How we protected a teacher's TRS pension from over-valuation

TRS is Not Easy to Value The Teacher Retirement System in Texas is a fixed-benefit retirement plan. That means the retired teacher receives a certain fixed payment upon retirement no matter how well or how poorly the underlying investments perform. Because it is a fixed-benefit plan, ascertaining the present-day value of the plan is not a simple undertaking. It requires some actuarial assumptions about life-expectancy, the number of years the retiree will receive benefits, a discount rate for the future cost of money, and other inputs.

How to Divide a Fixed-Benefit Retirement Plan Because a fixed-benefit retirement plan has no certain value as of the date of divorce, there are two ways to divide it.

1. Each party can take 50% of the future benefit if, as, and when received. This is the easiest way to divide the plan's benefits, although it does require a specific form of QDRO to be effective.
2. The parties can agree on a value, if they are settling their case, or present competing values to the judge, if the case is going to trial, and then allocate 100% of the TRS value to the teacher and award an equal amount of other benefits to the other spouse. For example, if the parties agree or the court finds that the present day value of the TRS plan is $100,000, the teacher can take 100% of TRS and the other spouse can take $100,000 in other assets (preferably retirement assets).

The Valuation Conflict In this case, the spouses did not want the continued entanglement of dividing the benefits if, as, and when received through a QDRO. Instead, they both agreed the teacher would keep the TRS benefits and the other spouse would get an equal amount of other assets. But what value should they use? That is the essence of the conflict.

How We Protected the Teacher We represented the teacher. The non-teacher valued the TRS benefits substantially higher than the teacher did. The unreasonably high valuation would have created a unfair or unjust allocation of non-TRS assets to the non-teacher spouse. To combat this, we hired an expert pension valuator and worked with the expert to create an expert report for the judge. The expert valued the future benefits far lower than the the teacher's spouse did, which benefitted our client. By presenting well-reasoned, expert-backed valuation to the judge, we were able to protect the teacher's TRS pension and allocate far more community property to the teacher than would have been possible using the other spouse's valuation.