Old father pensioner, young disabled son as beneficiary

[Safire]

Hi,

If the employee who is qualified to get pension is 65, but his (disabled) son is only 25, can the employer object to the boy being nominated as joint / surviving beneficiary? Can they insist that the father nominate his 63-yr-old wife as joint / surviving beneficiary instead? The wife is in agreement that their son needs a source of income aside from his SN trust and life insurance to be inherited by him at their deaths. They are both fully aware that there is no "guarantee" that a private pension will last for the duration of their lives or their son's life. They are also aware that due to the boy's age, his "benefit" will be much lower than if they nominated the wife and are willing to take that "cut".

For now, the husband says he "feels" some pushback from the HR reps he's talking to and is alarmed. He plans to quit at the end of March, 2023. The employer is a non-profit, this is in California, and both parents want the boy to get the benefit, rather than the spouse. The wife is willing to execute any legal instrument necessary to "allow" the husband to nominate their son as the beneficiary. So why the supposed push-back from the employer?

Any advice for my friends? TIA.

 

[ERD50]

They are both fully aware that there is no "guarantee" that a private pension will last for the duration of their lives or their son's life.

Well, there actually is a guarantee. The PBGC - https://www.pbgc.gov/

How good that guarantee is, is debate-able, but there it is.

I'd have to look at my pension, I know that there are cuts for > 10 year's age difference for the surviving spouse. I'm pretty sure it has been updated to allow for claiming a 'partner' as a beneficiary, but it might still need to be a legal marriage for the state of residence. AFAIK, there is no allowance for naming a non-spouse as a beneficiary (at a minimum, the spouse would need to sign off, as is required by any reduction in spousal benefits).

Maybe there are state laws or PBGC regs on the subject? If HR is giving you a blank stare, I'd look elsewhere for the info.

The 'push back' may simply be because it isn't allowed, or maybe never done before at that place, so new area for them.

-ERD50

 

[38Chevy454]

I believe that what is proposed should be fine. The son being significantly younger will cause a big reduction in pension amount. It's based on actuarial tables. HR may have difficulty being someone different than a spouse. But certainly not the first time a child has been named as a surviving beneficiary.

 

[Calico]

OP,

Your employer is required to give you a copy of the Pension Summary Plan Description.

This document should provide details about whom you can designate as a beneficiary under the plan (along with a lot of other detailed info about the plan).

 

[Irishgirlyc58]

I’m assuming the issue has something to do with community property. The spouse is entitled to 50% of the pension should they get divorced.
I actually had to provide a copy of my divorce agreement from 40 years ago- when I declined pension coverage for a temporary job earlier this year.
It was annoying but I guess those are the rules.

 

[OldShooter]

This is complex. It may not be optimum for your son to get pension payments because they may disqualify him from government benefits. This is why special needs trusts are so carefully structured. I suggest you consult an expert before focusing on just this one aspect of planning for him.

 

[Safire]

I’m assuming the issue has something to do with community property. The spouse is entitled to 50% of the pension should they get divorced.
I actually had to provide a copy of my divorce agreement from 40 years ago- when I declined pension coverage for a temporary job earlier this year.
It was annoying but I guess those are the rules.

Hi, if the wife is willing to execute any legal documentation, declaring that she is willingly opting to forego the pension benefits so that her husband can nominate their son as the joint / surviving beneficiary of the pension, wouldn't this be enough? What kind of lawyer would they need to seek out for further advice in this regard?

This is complex. It may not be optimum for your son to get pension payments because they may disqualify him from government benefits. This is why special needs trusts are so carefully structured. I suggest you consult an expert before focusing on just this one aspect of planning for him.

Interestingly, I did ask them about this. My family is in the same boat as they are (that's how we met -- through a parent association), and they didn't seem to have considered this, although this did concern me (my son is 13, so several years more for us to worry about this). Should they be talking to a special needs trust attorney? Who could help them ensure that they don't jeopardize govt benefits due to him receiving his father's pension? Thanks for validating my concern. Much appreciated!

 

[Irishgirlyc58]

Hi, if the wife is willing to execute any legal documentation, declaring that she is willingly opting to forego the pension benefits so that her husband can nominate their son as the joint / surviving beneficiary of the pension, wouldn't this be enough? What kind of lawyer would they need to seek out for further advice in this regard?




Interestingly, I did ask them about this. My family is in the same boat as they are (that's how we met -- through a parent association), and they didn't seem to have considered this, although this did concern me (my son is 13, so several years more for us to worry about this). Should they be talking to a special needs trust attorney? Who could help them ensure that they don't jeopardize govt benefits due to him receiving his father's pension? Thanks for validating my concern. Much appreciated!

I don’t know. It makes sense to me but maybe there is precedent that spouses came back and claimed they were forced to give it up?
I’m just guessing though.
I was taken aback when I had to provide proof of my divorce in order to decline a pension.
I declined because I actually had just retired and this was a post retirement job. I received higher actual pay since I declined.
I guess if I was married I would have also been giving away my spouses potential benefit?

Is your friends pension with a private company or government?

 

[pb4uski]

Hi,

If the employee who is qualified to get pension is 65, but his (disabled) son is only 25, can the employer object to the boy being nominated as joint / surviving beneficiary? Can they insist that the father nominate his 63-yr-old wife as joint / surviving beneficiary instead? The wife is in agreement that their son needs a source of income aside from his SN trust and life insurance to be inherited by him at their deaths. They are both fully aware that there is no "guarantee" that a private pension will last for the duration of their lives or their son's life. They are also aware that due to the boy's age, his "benefit" will be much lower than if they nominated the wife and are willing to take that "cut".

For now, the husband says he "feels" some pushback from the HR reps s talking to and is alarmed. He plans to quit at the end of March, 2023. The employer is a non-profit, this is in California, and both parents want the boy to get the benefit, rather than the spouse. The wife is willing to execute any legal instrument necessary to "allow" the husband to nominate their son as the beneficiary. So why the supposed push-back from the employer?

Any advice for my friends? TIA.

Not all defined benefit plans allow a non-spouse to be the beneficiary:

... Typically, pension plans allow for only the member—or the member and their surviving spouse—to receive benefit payments; however, in limited instances, some may allow for a non-spouse beneficiary, such as a child. ...

Another option is to take the sole or joint life with spouse option and use part of the benefit payment to buy a term life insurance ladder where the death benefits could be used to provide for the disabled son either as cash or to buy a SPIA.

https://obliviousinvestor.com/laddering-life-insurance-policies/

 

[Accidental Retiree]

This is complex. It may not be optimum for your son to get pension payments because they may disqualify him from government benefits. This is why special needs trusts are so carefully structured. I suggest you consult an expert before focusing on just this one aspect of planning for him.

I agree. I was Trustee for a special needs trust in California a few years ago. The disabled person received state housing and other benefits. Income other than his own SS may have cost him those benefits.

 

[Irishgirlyc58]

My pension is CalPERs and I had the option to leave whatever percentage I wanted to any beneficiary(ies)
It comes at a big hit to my monthly pension amount.
Unlike spousal survival benefits which are usually a benefit funded through the government.

 

[MarieIG]

This is complex. It may not be optimum for your son to get pension payments because they may disqualify him from government benefits. This is why special needs trusts are so carefully structured. I suggest you consult an expert before focusing on just this one aspect of planning for him.

I wonder if a SPIA for him can be placed within the Special Needs Trust?

I also wonder if the SPIA can be structured to pay less up front with more as he gets older so as to produce more income after the parents pass away.

 

[OldShooter]

... (that's how we met -- through a parent association), and they didn't seem to have considered this, although this did concern me (my son is 13, so several years more for us to worry about this). Should they be talking to a special needs trust attorney? Who could help them ensure that they don't jeopardize govt benefits due to him receiving his father's pension? Thanks for validating my concern. Much appreciated!

Yes. They should be getting a broad range of specialist advice. I would start with referrals via the parent association and by consulting their regular attorney and CPA. There are also some national 501(c)3s who specialize in special needs trusts that might be a source of referrals. I would not focus just on the pension question or on SNTs. Stay big picture, include possibly conservator questions. Tough stuff. Good luck.

 

[copyright1997reloaded]

I can't comment on whether a non-spousal J&S options are required, but they do exist.

For my mega-corp pension I have my son as a 50% joint annuitant. Yes, this resulted in a lower monthly payment (based on actuarial factors). Yes, I had to have my spouse (at the time) sign off on this w/a notarized signature. $ wise it resulted in a monthly payment that was close to the amount if I had gone 100% Joint w/my spouse. At the time, my son was 7 years old.

In my current job I have NYS Teachers Retirement and there too it is an option (to have a non-spousal joint annuitant).

One thing to note is that in both cases, a non-spousal joint annuitant who is more than 10 years age difference results in a 50% max. option.

p.s. my rationale at the time was that both parents were "old" compared to most parents of a young child, and that this provided pre-tax mechanism to get essentially an income stream available to my child in case of my death. I have a similar decision to make when I retire from teaching - but doubt I will do the same.

Also note that this works better with low inflation (which we had from mega-corp retirement in 2009 until recently), but not good if we have high/persistent elevated inflation.