What Are the Dangers of the Subtraction Method?
There is a critical issue surrounding which methodology to utilize when calculating the marital share of a participant’s pension benefits that accrue under a defined benefit plan. The subtraction method (also known as the present value difference method) occurs when the present value of the pension at the time of the marriage is subtracted from the present value at the time of divorce. At first glance, the logic of the subtraction method is compelling. After careful review, however, the fatal flaws become apparent. Using the subtraction method is not only terribly misleading, but it also contradicts the fundamental design and actuarial funding principles of defined benefit pension plans. Only an H.G. Wells enthusiast cares what the pension was at the time of the marriage. That pension no longer exists. Each succeeding year is like a crossing of the Rubicon: there is no going back as the participant’s pension grows closer and closer to the funding that has been established for it. The f
