By David Brandolph
In this, the third part of our April financial literacy month series, we answer one more of the top five questions that the Pension Rights Center commonly gets from people looking for a comfortable retirement. Part I of the series can be found here; Part II here. Unless stated otherwise, answers relate to company or union sponsored private-sector retirement plans. We believe that being financially literate about your retirement plan is likely to pay off for your future.
When workers who participate in a defined benefit pension plan retire, they typically receive a guaranteed annuity payment every month for life. Usually, the amount of their ultimate monthly payment continues to grow the longer they work for their employer (or, if the plan is provided jointly by a union and a group of employers, for the employers that have signed on to the retirement plan). Please note that the rules for 401(k)-type defined contribution plans are different and aren’t part of this discussion.
Surviving spouses of plan participants are entitled to a plan survivor benefit that is paid to them every month for the rest of their lives after their participant spouse dies.
By providing monthly income for life both to the participant and to their surviving spouse, defined benefit plans ensure that neither the participant nor the spouse will outlive their plan retirement income.
Federal law also states that the surviving spouse of a deceased plan participant must receive at least half of what the member was receiving every month. Unlike in defined contribution plans, there is no risk of a defined benefit plan participant spending the entire retirement benefit and failing to leave behind a survivor benefit for their spouse.
The only exception is if a spouse signs a form giving up his or her right to receive lifetime monthly payments. The spouse must either have this form notarized or sign the form in the presence of retirement plan staff.
Why might a spouse give up the right to a monthly survivor benefit payment if nobody else other than the spouse can receive it? First, plans typically reduce the amount that the participant receives in retirement to pay for the monthly survivor benefit. Couples may decide that it makes more financial sense to give up the survivor benefit to receive higher payments up front. This may make sense if the spouse is significantly older than the participant or is seriously ill and unlikely to outlive the member. It may also make sense if the spouse has another source of significant retirement income.
A spouse must also provide written consent if the participant wishes to take the benefit as a one-time lump sum payment. Not all defined benefit plans will allow a participant to take a lump sum benefit payment, but some do. For more information on taking a lump sum versus monthly payments for life, see Part II of this series and our fact sheet.
A plan participant cannot take any actions that would reduce their spouse’s future survivor benefit without the spouse’s consent. It is not uncommon, however, for spouses to give up the survivor benefit and later regret this decision. There have been cases in which a spouse has signed a form waiving the survivor benefit by accident or without fully understanding what the form meant. For instance, there have been cases in which spouses did not speak English but were told to sign documents giving up their survivor benefits that were written in English only.
In some cases, participants have committed fraud to try to eliminate the survivor benefit without their spouse’s consent. This includes forging signatures or even having someone pose as the spouse at signing time, and it is more likely to happen in relationships where there is abuse or the couple is estranged. However, we are also aware of cases in which a well-intended plan participant forged a spouse’s signature on retirement paperwork, didn’t read the paperwork closely enough, and accidentally gave up the spouse’s survivor benefit. Even though there are notarization requirements to prevent fraud and forgery, mistakes still get made.
We recommend that participants and spouses fill out any retirement paperwork together to make sure that accidents don’t happen. Spouses also have the right to request documents and information from the retirement plan. This means that spouses can contact the retirement plan to ask whether the survivor benefit has been waived and can seek copies of any forms relating to the survivor benefit that the plan may have on file (though the plan may require you to make this request in writing). It is best to do this while the participant is alive so you can correct any problems before it is too late. If the survivor benefit has been waived and the participant dies, the plan is legally considered to have paid out the entire benefit and has no legal requirement to pay anything to the surviving spouse.
If you don’t think you gave up your survivor benefit, but the plan later says you did, you can ask the person running the plan, known as the plan administrator, to provide you with the paperwork your spouse filled out when he or she retired and the form that the plan says you signed giving up the survivor benefit. If the signature on the form does not look as if it is yours, you should contact a pension counseling project or, if there is no project in your area, contact the Pension Rights Center or the U.S. Department of Labor’s Employee Benefits Security Administration.
If you or your spouse worked for a state, city, or county government, you may find that the pension plan rules say that retirees do not have to get the consent of their spouse to give up survivor benefit protections. This allows the retirees to receive higher benefits during their lifetimes. But the benefits stop when they die.
For state and local government employees these rules vary from state to state. You can read our fact sheet on spousal consent in state retirement plans here.