When you plan for retirement, it is natural to focus on the income needed while you are alive. What happens to that pension or 401(k) after you die matters too, since it shapes what a spouse, partner, child or other heir receives, and in what form.

The rules differ by plan type. A defined benefit (DB) pension pays a benefit set by a formula, generally based on pay and years of service, while a defined contribution (DC) plan, such as a 401(k), pays out whatever has built up in the participant's own account.

Social Security survivor benefits follow separate rules administered by the Social Security Administration and are not covered here; this discussion covers employer-sponsored DB pensions and DC accounts such as a United Airlines Holdings 401(k).

What are the two main types of workplace pension plans?

In a DB plan, United Airlines Holdings (and in some cases the employee) contributes to a general pension fund, and United Airlines Holdings bears the investment risk; your benefit is set by a formula, typically based on pay and years of service, not by your own account balance.

In a DC plan, such as a 401(k), you, United Airlines Holdings, or both contribute to your own account, and your eventual balance depends on contributions and investment performance; you bear the investment risk, and your retirement income depends on your account balance and how you draw it down.

Who inherits defined contribution plan benefits after you die?

If you die with money remaining in a DC plan such as a 401(k), your named beneficiary inherits the balance.

Under the SECURE Act, most beneficiaries who are not the participant's spouse must withdraw the entire inherited balance within 10 years of the original owner's death, with an exception for a surviving spouse, the owner's minor child, a disabled or chronically ill beneficiary, or a beneficiary not more than 10 years younger than the owner.

If the original account owner had already reached their required beginning date for required minimum distributions (RMDs, generally age 73), those non-spouse beneficiaries subject to the 10-year rule generally must also take an RMD in each of the 10 years, instead of leaving the whole withdrawal until the final year.

If the owner died before that date, no annual distribution is required before the 10th year.

A surviving spouse has more flexibility: a spouse can generally roll the account into their own IRA, keep it as an inherited account, delay distributions, or follow the 10-year rule.

In most 401(k) plans, if a married participant dies before receiving benefits, the surviving spouse generally automatically receives the account as beneficiary unless the participant named someone else with the spouse's written, witnessed consent.

If you have not named a beneficiary, the balance generally passes according to the plan document's default order, which commonly directs it to your estate if no beneficiary or contingent beneficiary survives you; going through the estate can mean probate delays and can remove the extended payout options available to a named individual beneficiary.

What payout must married DB plan participants receive?

Federal law generally requires that a DB pension plan pay a married participant's benefit as a qualified joint and survivor annuity (QJSA) unless the participant elects another form of payment and the spouse consents in writing, with the spouse's signature witnessed by a notary public or a plan representative.

Under a QJSA, the plan pays the participant a monthly benefit for life, and after the participant's death, the surviving spouse continues to receive a percentage of that benefit, generally between 50% and 100% as set by the plan, for the rest of the spouse's life.

Plans that must offer a QJSA must also let a participant who waives it choose a qualified optional survivor annuity (QOSA) instead: a 75% survivor benefit if the plan's QJSA pays the spouse less than 75%, or a 50% survivor benefit if the QJSA pays 75% or more.

A married, vested participant who dies before payments begin is generally covered instead by a qualified preretirement survivor annuity (QPSA), a life annuity paid to the surviving spouse, unless the participant and spouse properly waived it in writing.

Some plans can pay a small benefit, generally $5,000 or less in present value, as a lump sum without spousal consent.

SECURE 2.0 raised the statutory ceiling for this cash-out to $7,000 for distributions made after December 31, 2023, though adopting the higher limit is optional for each plan, so the threshold that applies to your plan could still be lower.

What other DB payout options commonly exist?

Joint and Survivor Annuity: you receive payments for life, and your spouse or named beneficiary continues to receive a set percentage, often 50%, 75% or 100%, for the beneficiary's life after you die.

Life with Period-Certain Annuity: you receive payments for life, and if you die within the plan's set period, your beneficiary receives the remaining payments for the rest of that period.

Single Life Annuity: generally the largest monthly payment while you are alive, but payments stop at your death unless you elected a period-certain or survivor feature.

Lump Sum, where a plan offers it: you can take the present value of your benefit as a single payment and roll it into an IRA or take it in cash, subject to tax.

Should single retirees choose a lump sum or an annuity?

For a retiree without a spouse or other dependent who would rely on a survivor annuity, a lump sum can be worth comparing against a single-life annuity.

A single-life annuity generally stops paying at death with nothing left for an heir, while a lump sum rolled into an IRA can be left to a named beneficiary.

A lump sum gives you control over how the money is invested and withdrawn, and lets you name a beneficiary for any amount remaining at your death.

Rolling it directly into an IRA or another eligible plan can defer current income tax on the rollover amount.

It also shifts investment and longevity risk to you; weak investment results or living longer than expected could leave less income later than a lifetime annuity would have paid.

What happens to pension benefits when a retiree dies?

What happens next depends on the payout option the retiree chose at retirement and any beneficiary designation on file. A single-life annuity ends with the retiree's death. A joint and survivor annuity continues paying the surviving spouse or named beneficiary the elected percentage. A period-certain annuity continues paying the beneficiary only for the rest of that set period. A DC plan balance transfers to the named beneficiary, subject to the SECURE Act rules described above.

What if a pension plan ends or is taken over by the Pension Benefit Guaranty Corporation?

If an employer terminates an underfunded single-employer DB plan, the Pension Benefit Guaranty Corporation (PBGC) can become trustee and continue paying benefits up to legal limits.

For a single-employer plan that ends in 2026, the most PBGC can pay a retiree who first starts receiving a benefit at age 65 is $7,789.77 a month as a straight-life annuity, or $7,010.79 a month under a joint-and-50%-survivor annuity (for spouses the same age) that continues paying half the benefit to a surviving beneficiary.

PBGC says most of the benefits it pays are below this limit.

The limit is lower at younger starting ages and higher at older ages, and lower for a payment form with a bigger survivor percentage.

What should you check now about your beneficiaries?

Confirm your current beneficiary designation is on file and reflects your wishes; a beneficiary form usually controls over what a will says about that account.

If you are married and want to change your DB payout away from the QJSA, or change your DC beneficiary away from your spouse, get your spouse's written, witnessed consent as the plan requires.

Ask your plan administrator which RMD rules apply to someone who inherits your account, since the rules differ depending on whether you have already reached your required beginning date.

If you are weighing a lump sum against an annuity, or thinking about waiving a survivor annuity, ask a financial or tax professional how each option affects your spouse or heirs.

How does United's Continental Retirement Plan pay a surviving spouse?

United employees who worked under its Continental-side pension plan can look into which survivor options their own pension record carries. United's legacy Continental Retirement Plan pays an unmarried participant's benefit as a single life annuity and pays a married participant's benefit as a joint and survivor annuity by default, with optional contingent-annuity percentages of 50%, 66 2/3%, 75% or 100% for a surviving spouse or domestic partner if the participant and spouse consent to another form. A participant who dies while still eligible for a normal, early, deferred, disability or vested-separation benefit leaves that same kind of death benefit to a surviving spouse or domestic partner, unless the couple waived it in writing, and benefit accruals for Management and Administrative employees under this plan were frozen at the end of 2013. Ask United's plan administrator whether your own employee group's pension accruals are still active or were frozen.

What happens to a United 401(k) account when you die?

United's 401(k) Savings Plan fully vests Employer Direct Contributions at a participant's death, even for someone who had not finished the normal three-year vesting schedule. A participant who separates from United for reasons other than death can choose a lump sum, installments or an annuity, while a beneficiary inheriting the account after a participant's death can instead take a lump sum or use the balance to purchase an annuity. Confirm which beneficiary is currently on file for your own United 401(k) account.