Reporting Date of Death
One form of retirement income is a pension from a prior employer. When the retiree dies, the former employer or the pension plan administrator should be notified immediately. The address and phone number of the pension plan administrator can often be found on the most recent check stub, on the latest tax form (Form 1099-R), or on a wallet-sized card that shows that the spouse is a retiree of that company. If possible, the contact information should be kept with your important documents so that it can be readily accessed during a very difficult time in your life.
Potential Return of Benefits Paid
Like Social Security, there is potential that pension benefits deposited in the deceased spouse’s checking account might need to be returned. For example, if pension benefits are paid at the beginning of each month for that month, and the spouse died at the end of the previous month, the benefits paid would likely need to be returned. Contacting the pension administrator quickly will give you the opportunity to determine amounts that will need to be returned so that the cash is not spent prematurely.
Widow / Widower Benefits
The plan administrator will advise the surviving spouse of any benefits to which the surviving spouse would be entitled. The terms and conditions of the retirement plan will dictate what additional benefits are due the surviving spouse. There are a number of things that will be considered when determining benefits due the surviving spouse.
- Did the retiree make an election to receive all benefits, with none going to the spouse after death? This is an election that some plans offer at the time of retirement. The spouse of the retiree waives all rights to any pension benefits, which permits 100% of the benefits to be paid out during the retiree’s lifetime. This allows a larger payout during the retiree’s lifetime, but means that the surviving spouse has other means of support after the retiree’s death.
- Many plans offer widow/widower benefits to be paid at ½ of the amount being paid to the retiree prior to death. Because this will cause a reduction in cash flow coming to the widow, knowing this amount early will assist the family in determining what adjustments need to be made in other income sources to provide the same standard of living for the widow.
- The plan may provide several options for distributing the widow’s benefits. Sometimes the benefits can be taken as a lump-sum distribution. In most cases, the widow will elect to receive the benefits as an annuity (monthly, quarterly, or annual payments). There are tax considerations, so check with your tax preparer as you make these decisions.
- The plan will likely require a copy of the death certificate to begin processing the widow’s benefits.
Reba Rogers, CPA, is the founder of Secure Aging, a group of care managers who preserve the independence and protect the assets of seniors by helping them with financial management. She is also a Director Consultant for BNI (Business Network International), a referral marketing organization which gives her access to many trusted business professionals in the community.