Property Division: Pension Survivor Benefits

By Staff Writer

If you are entitled to share in your spouse’s pension or defined benefit retirement plan, it is crucial that you be fully apprized of your rights under the plan. Oftentimes in divorce, parties will simply agree to divide the pension benefit. Agreements are all too often silent on other matters relating to the pension benefits, such as what will happen to the non-participant spouse’s share of the pension benefits in the event of the death of the other party.

Unlike defined contribution plans, such as 401(k) and IRA accounts, pension and defined benefit plans cannot generally be paid immediately to the non-participant spouse. Rather, the non-participant must usually wait until some later point in time to begin receiving his or her portion of the plan benefits, such as the retirement of the other party. If the participant spouse dies before this date, and the agreement is silent as to what will happen to the other party’s agreed upon share of the pension benefits, the non-participant who was counting on receiving a portion of the pension benefits upon the other party’s retirement could either lose his share of the pension benefits. Similarly, even if pension benefits are being paid at the time of the participant spouse’s death, the payments being made to the non-participant party will immediately cease unless this contingency is addressed in the terms of your agreement and order.

Prior to entering into an agreement or settlement regarding the division of your spouse’s defined benefit plan, you must carefully review the plan documents and build protections into the agreement to preserve your share of the benefits in the event of your spouse’s death. Known as "survivor benefits", if elected, the plan will be required to pay the agreed upon portion of the pension benefits to the non-participant if the other spouse dies.

Survivor benefits are usually not "free". When elected, the amount of the pension benefit will be effected. For example, assume that the total monthly pension payment is $1,000.00 and that the parties have agreed to equally divide the payment. Under this scenario, each party would receive a monthly payment of $500.00 for his or her share of the pension benefit. If, however, the plan charges a $100.00 per payment fee for providing a survivor benefit, the total monthly pension payment which will be remitted to the parties will be reduced to $900.00.

If the agreement and order are silent as to who will bear responsibility for the cost of the survivor benefit, plans will usually equally apportion the cost between the parties. As such, under the example set forth above, each parties’ monthly benefit would be $450.00. Parties can, however, agree that the costs of the survivor benefit will be apportioned in a different manner. If one party is assuming the total cost of the survivor benefit, only his or her share of the pension benefits will be reduced. Under our example, that party would receive $400.00 per month while the other would receive monthly benefits of $500.00. So that the plan administrator is apprized on how to pay the cost of the survivor benefit, and your rights are protected, your agreement should provide how the cost will be apportioned.