Defined benefit pension plans do a much better job when it comes to taking care of the retiring employee than they do taking care of the retiree’s potential beneficiaries. In almost all cases, the named beneficiary cannot be changed after benefits have begun, and if the beneficiary predeceases the retiree, the reduction in pension benefit is permanent. By taking a few simple steps, your defined benefit pension plan can become a tool that helps your spouse, while helping protect you AND potentially your children as well!

The participant’s spouse is named as the beneficiary of the life insurance policy. The life insurance policy’s death benefit would seek to match an amount that would replace the benefits for the surviving spouse as if the Joint & Survivor benefit option was selected. At retirement, the plan participant selects the Life Only benefit option in order to receive the largest possible benefit amount. The participant will use the increased pension benefits to pay the premium of the life insurance policy. When the plan participant dies, a guaranteed benefit is paid to the spouse, generally income tax-free. The benefit can then be used to replace the lost pension income as a result of the plan participant’s death. If the beneficiary predeceases the retiree, the beneficiary on the policy can be changed to the children, or the policy can be cashed out. In that case, no further premiums would be required. This effectively elevates the retiree back to the Life Only option payout. Pension maximization can be a strong strategy with teachers, federal government employees, state & municipal employees, and with employees of companies with a defined benefit pension plan. Consider the strategy for married individuals who participate in defined benefit pension plans and are comfortable using a portion of their pension benefit to fund a personally owned, guaranteed vehicle.

BENEFITS