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In a published case of first impression, the Pennsylvania Superior Court has ruled that in equitable distribution cases, the employee-spouse’s pension should be calculated using his or her estimated retirement age rather than the age at which the pension plan is vested. The majority in DeMarco v. DeMarco, led by Superior Court Judge Joan Orie Melvin, set out a nine-factor test for trial courts to use when projecting a retirement date, including the average retirement age in the company or industry, the likelihood that additional pension benefits will be offered as an early-retirement incentive, and the employee-spouse’s inclination to continue working. The parties, Frank and Barbara DeMarco, were married for 12 years. They separated in 1982. Frank worked as a Pittsburgh police officer throughout the marriage. As part of the equitable distribution hearing, the Allegheny County Court of Common Pleas found that, on the basis of a projected retirement age of 55 in 2002, Frank’s pension from the police department would be $104,455. Barbara filed a motion for reconsideration, arguing that the court should have used the first date of the month Frank turned 50 — the date his plan vested — as the date on which he was first eligible to receive full pension benefits. The court granted the motion for reconsideration and later amended its ruling to find that Frank’s pension should be valued at $153,903, using the date Barbara suggested for its calculation. Frank appealed. Frank argued to the Superior Court that the trial court’s calculation was wrong because he worked beyond age 50. At the time of trial, Orie Melvin said, Frank was 52 and still working. Frank said the trial court should have valued his pension as though he would retire at the average retirement age of 65. “[Frank] maintains that the trial court interfered with his right to choose where and for how long he works when the court fixed the value of his pension as if he had retired at age 50, which was when he was first eligible for full retirement benefits,” Orie Melvin said. Barbara countered that the longer Frank works, the less his pension is worth. She said he was “dissipating this marital asset with his continued employment.” Before getting to the meat of the legal question presented to the court, Orie Melvin delved into the nature of pension benefits. She explained that the benefits are “intangible property because they represent a contractual right to future benefits payable upon retirement.” There are generally two types of pension plans, Orie Melvin said: the defined contribution plan and the defined benefit plan. In the first instance, the employer promises a certain contribution, and individual accounts specify both the employee’s and the employer’s contributions. With a defined benefit plan, such as Frank’s plan, the employer pays a specified benefit at retirement. The employer’s contribution varies from year to year. As the Superior Court has said in previous cases, Orie Melvin said, the defined benefit plan presents valuation problems because there is no individual account statement that gives the parties the value of the plan at regular intervals. The present value of a defined benefit plan is determined actuarially, discounting for mortality, interest and the probability that the employee will remain with the employer until retirement age. Barbara presented expert testimony from a pension evaluator who said that Frank’s pension would be almost $50,000 less if he retired at age 55 rather than age 50. As Orie Melvin said, the expert reasoned that the later in life Frank retired, the fewer the number of checks he would potentially receive before his death. Orie Melvin said the trial court acknowledged that it chose the retirement age of 50 arbitrarily to maximize the value of the pension. “By increasing the purported ‘value’ of [Frank's] pension, the court inflated the total value of the marital estate,” Orie Melvin said. “The effect this valuation had on the ultimate distribution of the estate is that [Barbara] received a greater share.” But, Orie Melvin said, the trial court’s actions ignored the fact that Frank is still employed as a police officer. “The critical question which effects [sic] both equitable distribution and alimony is what present cash value should be assigned to [Frank's] pension. By not first determining a retirement date as a reference point, any further valuation placed on this asset is speculative,” Orie Melvin said. “As noted above, at the time of trial, [Frank] was 52 years old, two years beyond the reference point selected by the trial court, and [Frank] had yet to retire. This alone raises a question about the soundness of the trial court’s valuation method.” Orie Melvin said there was little case law on the issue other than an Allegheny County Common Pleas Court case cited by Frank that provided some guidance, Bucci v. Bucci, from 1985. The Bucci court also was faced with the problem of evaluating future pension payments when the spouse continued to work at the time of trial. The court settled on a projected retirement age of 65, in part because that is the usual retirement age and the husband testified that he would most likely work until that age. The Superior Court affirmed the decision in an unpublished opinion. Orie Melvin said the Superior Court in DeMarco found the Bucci case helpful. “By its express terms , Bucci does not mandate the use of age 65 in all cases struggling with the valuation of a pension plan, but it does raise a potential framework for how to arrive at a valuation reference point to use when a court is attempting to make a present distribution of a future asset,” Orie Melvin said. “At the least, the trial court recognized a factual determination of a reference point of [the] husband’s future retirement date must be made.” There was nothing in the record to support the trial court’s arbitrary selection of 50 as Frank’s retirement age, Orie Melvin concluded, so she remanded the case for the creation of a record of some other way to determine his future retirement date. In the event that Frank were to testify he had no intention of retiring, the court set out these nine factors for the trial court to consider: 1. Statistical data on the average retirement age in the company or industry. 2. The employee-spouse’s age. 3. The employee-spouse’s health. 4. The nature of the work. 5. The incentives to continue to work. 6. Employment opportunities elsewhere. 7. Present and future financial circumstances. 8. Mental disposition toward continued working. 9. Probability of an offer of added pension benefits as an early-retirement incentive. Orie Melvin also said the trial court’s apparent impression that the pension would be reduced with each year Frank continued to work was wrong. “As a defined benefit plan, the martial component is fixed at $869.58, regardless of the date of retirement,” Orie Melvin said. DISSENT Superior Court Judge John T.J. Kelly Jr. dissented, arguing a trial judge’s freedom of discretion in equitable distribution matters. Kelly said any estimate of Frank’s retirement date would be arbitrary. Kelly also argued that the majority did not offer any precedent for its conclusion that a trial judge should first estimate the actual retirement age of the employee-spouse before the court may value the pension. The cases the majority did cite, he said, did not support the use of that method in all cases. “While the majority’s procedure for valuing a pension plan may work for some cases, it should not be made mandatory for all cases,” Kelly said. “Such a rigid rule overrides the discretion afforded by trial judges and devitalizes their equitable powers when distributing the assets of a marital estate. “Moreover, application of the majority’s rule to the instant case needlessly disturbs an otherwise fair and equitable distribution of the parties’ assets.” Daniel L. Goodyear of Sciullo & Goodyear in Pittsburgh represented Frank. Pittsburgh attorney Alisa N. Carr represented Barbara.

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