defined benefit plan
If say, the husband, who has a defined pension plan dies and there was no survivor benefit option chosen, then at the very least the surviving spouse receives the cash value in the account. I don't see this amount appearing anywhere in a survivor report or anywhere else for that matter. Am I missing something?
For example, a husband has a pension that will pay out 30k per year during retirement as long as he lives. If he dies, much of the pension dies with him if he didn't select a survivor option or if he dies before he begins taking payments. However, he did pay about 90,000 into this pension during his work life, so if he does die before this base amount has been paid out, then the survivor would at least collect that amount (even though the survivor will not ever collect part of the defined benefit per se). So where does the program acknowledge that the pension has possession of some of this family's cash, i.e., the base dollar investment?
Dan Royer
RSS
HI DAN, I REPLY IN CAPS BELOW. BEST, LARRY
If say, the husband, who has a defined pension plan dies and there was no survivor benefit option chosen, then at the very least the surviving spouse receives the cash value in the account. I don't see this amount appearing anywhere in a survivor report or anywhere else for that matter. Am I missing something?
THE HUSBAND'S DEFINED CONTRIBUTION ASSETS ARE ADDED TO THE SURVIVING'S WIFE'S WHEN THE HUSBAND DIES. YOU CAN SEE THIS BY LOOKING AT THE WIFE'S SURVIVOR REPORT.
BUT ARE YOU TALKING ABOUT A 401(K)-TYPE PLAN OR A DEFINED BENEFIT PENSION?
For example, a husband has a pension that will pay out 30k per year during retirement as long as he lives. If he dies, much of the pension dies with him if he didn't select a survivor option or if he dies before he begins taking payments. However, he did pay about 90,000 into this pension during his work life, so if he does die before this base amount has been paid out, then the survivor would at least collect that amount (even though the survivor will not ever collect part of the defined benefit per se). So where does the program acknowledge that the pension has possession of some of this family's cash, i.e., the base dollar investment?
I DON'T FOLLOW THIS. IF THE PENSION HAS NO SURVIVOR BENEFIT, IT HAS NO SURVIVOR BENEFIT. SO IF THE HUSBAND DIES BEFORE RETIREMENT AND HAS SPECIFIED NO SURVIVOR BENEFIT, THERE WILL BE NONE AVAILABLE TO THE WIFE AS FAR AS I AND THE PROGRAM KNOW. BUT IF YOU ARE SAYING THAT YOU HAVE A DB PLAN THAT PROVIDES A SURVIVOR BENEFIT IF THE HUSBAND DIES BEFORE RETIREMENT BUT NONE IF HE DIES AFTER RETIREMENT, YOU ARE REFERENCING SOMETHING THAT OUR PROGRAM CAN'T HANDLE. WHAT THIS IS IS A CONTINGENT SPECIAL RECEIPT WHOSE VALUE DEPENDS ON THE DATE OF DEATH OF THE HUSBAND. WE MAY MODIFY THE PROGRAM AT SOME POINT TO ALLOW CONTINGENT RECEIPTS AND EXPENSES TO DEPEND ON WHEN PEOPLE DIE.
IN THE MEANTIME, I SUGGEST WE TALK ON THE PHONE (617 834-2148) AND I'LL TELL YOU HOW TO THINK ABOUT THE PROGRAM'S CURRENT RECOMMENDATIONS IN LIGHT OF THIS DB PLAN'S FEATURE.
BEST, LARRY
OK. I can give you a call if I can't figure this out. Here's from the KPERS (Kansas Public Employee Retirement) document:
"Retiree Death Benefit
Your beneficiary receives a $4,000 lump-sum death benefit. If you don’t select survivor benefits, any contributions and interest remaining in your account are returned to your beneficiary."
So what I meant to be asking about, is how ESP accounts for the contributions and interest in case the employee dies. Granted, if there is a survivor option chosen, the widow receives all of that, but even if no survivor option has been chosen, the widowed receives at least the contributions and interest remaining in the account, though because they didn't choose a survivor option they won't receive anything more.
I assume this is the way all DB plans work. The survivor, at the very least, receives what's left of the contributions even if he or she doens't receive any survivor benefit per se.
Here's another way to explain it. This is from the KPERS.ORG website.
Returning Your Contributions
If you die before receiving retirement benefits equal to your contributions, and no survivor benefits are payable, the Retirement System will return any remaining contributions and interest to your beneficiary
Dan
DAN, DB PENSIONS PLANS GENERALLY DON'T INVOLVE WORKER CONTRIBUTIONS. I TAKE IT THAT THESE "CONTRIBUTIONS" ARE COMPULSORY. IF SO, YOU SHOULD ENTER YOUR WAGES NET OF THESE CONTRIBUTIONS AND THINK OF THE ACCUMULATED VALUE OF THESE CONTRIBUTIONS ARE REPRESENTING A TERM LIFE INSURANCE POLICY THAT THE EMPLOYER IS PROVIDING YOU, WITH A DEATH BENEFIT THAT VARIES UP THROUGH YOUR AGE OF RETIREMENT AND THEN EQUALS ZERO THEREAFTER. YOU SHOULD THEN COMPARE WHAT ESPLANNER RECOMMENDS YOU HOLD IN TERM LIFE INSURANCE EACH YEAR UP THROUGH RETIREMENT WITH THE AMOUNTS EACH YEAR THAT YOUR EMPLOYER IS IMPLICITLY PROVIDING YOU BY MAKING CONTRIBUTIONS FOR YOU INTO THE PENSION PLAN.
LARRY
OK. Thanks. I understand now. I just assumed this was how DB plans work.
I note that the compulsory contributions are trivial compared to the lifetime payout (if you live long enough) but that said, they balance of contributions is returned to your spouse if you die before you use this balance all up. After a certain point--typically early in retirement--you burn through your own money and you are then on "their dime" the rest of your retirement.
Thanks for the help. That all makes sense.
Dan