For many people who have worked at companies for at least a decade, their pension is their most valuable asset. Unlike other assets like your house and car, which become part of your estate upon your death. Instead, your pension remains separate from your estate and is payable on death to the designated beneficiary named in the plan.
Jump ahead to these sections:
- Who Typically Gets the Pension After a Loved One Dies?
- What Happens to a Private Pension After a Death?
- What Happens to a Military or Government Pension After a Death?
- How to Claim a Pension After a Loved One Dies
- How to Cancel a Pension After a Loved One Dies
Pension plans vary from employer to employer and from plan to plan. Depending on the type of plan you have, who receives your pension benefits when you die may be limited. Some plan benefits terminate upon your death. Others may be payable to your surviving spouse or dependent child. It is important to understand the type of plan you have and the specific terms of your plan to know what will happen to your plan when you die. Below, we discuss some of the options.
Who Typically Gets the Pension After a Loved One Dies?
Who can get your pension benefits when you die can depend on a range of factors, including:
- The type of plan you have
- Your marital status
- Your age
- Length of employment
- Salary history
- Whether you have already retired
- Whether you have started receiving benefits
There are two common types of pension plans: a “defined benefit” plan and a “defined contribution” plan. In a defined benefit plan, a retired employee receives a set amount based on the length of their employment and their salary history. In a defined contribution plan, there are usually restrictions placed on how and when the employee may receive benefits after they retire.
Each plan is different, but if the employee dies after they retire, a typical pension plan can pay benefits to the employee’s spouse, a dependent child, or any other qualified beneficiary as defined by the plan.
Can a spouse collect payments?
Under a federal law called the Employment Retirement Income Security Act of 1974 (ERISA), when an employee dies and is vested in a pension plan, the surviving spouse may inherit the remaining pension benefits depending on the terms of the plan. The factors listed above will determine the surviving spouse’s eligibility for each plan.
Can an ex-spouse collect payments?
It is possible for an ex-spouse to collect a deceased employee’s pension benefits. Some plans (such as a military pension plan) may allow the employee to name their ex-spouse as a beneficiary if they were married when the employee enrolled in the plan.
A typical private pension plan normally prohibits you from naming an ex-spouse when you enroll in a plan. However, it is possible for an ex-spouse to receive benefits. This can happen when an employee is married and names their spouse as the beneficiary of their plan but then divorces and never updates the beneficiary designation in their plan after their divorce and before they die.
Remember that your pension is not part of your probate estate and is not subject to the rules governing wills. In many states, when you divorce, your spouse is automatically removed as a beneficiary named in your will because of a concept called “revocation by operation of law.” But this concept does not apply to pensions.
Your pension is governed by the terms of the plan, and benefits will be paid to the person designated in the plan to receive benefits. If you fail to change the beneficiary after a divorce, your ex-spouse may inherit your pension benefits.
Is a child entitled?
Yes, a dependent child is eligible to receive a deceased retiree’s pension benefits. However, each plan defines who qualifies as an eligible beneficiary. You should check the terms of the specific plan to determine under what circumstances a dependent child may receive benefits.
Who else may receive pension payments?
Under a typical plan, only the employee may receive pension benefits. Upon the employee’s death, typical plans protect the deceased employee’s spouse or possibly a dependent child. Sometimes the dependent child may only be eligible if the surviving spouse is deceased or is otherwise ineligible to receive benefits.
Each plan will define who qualifies as an eligible beneficiary. Some plans may include persons other than a spouse or dependent child but who are nevertheless dependent upon the income of the employee spouse, such as a business partner.
What Happens to a Private Pension After a Death?
Whether a surviving spouse receives a deceased spouse’s pension benefits depends largely on the type of plan. Defined contribution plans depend on the age of the employee spouse when they die and whether they have already received benefits. There are generally three options:
Single annuity plan
If the employee’s benefits after retirement are paid under a “single annuity” plan, payments typically stop when the employee dies. Under a single annuity plan, the surviving spouse will not receive any benefits upon the death of the employee spouse.
Guaranteed annuity plan
If an employee opted for an annuity that guarantees payments for a set period of time (usually 5 or 10 years) after retirement and the employee spouse dies before the end of that time, the surviving spouse can continue to receive the deceased’s benefits for the time remaining under the guaranteed terms of the plan.
In the event that the employee died before age 75, a surviving spouse will receive their guaranteed payments tax-free. However, if the employee spouse died after age 75, then the surviving spouse will pay income tax on any remaining benefits they receive.
Joint life annuity plan
Under a joint life annuity plan, when the employee spouse receiving benefits dies, the surviving spouse will continue to receive payments, tax-free until they die (unless the employee spouse died after age 75, in which case the payments will be taxed as income).
The amount the surviving spouse receives may be reduced from what the employee spouse was receiving, but the surviving spouse of a joint annuity is entitled to the payment of benefits for the remainder of their life. This is typically the case, unless the surviving spouse expressly waived those rights before the employee spouse died.
For defined benefit plans, a surviving spouse’s benefits will depend on whether the employee spouse retired before they died.
Death before retirement
If the employee spouse dies before they retire, the plan will pay out a lump sum, tax-free, based on a multiple of the employee’s salary. It also may pay out a survivor’s benefit to the spouse or dependent child, but these benefits will be taxed as income.
Death after retirement
If the employee spouse dies after they retire, the defined benefit plan usually will continue making reduced payments to the surviving spouse.
What Happens to a Military or Government Pension After a Death?
Generally, military pension benefits terminate upon the death of the retired military personnel. However, a retiree may pay premiums to participate in the Survivor Benefit Plan (SBP). Under this plan, a surviving military spouse, dependent child, or another eligible beneficiary may continue to receive a lifetime monthly annuity based on a percentage (as high as 55 percent) of the retired spouse’s military retired pay.
How to Claim a Pension After a Loved One Dies
If you want to claim benefits from a deceased retiree’s pension plan or just determine if you are eligible, there are a few simple steps you can follow.
Step 1: Contact the plan participant’s employer
When a plan participant dies, the surviving spouse should contact the deceased spouse’s employer to identify what plan the employee participated in. The employer should be able to identify the plan so that you may contact the provider, or it may be able to provide you with more detailed information about the plan.
Step 2: Contact the plan administrator
Once you have identified the plan in which your loved one participated, you should contact the plan administrator. Here are the three main things you’ll want to have answered:
- identify the type of plan
- how much is invested in the plan
- what are the payment options under the chosen plan
Step 3: Determine your eligibility
Once you contact the plan administrator and determine that the plan includes available benefits that may be paid, you can determine whether you are eligible to receive payments. Your eligibility will depend on the factors discussed above, but each plan may have more detailed rules for payment eligibility and restrictions. Be sure you qualify for benefits under the plan.
Step 4: Apply for benefits
If you think you are qualified for benefits, you should apply for benefits under the applicable plan. The plan administrator will require a death certificate. Upon your application, the plan administrator will determine what benefits are to be paid and will contact you to set out your payment schedule.
How to Cancel a Pension After a Loved One Dies
To cancel a pension after a loved one dies, the process is about the same as applying for benefits.
Contact the employer and plan administrator
To cancel a pension plan of a deceased loved one, simply contact the employer and the specific plan administrator to report the death of the retiree. You will need to provide certain information to the plan administrator. This can include the following:
- Decedent retiree’s name
- Decedent retiree’s social security number
- Decedent retiree’s date of death
- Your name and contact information
- Death certificate
The plan administrator will confirm your loved one’s death and the status of their pension plan and will close the retiree’s account if appropriate.
A Deceased Loved One’s Pension Benefits Depends on the Plan
Pension plans are complicated, but applying for benefits after a loved one’s death is not. Simply determine the name of the decedent’s plan, contact the plan administrator, and apply. The plan administrator can determine your eligibility and what benefits are entitled to be paid out. Your benefit payment will be determined by the terms of the plan and the options the retiree chose when they joined the plan.