First and foremost, for those who do not have a grasp on the definition of a pension plan, please read the following.
A pension plan is a way of saving for retirement in which an employee transfers part of his or her current salary toward retirement income. The two main types of pension plans are defined-benefit plans and defined-contribution plans. In the defined-benefit plan, the employer gives a guarantee that their employee will receive a defined amount of income upon retirement, regardless of how the investments perform. In a defined-contribution plan the employer makes a set contribution for the employee, but the salary taken at retirement is determined on the investment's performance.
Now that we have covered what the definition of a pension plan is, lets get back to the topic at hand.
What happens when a pension plan participant dies?
When a participant in a retirement pension plan dies, the amount of income the participant would have been entitled to are usually paid to the participant’s beneficiary in a manner that is provided by the terms of the plan. Typically this is done by giving the survivor either a lump sum, or their own annuity stream of income.
ERISA, the Employee Retirement Income Security Act of 1974, protects surviving beneficiaries of deceased retirement savers who had earned a vested pension type of benefit before their death. The factors that are taken into consideration depend on the type of the deceased's retirement plan and whether the participant dies before or after the benefit has started to pay out. The retirement plan description will typically tell you the type of plan involved and whether beneficiary pensions or lump sum death benefits are provided under the plan.
What should I do if my spouse dies?
When a pension plan participant dies, the surviving beneficiary should contact the deceased's employer or the retirement plan administrator to file a claim for any available benefits. The plan administrator will most likely request a copy of the death certificate. Depending upon the type of pension plan, and whether the participant died before or after beginning to take income, the retirement plan admin will notify the surviving spouse as to:
the amount of the benefit and how it will be paid out (lump sum or installment payments under an annuity); whether or not the death benefit may be rolled over into another retirement plan; and if this type of rollover is possible, the protocol in which the rollover must be made.
