A pension plan is a retirement scheme funded by your employer. Generally, the pension is funded entirely by your employer, but some pensions allow you to contribute to the plan through salary reductions. When an employer funds most or all of your pension, he must commit substantial resources to your retirement. Your employer is obligated to pay you a benefit when you retire and, when you die, to your spouse, who has rights to your pension plan.
Your pension plan provides a stable income payment for you when you retire. The pension plan is usually based on an annuity payment arrangement. Many pensions use life insurance companies to make annuity payments. This allows your employer to worry about funding the plan, and not about the investment and payment guarantees he must make in the future. Your spouse is also entitled to this money after you die, and can apply for benefits with the pension plan administrator. She will receive pension payments immediately upon your death, so there should be no lag between payments prior to and after your death. You elect how much she receives before you die. Most pensions allow you the choice to leave her 50 percent, 75 percent or 100 percent of your pension payments.
Because pensions are considered to be held in trust for your future benefit, no creditors can take the full account value of the pension. In many states, your pension payments are also income tax-free. This tax benefit is passed on to your spouse when you die. Since the pension payment is guaranteed by an insurer, in most cases, your spouse is assured to never run out of money during the remainder of her life.
One pension option you have to choose from is a lump sum payment. This option requires your spouse to sign a waiver. This waiver waives all future rights to pension payments. If you spend all of your pension savings prior to your death, your spouse will not have any money to live on. Make sure that this move is beneficial for you and your spouse. It cannot be undone.
Your spouse's rights to the pension are not waived unless she signs a waiver form. Otherwise, your spouse is entitled to the proceeds of the pension. Even if you do take a lump sum pension payment, you may set aside a portion of the proceeds for her. Setting up a special annuity which will convert to monthly payments upon your death ensures that your spouse is still taken care of after you die, while giving you full control over your pension savings when you're alive.