusion is to equate the term cash value with present value. When a perk has a cash value, it generally can be traded in an open market. Existence of a cash value implies an employee's right to demand a lump sum payment upon termination of employment equal to the monetary value. That entitlement generally exists with a 401(k) plan, but certainly does not exist in most other retirement plans.

A claim may be made that the present value represents the benefit worth. What a benefit may be worth, however, depends upon the perspective from which the present value is determined. The benefit may be worth an entirely different amount to an employer that...