Support for Your Family if You Die before Retirement
- February 18, 2019
- Posted by: olinsadmin
- Category: Insurance Toronto, Medical Insurance Ontario, Retirement
If you are responsible for supporting loved ones, such as a spouse, child or other family members, you should find out what they may be entitled to receive from your pension plan when you die. This may vary depending on your marital status and the terms of your pension plan.
If you die before you start receiving pension benefits from your pension plan and have a spouse on the date of your death, your spouse is automatically entitled to be paid a death benefit, unless:
- your spouse waived this entitlement in writing; or
- you and your spouse no longer lived together when you died, due to a breakdown in your spousal relationship (e.g., separation or divorce).
If you do not have a spouse, or if your spouse is not entitled to receive the death benefit, your named beneficiary will receive the death benefit. If there is no named beneficiary, the death benefit will be paid to your estate.
Death Benefit Statement and Options
Within 30 days of receiving notification of your death, the plan administrator must provide a death benefit statement to your spouse or beneficiary (as applicable). This statement describes the amount of the death benefit, the options available to your surviving spouse or beneficiary, and the deadlines for choosing options. The death benefit is usually the commuted value of the pension benefits that you have earned up to the date of your death. Commuted value is the amount of a lump sum payment that is payable today (or as of a fixed date) and that is estimated to be equal in value to a future series of pension payments, based on actuarial assumptions. Note that your pension plan may also provide a death benefit in the form of a survivor pension or a dependent’s pension.
If your beneficiary is your spouse, then he or she can choose one of the following options:
- receive the death benefit as a pension from the plan; or
- get a lump sum payment.
If a payment option is not chosen within 90 days of receiving the statement, the plan administrator must pay the death benefit to your spouse in the form of a pension. For all other beneficiaries, the plan administrator must pay the death benefit in a lump sum amount.
Your surviving spouse may also be eligible to transfer all or a portion of the death benefit directly to his/her Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) on a tax sheltered basis. (Note: Your spouse or beneficiary must instruct the plan administrator to transfer the payment to the RRSP or RRIF within 90 days of receiving the option form from the plan administrator.)
How Survivor Benefits are Paid
As a plan member, it is important to understand how survivor benefits are paid to your loved ones.
- If you have a spouse on the date of your death, he or she will receive a survivor pension and/or a lump sum payment (unless your spouse has signed a waiver).
- If you do not have a spouse, your designated beneficiary (or beneficiaries) will get a lump sum payment.
- If you do not have a spouse or a designated beneficiary, a lump sum payment will be made to your estate.
Vested Benefits Earned Before January 1, 1987
The death benefit described above only relates to vested benefits that were earned after December 31, 1986. Before January 1, 1987, the law did not require that the commuted value of vested benefits be paid as a death benefit, but your pension plan may provide otherwise. Unless your pension plan specifically provides a death benefit, your beneficiary is not entitled to any benefits you earned before this date.
There is one exception: if your plan is contributory, your beneficiary is entitled to a refund of any member contributions and additional voluntary contributions (AVCs) you made before January 1, 1987, plus interest or investment income. This refund is usually paid as a lump sum.
Waiver of Pre-Retirement Death Benefits
If your spouse decides to waive his or her right to a death benefit, he or she must give the plan administrator a written waiver using FSCO’s Form 4: Waiver of Pre-Retirement Death Benefit. Note that this waiver may also be cancelled by your spouse any time before your death (but not after your death).
Before waiving the right to a pre-retirement death benefit, your spouse is encouraged to obtain independent legal and financial advice about his or her individual rights and the effect of the waiver. If your spouse waives his or her right to the pre-retirement death benefit and has not withdrawn the waiver, you may appoint another beneficiary to receive the death benefit after you die.