What Are Retirement Account Survivor Benefits? Do They Impact My Divorce?

A Qualified Domestic Relations Order, or QDRO, is a vehicle to divide ERISA qualified retirement accounts in the context of divorce without incurring early withdrawal penalties or taxes at the time of division.

There are two general categories of plans that may require Qualified Domestic Relations Orders, Defined Contribution Plans and Defined Benefit Plans.  A Defined Benefit Plan, like an Annuity or a Pension, will provide the Plan Participant with a set “monthly benefit” upon reaching retirement age.  A Defined Contribution Plan, like a 401(k), is a deposit account that will reflect an increasing balance based on employee (and often employer) contributions.  Survivor benefits are associated with first type, Defined Benefit Plans. 

Survivor Benefits are a creation of particular retirement plans that permit a non-employee spouse to receive the employee spouse’s share of the retirement benefit upon his or her death.  If there is no “surviving spouse” named to receive those benefits, they are forfeited to the plan.  Typically, there is a cost associated with electing Survivor Benefits.  This cost can be thought of like insurance policy premiums and will be deducted from the monthly benefit of the participant, the alternate payee, or, in an agreed upon proportion from both.  

The Summary Plan Description must be reviewed to determine whether Survivor Benefits are available for a particular plan. If so, they will need to be elected at or before the time of the retirement of the participant.  Most retirement plans will only provide an opportunity for survivor benefits to be allocated to one spouse (or former spouse).  Therefore, if they are not addressed and allocated as part of the Decree of Dissolution of Marriage, the survivor benefits become an option for election by a Participant’s subsequent spouse to the exclusion of the current spouse. 

Consider the following divorce scenario:

Husband is 65 years old and wife is 40.  Husband’s pension benefits are estimated at $4,000.00 per month.  A QDRO will provide that each party receive approximately $2,000.00 per month.  However, there may be an additional “asset” left on the table to be considered.  With Husband being 25 years Wife’s senior, we would anticipate that his life expectancy is significantly less than Wife’s.  Survivor benefits, if available under Husband’s plan, would provide an opportunity for his portion of the benefit to transfer to Wife upon his death. 

If Husband later dies without negotiation and election of the survivor benefits, the Plan receives the benefit of Husband’s shortened life as it no longer has to pay anyone the $2,000.00 that was allocated to Husband.  However, if Survivor Benefits had been elected, the $2,000.00 (or a portion of it depending on the plan terms) that had been going to Husband would now transfer to Wife such that she would receive the entire $4,000.00 per month benefit until the time of her death.

Specifics of how these benefits could be allocated, associated costs and eligibility must gleaned from the Summary Plan Description and communications with Plan Administrators as necessary.   Survivor benefits may be a very important issue to address in negotiating the terms of a divorce and providing for continued financial security of the non-employee spouse.