For Federal Employees: What Happens to my Pension if I Die While Employed?

As a federal employee you are entitled to pension upon retirement that will pay some portion of your pre-retirement income for the rest of your life, as well as a survivorship annuity to your spouse if you are married and pre-decease them while in retirement. However, what happens if you die while you are working?

Special rules are set up that, if met, allow for a spouse survivor to receive a lump sum benefit regardless of your enrollment in FEGLI, and possibly a survivor annuity from the date of death for the rest of their life. For CSRS employees, those hired prior to 12/31/1983, your survivor is entitled to a pension equal to 55% of your accrued pension provided you had 18 months of service and were married for at least 9 months. Additionally if you have unmarried children they will receive an annuity payment until they reach age 18 or 22 if they remain in school full time.

For FERS employees, those hired after 12/31/1983 or those who transitioned into the new system, the benefits are different from CSRS in some ways. The same 18 months of service requirement applies prior to death. Once this is reached the benefit is available in two potential ways. First is a lump sum benefit payable to your survivor calculated by taking a basic sum (I have seen this range from $20,000 to $40,000) plus the higher of half of your annual pay rate at death or half of your high-three average pay. For example, if you earn $100,000 annually and the initial lump sum you have accrued was $25,000 the total payment would be approximately $75,000. Second, if you have achieved 10 years of service your survivor spouse is entitled to an annuity equal to 50% of your accrued retirement pension, payable immediately. So what does this mean for your family protection goals and insurance needs?

Here are my observations of these benefits. First for FERS participants the lump sum payment acts like a modest life insurance policy, ensuring liquid funds are available for estate settlement and other miscellaneous costs during this difficult time. Additionally it is very important to review your financial goals once you reach this 10-years-of-service mark. A pension, should death occur, is a valuable benefit. This income stream may be able to cover some of the basic core expenses remaining after losing a spouse while life insurance can be used for such costs as mortgage paydown, college for the children, and future retirement income. The key is to have a plan in place and communicate it between spouses prior to such an event occurring rather than forcing the survivor to learn what benefits and circumstances are present while grieving the loss of their loved one. Give us a call and we can put a plan in place or review your current one so you have some peace of mind for your family.

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Securities offered through Triad Advisors, Member FINRA / SIPC.  Advisory Services offered through Planning Solutions Group, LLC.  Planning Solutions Group, LLC is not affiliated with Triad Advisors.  PSG Clarity is a division of Planning Solutions Group, LLC.