What Are the Consequences of Defining the Present Value as the Cost of a Replacement Annuity?
Clearly, if the present value of a pension equals the cost of a comparable annuity, the pension evaluator must either obtain exact marketplace quotes for that replacement annuity or employ the same methodology used by insurance actuaries in pricing annuities. The court may choose any present value that hovers in that range of possible values, from sickly insurers to those with robust financial health, but it typically leans toward those with higher safety ratings. Weaker insurance companies that have invested in troubled real estate and bonds offer higher interest rates and lower costs for their annuities than insurers that have eschewed those shaky investments.
