So I have a defined benefit pension. It’s not enough to retire on by any means, but it’s decent and I appreciate how fortunate I am to have it.
My question is this: if I die before age 65 which is when I can start drawing,what happens to the money? Does my spouse get it or a portion of it or does it all just go back into the pension fund and my spouse is SOL?
Your spouse is the default beneficiary of a traditional pension plan (per ERISA regs) unless your spouse has waived his rights and had the waiver notarized/signed by an authorized plan representative. The default benefit is at least 50% of your accrued benefit, though some plans may offer other payment options. You don’t get to exclude your DH – he has to affirmatively waive his rights.
I’m pretty sure the answer is, “it depends”: on the details of the specific plan, that is. So I recommend you ask someone with your employer’s HR department.
Actuary spouse agrees with @CountingDown
@“Iron Maiden” the answer is…it depends on your defined pension plan.
I have a defined pension plan through a state teachers retirement plan. I had to make a decision about this when I began to collect my pension. My choices were…
We elected to do the 1/2 for my spouse if I die first.
I think you need to contact whomever administers your defined benefit plan. @CountingDown is correct in that you can’t exclude you spouse without their permission and signature. But it can be done.
So…contact your account admins and ask what the options are…and how you can elect them.
@CountingDown is right. You don’t lose money in a DB plan, and your spouse is default beneficiary unless that has been waived with a notarized statement.
I’ll tell this sad story from my days as a pension administrator: employee retired to care for her seriously ill DH. He waived his rights so she would have a larger benefit, because he didn’t expect to be around long. He waived, she took a single life annuity, and she died a month later. He got nothing. This was someone who worked for decades as an aide at a nursing home. I talked to the EE, the HR rep talked to her, but the couple was adamant about waiving the spousal benefit.
That said, in some plans, if the spousal beneficiary passes first (and before benefit payouts have started), the plan may restore the full benefit to the employee. That is definitely a “check with your plan admin” question.
Plan participants should get forms and disclosure materials before retirement. Review them carefully, talk to your accountant/atty/financial advisor, and if your company has a pension administrator, go to that person with questions. You should have also received a Summary Plan Description which lays out plan provisions in (allegedly) plain language. Manyl empoyers (esp small companies) farm out pension/401k plan administration to third party providers. Most HR reps are not dealing with the nitty-gritty of plan administration and regulations on a regular basis.
Both me and my husband have exactly the same pension benefit, from the same company. Everyone we’ve talked to has advised that unless someone is seriously ill, that we each take our full benefit individually, and waive the spousal benefit. Seems like a good idea if the numbers work out.
Thanks all for the replies. A couple clarifications:
In my plan, my wife would still be the beneficiary so if I passed away before I hit 65 then she would still have the option to claim the benefits. You should contact your HR and get your plan documentation because that should be spelled out in your plan.
@“Iron Maiden” , I looked at H’s pension and it’s managed by fidelity. All documents are on line. As far as the recipient passing away before they collect their pension. Fidelity says that depends on your particular pension.
Here’s what my H’s says
If you die before retirement, are vested, and within 180 days of Early Retirement Age, your spouse, or named beneficiary if not married, will receive Retirement Income for life as if you had retired with Option (a) coverage. Payments will be calculated as if you had attained the later of age 55 or your current age on the date of your death and will begin as of the first of the month following the date of death.
I am so glad you posted this. We are usually very careful about this but I just checked beneficiary’s and although I am listed in his savings plan and all insurances, there was not a beneficiary listed on the pension! I have no idea how that occurred as H thought he changed everything over 30 years ago when we married.
So check your beneficiaries!
@CountingDown , my wife started collecting a small pension last year. I advised her to maximize her monthly benefit by waiving any spousal/survivor benefit. I told her if she dies before I do, then I won’t want her stinkin’ pension anyway! (It’s nice to get a little extra in the bank every month, but wouldn’t change my lifestyle if she weren’t around)
My pension from a previous employer would pay for about a week’s worth of groceries. If they will let me cash it out in a lump sum, I will do that. Otherwise, I’ll get DH to waive the survivor provision just because it’ll be one less thing to worry about.
@IronMaiden, If you pass before you begin receiving pension benefits, your spouse is eligible for a Pre-Retirement Survivor Annuity. The PRSA is typically 50% of your benefit with adjustments for actuarial equivalents. Check with your plan document, because an employer can offer a more generous benefit (i.e., 75% or 100%, though those will have a bigger actuarial adjustment), but they can’t offer less than 50%.
This was mandated under the Retirement Equity Act of 1984 and is a personal favorite of mine, because my grandmother received ZERO pension benefits after my grandfather died at age 62, but before he retired, with 30 years of pension service at a major corporation. REA went into effect a couple years after he passed away.
NOTE: This stuff refers to traditional pension (defined benefit) plans. 401k plans are different – not many of those offer an annuity option. In a 401k, your spouse is the default beneficiary, and he/she can take the entire amount as a lump sum or roll it to an IRA. Spouses still have to provide written consent to a different beneficiary being named.
I think it’s really important to check with the HR of the company which provides the pension.
I know some folks who were working and who died. Their surviving children didn’t get any pension though both sets of parents were lifelong government employees.
Our friend is a professor. His attorney son convinced him to retire and become an emeritus prof so his wife would get pension benefits if he were to die.
I think different pensions have different benefits and it can be significantly less if employee is still working vs retired. The pension laws and terms have changed over the years as well.
My H’s pension—it’s essential that nonemployee spouse get at least 5% survivor pension benefit or non employee can’t get health insurance benefit when employee retires.
^^ I think you mean 50%, not 5%!
No, its 5%—as long as survivor gets at least 5% survivor annuity, they can get health insurance from retired employee as a benefit. I’ve read the fed rules extensively before H retired from 45 years working for the fed govt.
Typically, children do not get survivor benefits from a pension unless the plan allows some very specific options beyond the scope of this conversation. Our sons will not get anything from DH’s pension. They could from the 401k if there is anything left by the time DH and I are gone.
There have been cases where the person died while working for the fed govt and the surviving spouse got a miniscule fraction of what the person would have gotten as a pension if the person had retired instead of dying while still actively working (the survivor benefit). The survivor just got a one-time small payment, no monthly or annual annuity.
The only lump sum option for the FERS pension is in this scenario: https://ask.fedweek.com/federal-retirement/lump-sum/
CSRS may be different, but most CSRS participants have retired by now (FERS replaced CSRS in 1984).
Pre-retirement survivor benefits are pretty small because of the adjustments made to make the benefit actuarially equivalent based on the age of the survivor.
I found this very sad article about pensions and not naming your beneficiary https://www.usatoday.com/story/news/nation/2019/02/16/new-mexico-widow-denied-husbands-pension-due-to-missing-form/2891513002/
Makes me sad and angry.