Pensions may come with an unexpected provision: spousal or beneficiary benefits. What are these and how do they work?
Quick takeaways
- A pension, often called a defined benefit plan, typically has spousal benefits.
- Spousal benefits can be paid after the death of the person receiving the pension, sometimes called the participant.
- Pension spousal benefits are typically a percentage of the participant’s full pension benefit.
When it comes to financial planning, most people aren’t just thinking through what they need for themselves. They’re also figuring out how best to help loved ones, including spouses, prepare for the future. Financial planning updates might include keeping beneficiary information current and completing an estate plan. And, if you're receiving a pension (often called a defined benefit plan) through your workplace, that financial planning plan should also include understanding its potential spousal benefits. Here are some insights.
A pension is a benefit provided by some employers. After an employee vests in the pension plan, the pension is intended to provide lifetime retirement income to the person (the participant) who earns the benefit.
You may be familiar with spousal benefits as part of Social Security. In some situations, current and former spouses may be entitled to a portion of a partner’s benefit. Something similar may apply to a pension: A spouse may receive benefits, too.
Yes they can. Most pension plans extend a benefit to spouses after the death of the participant. The spousal benefit may begin regardless if the participant has begun receiving their pension.
The spousal benefit amount and when it can begin are unique to each plan and dependent on the election made at retirement. The amount the spouse may receive is based on a percentage of the original participant’s benefit. Most benefits are paid as a lifetime income to the spouse, but some plans may offer a lump sum option.
Your summary plan description outlines all benefits available to you and your spouse from your pension. Additionally, when someone becomes eligible to receive a pension or spousal benefit, they’ll receive a notification summarizing the options available.
Every plan requires some paperwork and a copy of a death certificate. The pension plan may also ask the surviving spouse to choose how they want to receive the benefit (again, it’s usually as monthly payments or a lump sum). In some cases, the amount received will be taxed.
Yes, but your spouse must waive this option in writing.
A divorcing spouse may be entitled to benefits. It will depend on your pension plan, the length of your marriage, the details of your divorce settlement, and other factors. Your human resources administrator may be able to help with details.
Sometimes yes, if your plan allows it. In this case, they may be referred to as “beneficiary benefits.” The beneficiary may be children, other family members, or your estate. If an option, these payments may be made as a lump sum, in installments, or as a continuation of the deceased person’s payments. Your summary plan description will have more details.
If you have a pension with Principal, you can view and update your beneficiaries and find more information by logging in. On the left menu, click the box listing the pension/defined benefit plan.
