Survivor Benefits Should be Considered

ERISA-governed defined benefit plans generally carry two types of survivor benefits. One, known as a Qualified Preretirement Survivor Annuity (QPSA), is a survivor annuity that begins of the worker spouse dies before retirement, and the other, a Qualified Joint and Survivor Annuity (QJSA), is one that is based on the worker’s election at retirement.

A QPSA is a must in most QDRO. It is the only way to secure the alternate payee’s benefits if the worker spouse dies before he or she begins collecting a pension. Even in QDROs that use the separate interest approach (those which adjust the alternate payee’s benefits to his or her life expectancy), the alternate payee can forfeit his or her rights if the worker spouse died before the alternate payee commences benefits.

Vague language in the QDRO covering the QPSA invites rejection by the plan administrator. The QDRO must stipulate the extent to which the alternate payee is to receive preretirement survivor benefits, that is, how much of a QPSA is the alternate payee to receive. The QDRO language can provide the alternate payee with a preretirement annuity "to the extent of his or her assigned interest"; then any remaining benefits become payable to the participant’s subsequent surviving spouse. Going farther, the QDRO can provide the alternate payee with all the QPSA benefits if the participant has not remarried on the date of his death and then limit the alternate payee’s QPSA benefits to the extend of his or her assigned interest if the participant has remarried.

QPSA benefits are usually based on the 50 percent joint and survivor annuity. This means that the plan pays benefits based on the amount that the worker would have received had he or she retired on the day before his or her death and in the form of a joint and survivor annuity.

Normally, a QPSA benefit does not reduce the participant’s benefits. As such is considered a "free," or what is termed a "fully subsidized" benefit.

Married couples frequently opt for survivorship in pension benefits because the nonworking spouse needs income after the death of the working partner. This routine is particularly common when the working partner is the man who generally dies before his wife. Survivorship benefits, however, generally reduce the amount paid monthly.

Federal law mandates that most private pension plans, which are covered by ERISA, must provide for automatic survivor benefits for retirees and vested participants who are still working. ERISA requires that a married participant must elect the 50 percent joint and survivor annuity QJSA automatically. The worker participant can only elect an alternative form of benefit with the written and notarized consent of his or her spouse. An employee’s spouse may only waive the joint and survivor annuity in writing, and a similar provision applies to federal civil service employees in both government plans.

Under the 50 percent joint and survivor annuity, the worker receives a reduced benefit during his or her lifetime, and after he or she dies, his or her survivor receives 50 percent of the benefit his or her partner received in life. Some plans offer other survivor benefits options, such as 100 percent and 75 percent joint and survivor benefits.

A former spouse may have the same rights as a surviving spouse when they are mandated in a QDRO, which distributes retirement benefits, but without proper postretirement language in the QDRO, the alternate payee can forfeit all rights to benefits upon the death of the participant.

In general, a spouse cannot waive her rights to an ERISA-qualified pension in a prenuptial agreement. (ERISA explicitly requires that a spouse waive rights to a qualified joint and survivor annuity and a qualified preretirement annuity by way of written and notarized statement witnessed by the retirement plan’s representative. These provisions and others are designed to prevent the employee spouse from unilaterally cutting off a spouse from benefits rightful hers.) Moreover, both federal and state courts are divided about whether a spouse can waive ERISA-qualified pension rights in a property settlement agreement.

Authored By: Theodore K. Long, Jr., President, Pension Appraisers Online, Inc.

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