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Retirement Planning

What happens to your pension if you die before you retire?

Protect future payments from your pension plan by ensuring a beneficiary has been named. If no one has been named, the distribution of your pension will be determined by the rules of your plan and/or state.

If you're fortunate enough to work for a company that offers you a pension plan, you can feel good knowing that come retirement, you'll have a steady income to draw from. But what happens to your pension if you die before you retire?

When you initially enroll in your employer's pension plan, you'll be asked to name a beneficiary. The beneficiary is the person who will receive your pension when you die. Much like naming a beneficiary on a life insurance policy, you can name one or more individuals to receive the benefits of your pension.

The importance of naming a beneficiary

If you don't designate a beneficiary or if the original beneficiary has since died and you failed to assign a replacement or don't have a contingent beneficiary, your pension will be distributed according to the rules specified in your pension plan and in some cases, your state of residence. With some plans, that could mean having benefits distributed to a surviving spouse (if you have one), your children (if any), your parents (if still alive), or other next of kin. Therefore, if you want to have a say in who inherits your pension, assigning a beneficiary and regularly reviewing your beneficiary form is important.

The pension payout

How your beneficiary is paid depends on your plan. For example, some plans may pay out a single lump sum, while others will issue payments over a set period of time (such as five or 10 years), or an annuity with monthly lifetime payments. Regardless of how it's distributed, your beneficiary will be required to report the proceeds from your pension as income on his/her taxes.

If you were to die before you retire, your surviving spouse or other named beneficiary must contact your employer or the plan's administrator to make a claim on any available benefits. At that time, the plan administrator will generally request a copy of the death certificate. Depending on the type of plan, your surviving spouse or other named beneficiary will be notified as to:

the amount and form of benefits (in other words, lump sum or installment payments under an annuity);

whether death benefit payments from the plan may be rolled over into another retirement plan; and if a rollover is possible, the method and time period in which the rollover must be made.1

What happens to my pension if I die after retirement?

If you die after you have already started drawing your pension, the amount your beneficiaries receive will be based on how much you have drawn from pension. If there is cash remaining, your beneficiaries may be able to withdraw a lump sum or access regular payments, depending on specifics on your pension contract. 

As a part of your retirement planning, don't forget to make sure you have named a beneficiary to your pension plan. To learn more about pensions and defined benefit plans, visit the Protective Life Learning Center.





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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

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