What are Pension Survivor Benefits and why are they important in divorce?

---

Hoffman & Van Clief LLP

QDROs | Valuations | Equity Compensation

What are Pension Survivor Benefits and why are they important in divorce?

by: Alex Hoffman and Elizabeth Van Clief

We have seen a recent increase in inquiries relating to survivor benefits! Many divorcing spouses are unaware of what a pension survivor benefit is, and why survivor benefits might be important to securing their marital interest in pension payments after divorce.

The term “survivor benefit” refers to a payment that a pension plan makes to a beneficiary on a monthly basis after the death of the employee. When an employee retires, he or she applies to the pension plan for benefits that are calculated only over the employee’s lifetime. Those payments are called “lifetime pension payments” and they are calculated by an actuary to stop at the employee’s death. Therefore, if a survivor benefit is not elected, all pension benefits would stop.

However, pension plans in the United States (whether sponsored privately and governed by ERISA or sponsored by a government agency) are required to offer a survivor benefit to the spouse of the employee equal to at least 50% of the monthly pension so that if the employee dies before the spouse, the spouse will continue to receive 50% of the monthly pension benefit over the spouse’s lifetime. (See ERISA section 205.) Payments then stop when both the employee and the spouse have died.

In fact, pension plans are required by default to provide a survivor benefit unless the spouses waive the survivor benefit at retirement. Such a waiver requires that both the employee and the spouse sign an acknowledgment of entitlement to the survivor benefit and nevertheless state the spouses agree to waive the survivor benefit.  

When an employee divorces before or after retirement, the spouse becomes the “former spouse” and the survivor benefit is less secure. Almost all plans provide for a survivor benefit to a “former spouse” in the same manner as to a spouse, provided that the required elections are made at divorce, in the QDRO (pension division order), and at retirement. (See ERISA section 206(d)(3)(F).)

If a survivor benefit is not elected for a former spouse, and the employee dies, the former spouse would receive zero monthly benefits after the employee dies. Arguably, without a survivor benefit the former spouse is divested of their marital interest in the pension because all payments cease upon the death of the employee. The issue of whether to award a survivor benefit in a pension plan can be agreed upon in a Settlement Agreement or ordered by the court at trial. Clients in divorce proceedings may want to specifically negotiate for a waiver of survivor benefits to save on the cost, or argue for an award of survivor benefits to secure the marital interest after the death of the employee.

Below is a quick reference guide regarding a few different survivor benefits:

If you have any questions related to pension survivor benefits, please feel free to contact our Firm.

---

If you have any questions about the course, please feel free to call our office at

720-800-8418 or e-mail alex@hvclaw.com and we will be happy to assist!