Valuation of Spouse and Survivor Benefits In a Defined Benefit Retirement Plan

Abstract

A search of the forensic economic literature fails to disclose any discussion of the proper methodology for valuing the loss of survivor benefits in a defined benefit retirement plan when a wrongful death event occurs. A first approximation, which might be used to calculate a widow's loss of retirement benefits resulting from the wrongful death of her spouse, is the retiree's benefit payments minus his personal consumption (or maintenance allowance) minus the widow's survivor benefit, if there is one. Economic analysis reveals that while the actual payment to the retiree includes the spouse's benefit if the retiree does survive, it fails to include the spouse's expected survivor benefit in the event that the retiree does not survive. This omitted benefit is significant and should be included in valuing the spouse's expected benefit from the total retirement plan and the widow's loss. Legal analysis reveals that the widow's benefit is essentially the same as proceeds from privately purchased life insurance, which in common law would be considered a collateral source and protected from disclosure at trial or offset against an award. However, tort reform efforts over the past 30 years have led many states to modify or even repeal the traditional collateral source rules. Therefore, the widow's benefit may or may not be considered in valuing the loss of retirement, depending on the jurisdiction, the cause of death (e.g., medical malpractice), and even the interpretation of the collateral source rules by the trial judge. If it is determined that the collateral source rule excludes introduction of the survivor benefit, a reasonable alternative for the plaintiff would be to claim the loss as the retiree's gross benefit minus his personal consumption weighted by the joint probability of survival.