Pensions are inheritable, but whether anything actually passes to a family member depends on the type of plan, who is named on the beneficiary form, and whether the participant chose a survivor option before death. Surviving spouses of private-sector pension participants have strong automatic rights under federal law. Everyone else — children, siblings, unmarried partners, estates — inherits only what the beneficiary designation and the plan document allow, and usually on a tighter timeline.
It Depends on the Type of Plan
The first thing to figure out is what kind of plan the deceased had. Defined contribution plans like 401(k)s and profit-sharing plans are individual accounts with a balance. When the participant dies, that balance goes to the named beneficiary, who can take it as a lump sum or move it into an inherited retirement account.1Internal Revenue Service. Retirement Topics – Beneficiary
Defined benefit plans — traditional pensions that pay a monthly amount for life — are different. Nothing automatically continues at death. A survivor gets paid only if the participant elected a joint-and-survivor annuity at retirement, or died while vested but before retiring. If the participant chose a single-life annuity, which pays more each month but stops at death, payments end and no balance is left for heirs.
Private-sector plans are governed by the Employee Retirement Income Security Act, which sets the survivor-protection floor described below.2Office of the Law Revision Counsel. 29 USC 1001 – Congressional Findings and Declaration of Policy Government pensions — federal, state, and local — are not covered by ERISA and follow their own rules. Federal employees under FERS, for instance, may qualify for child survivor annuities after 18 months of creditable civilian service,3eCFR. 5 CFR Part 843 Subpart D – Child Annuities and state and municipal plans vary widely. If the pension in question is a public one, check with that specific plan; the ERISA protections below may not apply.
Who Actually Inherits
The beneficiary designation form on file with the plan administrator controls who receives pension benefits. Not the will. Courts have consistently held that ERISA plan documents override state probate law, so a will that leaves “everything” to the children does not touch a pension whose form names someone else.
Surviving spouses are the exception to how much a form can do. Under the Retirement Equity Act of 1984, every qualifying private-sector pension plan must automatically provide two survivor benefits for spouses: a qualified joint and survivor annuity if the participant retires, and a qualified pre-retirement survivor annuity if the participant dies while vested but before retiring.4Office of the Law Revision Counsel. 29 USC 1055 – Requirement of Joint and Survivor Annuity and Preretirement Survivor Annuity The spouse gets these without filing anything.
A participant who wants to name someone else, or to choose a single-life annuity that stops at death, has to obtain the spouse’s written, notarized (or plan-witnessed) consent.5Social Security Administration. The Retirement Equity Act of 1984 – A Review Without that waiver, the plan pays the spouse regardless of what any other document says. If no beneficiary is named at all, most plans default first to the surviving spouse, then to children, and finally to the estate — and anything routed through the estate can get tied up in probate.
Contingent Beneficiaries
A contingent beneficiary inherits only if the primary beneficiary has died or cannot be located. Plans usually let participants name several contingents and assign each a percentage. If the primary predeceases the participant and no contingent is named, the benefit falls back to the plan’s default succession rules and may end up in probate.
Divorce Is Where This Goes Wrong Most Often
ERISA overrides state law, so state divorce statutes that would normally revoke a former spouse’s inheritance rights do not automatically apply to a private pension. If a participant divorces and never updates the beneficiary form, the former spouse can still collect the full benefit at death.
The tool for dividing pension benefits in a divorce is a qualified domestic relations order. A QDRO directs the plan to pay a share of the participant’s benefits to a former spouse (an “alternate payee”)6Office of the Law Revision Counsel. 29 USC 1056 – Form and Payment of Benefits and can also assign survivor benefits to that former spouse, in which case a later spouse would not automatically receive them.7U.S. Department of Labor. QDROs Under ERISA – A Practical Guide to Dividing Retirement Benefits After any divorce, update the beneficiary form and confirm with the plan administrator that any QDRO has actually been received and processed.
How Inherited Benefits Get Paid Out
Distribution options depend on the plan type and the beneficiary’s relationship to the deceased.
Qualified Joint and Survivor Annuity
If the participant had already retired under a defined benefit plan, the most common payout is a monthly annuity to the surviving spouse for life. Federal law requires the survivor amount to be at least 50 percent and no more than 100 percent of what the participant was receiving.4Office of the Law Revision Counsel. 29 USC 1055 – Requirement of Joint and Survivor Annuity and Preretirement Survivor Annuity Many plans offer both 50 percent and 75 percent options; a higher survivor percentage means a slightly lower payment while both spouses are alive.
Qualified Pre-Retirement Survivor Annuity
If a vested participant dies before retiring, the surviving spouse receives a pre-retirement survivor annuity, calculated as if the participant had lived to earliest retirement age and retired under a joint and survivor annuity. Payments typically begin no later than the month the participant would have reached that earliest retirement age.
Lump-Sum Payouts
Some plans let the beneficiary take the present value of the benefit in one payment. Lump sums are more common in defined contribution plans and less typical for traditional pensions, though some defined benefit plans allow them. The plan document controls what is available.1Internal Revenue Service. Retirement Topics – Beneficiary
Rollover to an IRA
A surviving spouse can roll inherited qualified plan funds into their own IRA and treat the money as their own retirement savings.1Internal Revenue Service. Retirement Topics – Beneficiary A non-spouse cannot do a standard rollover but can request a direct trustee-to-trustee transfer into an inherited IRA set up in the deceased participant’s name for the beneficiary’s benefit.8Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust The inherited IRA is still subject to required distribution rules.
How Long Non-Spouses Have to Withdraw
For deaths after 2019, most non-spouse beneficiaries must empty an inherited retirement account within 10 years of the participant’s death.9Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The SECURE Act replaced the older “stretch” approach that let non-spouse beneficiaries spread distributions over their own life expectancy.
If the participant had already started required minimum distributions before dying, the non-spouse beneficiary has to take annual distributions and finish emptying the account by year 10. If the participant died before RMDs began, annual withdrawals are not required, but the account still has to be empty by the end of the tenth year.
Some beneficiaries are exempt from the 10-year rule and can instead take distributions over their own life expectancy. The IRS calls them “eligible designated beneficiaries”:
- A surviving spouse, who can take life-expectancy distributions or roll the funds into their own IRA.
- A minor child of the participant, who is eligible for life-expectancy distributions until reaching the age of majority — at which point the 10-year clock starts.
- A beneficiary who is disabled or chronically ill.
- A beneficiary who is not more than 10 years younger than the participant, such as a sibling close in age.
The beneficiary has to meet the criteria at the time of the participant’s death.1Internal Revenue Service. Retirement Topics – Beneficiary Individual plan documents can also impose additional restrictions on what distribution options are available, so confirm with the plan administrator.
Taxes on What You Inherit
Inherited pension distributions are taxed as ordinary income to the beneficiary, the same way they would have been taxed to the participant.1Internal Revenue Service. Retirement Topics – Beneficiary Monthly annuity payments and lump sums both count as income in the year received. A large lump sum can push a beneficiary into a much higher bracket for that year.
One helpful exception: the 10 percent early withdrawal penalty that normally applies before age 59½ does not apply to distributions received because of the participant’s death, regardless of the beneficiary’s age.10Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
If you take an eligible rollover distribution as a lump sum rather than transferring it directly to an inherited IRA, the plan has to withhold 20 percent for federal income taxes before cutting the check.11Internal Revenue Service. Topic No 410 – Pensions and Annuities You cannot opt out; you can only avoid it by doing a direct trustee-to-trustee transfer.
And if a required distribution is missed, the excise tax is 25 percent of the amount that should have come out, dropping to 10 percent if you correct the shortfall inside the IRS correction window.12Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements Set calendar reminders and confirm the required amount with the plan administrator or IRA custodian each year.
How to Claim the Benefit
To file a survivor benefit claim, gather:
- Several certified copies of the death certificate from the vital records office in the state where the death occurred. Fees typically run from $5 to $34 per copy.
- The plan ID or member number, which appears on prior benefit statements, annual funding notices, or correspondence from the administrator.
- The survivor benefit claim form from the employer’s HR department or the plan administrator.
- Your own identification: Social Security or tax ID number, a government photo ID, and proof of your relationship to the deceased, such as a marriage or birth certificate.
Submit the package by registered mail or through the plan’s secure online portal. The plan has up to 90 days to decide the claim and can extend to 180 days with written notice.13U.S. Department of Labor. Filing a Claim for Your Retirement Benefits When the claim is approved, the timing of the first payment depends on the plan’s payment schedule and the distribution method chosen; the summary plan description spells this out.
If the Claim Is Denied
A denial must be in writing and must state the specific reasons, the plan provisions relied on, and what additional information could support the claim.14Office of the Law Revision Counsel. 29 USC 1133 – Claims Procedure You have at least 180 days from receiving the denial to file an internal appeal, and you can submit additional documents and arguments during that review.15U.S. Department of Labor. Benefit Claims Procedure Regulation FAQs If the internal appeal also fails, ERISA allows a lawsuit in federal court. Before that, the Department of Labor’s Employee Benefits Security Administration can answer questions and sometimes intervene informally with the plan administrator.
If You Can’t Find the Pension
When a family member is thought to have earned a pension but no plan documents can be located, the Pension Benefit Guaranty Corporation runs a searchable database of unclaimed benefits from terminated plans. The Missing Participants Program covers terminated defined benefit plans, certain defined contribution plans, and some multiemployer plans, but not government or military pensions.16Pension Benefit Guaranty Corporation. Find Your Retirement Benefits – Missing Participants Program
Search the online database using the participant’s name. If there is a match, call 1-800-400-7242 and say you are calling about a missing participants benefit; verifying your identity and relationship as a surviving spouse or relative may take more than one call. In some cases, a terminated plan bought annuities from an insurance company rather than transferring funds to the PBGC, and the database will list the insurance company and annuity contract number so you can contact the insurer directly.