No, you did not inherit Mom or Dad’s pension; looking at retirement law myths vs. reality using 5 key pension facts
Media Contact: Barbara M. Fornasiero, EAFocus Communications; barbara@eafocus.com; 248.260.8466
Royal Oak, Mich.—November 1, 2022—Compared to 401(k)-style contribution plans, traditional pensions in the United States are on the wane—and national employee benefits and ERISA attorney J.J. Conway of Michigan-based J.J. Conway Law predicts most will be gone in the next 50 years for all but government workers. Still, pensions are hot in litigation right now because Baby Boomer retirements have unearthed myriad issues, from missing pension credits to loss of employment records. Interestingly, Conway cites another hot pension issue: children who believe they have inherited a deceased parent’s pension.
“I field at least one call to my office each month from an adult child in search of Mom or Dad’s pension,” Conway said. “For retirees, pensions are often the subject of a lot of conversations with family and friends about things like Cost-of-Living Allowances (COLAs) or changes to the retiree’s health plan, so, it is plausible that family members would be under the mistaken belief that they stand to inherit a pension when a family member dies.”
Conway outlines five important reminders about pensions:
1. Pensions are their own entities with their own written rules, much like contracts.
2. Company pension plans are established and funded according to actuarial expectancies using formulas based on length of service and wages earned.
3. Pension plans are designed to match with government sources, like Social Security, to provide fixed income and sometimes other benefits to employees (not their children) during retirement.
4. Pensions can be paid out as a straight-life annuity over the life of one employee, and that employee would collect a monthly payment from retirement until death.
5. Pensions can also be paid out as a joint life annuity and are paid to the employee and a surviving spouse in a smaller monthly payment. At death of the employee, that monthly payment would continue at the reduced rate for the life of the surviving spouse. At that spouse’s death, the pension would end. If a married couple divorces, there are rules that allow for the pension to be split or shared during a division of assets.
“Pensions are expensive and, owing to strict federal funding requirements, can cut into a company’s balance sheet. Paying beyond the lives of one or two people within a range of similar life expectancies would be highly unusual since there is no such requirement to do so – and in most cases would be financially harmful to the company,” Conway said. “So, while a pension plan could theoretically allow for a payout to a child, there is nothing legally that would require it, and given the expense, it is very unlikely, although there are rare exceptions.”
Conway notes there are other retirement-type benefits that employees can bequeath to children, such as unused 401(k) assets or IRAs. Some retirement plans still provide retiree life insurance or a death benefit. Intended as a modest payment designed to help pay for funeral costs, a parent could list a child or children as beneficiaries on either the life insurance plan or to collect the death benefit. For those children who still insist on searching for their deceased parent’s illusive pension, he says the cost in doing so should in itself be a deterrent.
“Tracking down a ‘promised pension’ can be expensive, and children looking for them do not have legal standing under federal law to request information about their parents’ benefits,” Conway says. “The plans don’t make exceptions either, so if they really want to secure this information, they must open an estate, secure a probate appointment, and request pension plan information on behalf of the deceased parent’s estate. This is a move that could cost thousands of dollars and likely lead nowhere.”
About J.J. Conway Law
J.J. Conway Law was founded by John Joseph (J.J.) Conway in 1999 to work with individuals seeking full access to the employee benefits they have earned. The firm has been involved with nationally significant employee benefit, disability, and pension cases, including class action lawsuits for such landmark decisions as requiring Michigan private insurers to cover autism health treatments for children through age 18 and protecting the pension rights of City of Detroit employees, police and firefighters as well as Wayne County employees by holding their trustees accountable for investment decisions. The firm’s motto is “Conquer Tomorrow®” and is dedicated to making tomorrow easier for their clients across the United States. Learn more on the firm’s website.