Life Events

A reverse mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you continue to own the home. Reverse mortgages operate like traditional mortgages, only in reverse. Rather than paying your lender each month, the lender pays you.

Reverse mortgages differ from home equity loans in that most reverse mortgages do not require any repayment of principal, interest, or servicing fees as long as you live in the home. The loan is repaid when you die, sell your home, or when your home is no longer your primary residence. The proceeds of a reverse mortgage generally are tax-free, and many reverse mortgages have no income restrictions. When the homeowner dies or moves out, the loan is paid off by a sale of the property. Any leftover equity belongs to the homeowner or the heirs.

In other words, the primary benefit of a reverse mortgage is that it allows homeowners who are age 62 and over to keep living in their homes and to use their equity for whatever purpose they choose. A reverse mortgage might be used to cover the cost of home health care, to pay off an existing mortgage to stop a foreclosure, or to support children or grandchildren.

• Applicants must be 62 years of age.
• Potential borrowers must either completely own their home or only have a couple of mortgage payments remaining.
• Reverse mortgage borrowers must live in the home being used as collateral.
• Borrowers must have an excellent credit history in order to qualify for reverse mortgage loans.
• All homeowners are required to sign the paperwork in order to secure the reverse mortgage.
• Primarily, single family one-unit dwellings are required to qualify for a reverse mortgage.
• During the reverse mortgage process, the homeowners are responsible for property taxes and repairs to the property as they still own their home.

Depending on the lender, borrowers can choose to receive monthly payments, a lump sum, a line of credit, or some combination.

The line of credit offers the most flexibility by allowing homeowners to write checks on their equity when needed up to the limit of the loan

The reverse mortgage payments you receive are nontaxable. Further, if you receive Social Security Supplemental Security Income, reverse mortgage payments do not affect your benefits, as long as you spend them within the month you receive them. This rule is also true for Medicaid benefits in most states.

To find out the exact impact of reverse mortgage payments on benefits you are receiving, check with a benefits specialist at your local area agency on aging or legal services office.

Interest on reverse mortgages is not deductible until you pay off your reverse mortgage debt.

Maximum loan amount limits are based on the value of the home, the borrower’s age and life expectancy, the loan’s interest rate, and whatever the lender’s policies are. Maximum loan amounts range (depending on the lender) from 50% to 75% of the home’s fair market value. The general rule is: The older the homeowner and the more valuable the home, the more money will be available.

Example: A 65-year-old homeowner with a home worth $150,000 would be able to get a $30,000 lump sum or credit line. A 90-year-old homeowner with the same home could be eligible for as much as $94,000.

All reverse mortgages have non-recourse clauses, meaning the debt cannot be more than the home’s value. Thus, the lender seeks repayment from heirs, family members, or the borrower’s income or other assets.

Here are some of the downside aspects of reverse mortgages.

You Incur a Large Amount of Interest Debt

Reverse mortgages are rising-debt loans: The interest is added to the loan balance each month, since it is not paid currently, and the total interest you owe increases greatly over time as the interest compounds.

Some plans provide for fixed rate interest. Others have adjustable rates that change based on market conditions.

Fewer Assets for Heirs

Reverse mortgages use up the equity in your home, leaving fewer assets for your heirs.

High Costs

The high up-front costs of reverse mortgage may make them less attractive to some people. All three types of plans charge origination fee, interest rate, closing costs, and servicing fees. Insured plans also charge insurance premiums.

If you are forced to move soon after taking the reverse mortgage (e.g., because of illness), you will almost certainly end up with a great deal less equity to live on than if you had simply sold the house. This is particularly true in the case of loans terminated in five years or less.

Your lender may permit you to finance these costs, so that you won’t have to pay them up front. But they will be added to your loan amount. Because of the high up-front costs on all reverse mortgages, effective interest rates for short-term loans are out of this world.

Adjustable Interest Rates

With many reverse mortgage plans, interest rates are adjustable annually or monthly and tied to a financial index, in some cases with limits on how far the rate can go up or down. Reverse mortgages with interest rates that adjust monthly have no limit. Bear in mind that the higher the rate, the faster your equity is used up.

In order to give a fixed rate, one lender requires appreciation sharing, with which it gets a part of any increase in the home’s value over and above the debt. Another lender offers percent of value pricing, collecting a fixed percentage of the home’s value when the loan comes due. The latter option can be very expensive if the loan must be paid off after only a few years.

Although a reverse mortgage may be the answer for house-rich and cash-poor retirees, they are not for everyone. For instance, if you plan to move a few years down the road or there is a possibility you will have to move due to illness or any other unforeseen event, then a reverse mortgage makes no sense. They make the most sense for those who plan to stay in their homes permanently. Also, if you already have a substantial mortgage on your home, the reverse mortgage is probably not for you, since you will have to pay it off before you can become eligible.

If you want to pass your home to your children or heirs, the reverse mortgage is also not a good choice since the lender will get most of the equity when the home is sold.

Besides the reverse mortgage, here are some alternatives to consider.

• Programs that help with real estate taxes, repairs. Many state and local governments have programs that provide special purpose loans to seniors for (1) the deferral of property taxes and (2) making home repairs or improvements. These loans can often prevent retirees’ having to sell their homes. To find out whether your state has a special-purpose loan program for property taxes and/or for home repairs and improvements, contact your state agency on aging.
• The Qualified Personal Residence Trust (QPRT). If you want to pass your home to your children or other heirs, this option should be considered, especially if your home is worth a great deal and you want to remove it from your estate for estate tax purposes. The QPRT trust allows you to keep the home for a certain amount of time with ownership eventually passing to your heirs.
• The sale-leaseback. You sell your home to your kids, and continue to live in it, paying them a fair market rent.

Do not arrange a sale-leaseback without professional guidance.

Reverse mortgages are complex financial transactions. How do you know you are getting the best deal? Fortunately there are laws in place (such as the Federal Truth in Lending Act) to make sure you understand the terms and costs involved before you sign. The Federal Truth in Lending Act requires lenders to disclose such things as the Annual Percentage Rate (APR) and payment terms. On plans with adjustable rates, lenders must provide specific information about the variable rate feature. On plans with credit lines, lenders also must inform you of any charges to open and use the account, such as an appraisal, a credit report, or attorney’s fees.

If you’re considering a reverse mortgage, shop around. Compare your options and the terms various lenders offer. Learn as much as you can about reverse mortgages before you talk to a counselor or lender. That can help inform the questions you ask that could lead to a better deal.

If you want to make a home repair or improvement or you need help paying your property taxes, then you should find out if you qualify for any low-cost single-purpose loans in your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the nearest agency, visit www.eldercare.gov or call 1-800-677-1116. Ask about “loan or grant programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs, and how to apply.

All HECM lenders must follow HUD rules. And while the mortgage insurance premium is the same from lender to lender, most loan costs, including the origination fee, interest rate, closing costs, and servicing fees vary among lenders.

If you live in a higher-valued home, you may be able to borrow more with a proprietary reverse mortgage, but the more you borrow, the higher your costs are. The best way to see key differences between a HECM and a proprietary loan is to do a side-by-side comparison of costs and benefits. Many HECM counselors and lenders can give you this important information.

No matter what type of reverse mortgage you’re considering, understand all the conditions that could make the loan due and payable. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates: they show the projected annual average cost of a reverse mortgage, including all the itemized costs.

This section describes the three types of reverse mortgages available. Although the FHA and lender-insured plans appear similar, important differences exist. This section also discusses advantages and drawbacks of each loan type.

FHA-Insured Home Equity Conversion Mortgages (HECMs)

Backed by the U. S. Department of Housing and Urban Development (HUD), over 90 percent of all reverse mortgages are HECMs. These mortgages offer several payment options:

• Monthly loan advances for a fixed term, or for as long as you live in the home
• A line of credit
• Monthly loan advances plus a line of credit

This type of reverse mortgage is not due as long as you live in your home. With the line of credit option, you may draw amounts as you need them over time. Closing costs, a mortgage insurance premium, and, sometimes, a monthly servicing fee are required. Interest is at an adjustable rate on your loan balance. Interest rate changes do not affect the monthly payment, but rather how quickly your loan balance grows.

The FHA-insured reverse mortgage allows you to change the way you are paid at little cost. This plan also protects you by guaranteeing that loan advances will continue to be made to you if a lender defaults. However, the downside of FHA-insured reverse mortgages is that they may provide smaller loan advances than lender-insured plans. Also, loan costs may be greater than with uninsured plans.

The most widely available plan is the Federal Housing Administration’s Government-insured Home Equity Conversion Mortgage (HECM) program. To qualify for an HECM loan, homeowners must be at least 62 and live in a single-family home or condominium that is their principal residence. Under this program, the amount of equity homeowners may borrow against depends on where they live, as well as on prevailing interest rates.

For people who have more expensive homes or who need to borrow more, there are alternatives. A program from the Federal National Mortgage Association grants larger reverse mortgages on home equity.

Counseling is required before homeowners can apply for an HECM loan. This counseling allows homeowners to discover whether a reverse mortgage is really the best answer to their cash-flow problems.

For an approved counselor, contact any HECM lender.

Single-purpose reverse mortgages

Offered by some state and local government agencies and nonprofit organizations, these reverse mortgages are the least expensive option. They are not available everywhere and can be used for only one purpose, which is specified by the government or nonprofit lender. For example, the lender might say the loan may be used only to pay for home repairs, improvements, or property taxes. Most homeowners with low or moderate income can qualify for these loans.

Proprietary reverse mortgages

This type of reverse mortgage is a private loan that is backed by the company that develops it. Like HECM loans, they may be more expensive than traditional home loans and upfront costs can be high. There are no income requirements and can be used for any purpose.

Most private reverse mortgages are not insured. Only the strength of the lender backs whatever promises it may make as to payments and other terms. So if you are looking to a reverse mortgage for future income, rather than a lump sum up front, you are better off in a federally insured program.

To obtain a current list of lenders participating in the FHA-insured program, sponsored by the Department of Housing and Urban Development (HUD), or additional information on reverse mortgages and other home equity conversion plans, contact:

National Reverse Mortgage Lenders Association (NRMLA)

If you have a question or complaint concerning reverse mortgages, contact:

Federal Trade Commission (FTC)

Although the FTC generally does not intervene in individual disputes, the information you provide may indicate a pattern or practice that requires action by the Commission.

ERISA sets minimum standards that pension plans in private industry must meet. Thus, if your employer maintains a pension plan, ERISA dictates, for example, the latest date by which you can become a participant and how long you may be required to work before you obtain a vested (nonforfeitable) interest in your pension.

If not for ERISA (or some other federal or state law), plans would, for example, be able to require that employees work ten years before becoming vested in a pension plan or to require them to work five years before having to put in any money for them.

ERISA does not force an employer to establish a pension plan. It merely requires that if the employer establishes a plan, the plan must meet ERISA’s standards. The law also does not specify how much money a participant must be paid as a benefit.

ERISA does the following (these will be examined in more detail later on in the guide):

• Requires plans to provide participants with information about the plan. Participants are employees who have worked a certain length of time and are therefore eligible to participate in the plan.
• Sets minimum standards for participation, vesting, benefit accrual and funding. The law defines how long a person may be required to work before becoming eligible to participate in a plan, to accumulate benefits, and to have a vested right to those benefits. The law also has detailed funding rules that require employer plan sponsors to provide adequate funding for your plan.
• Requires accountability of plan fiduciaries. ERISA says a fiduciary is anyone who exercises discretionary authority or control over a plan’s management or assets, including anyone who provides investment advice to the plan. Fiduciaries who do not follow the ERISA principles of conduct may be liable for restoring losses to the plan.
• Gives participants the right to sue for benefits and breaches of fiduciary duty.
• Guarantees payment of certain benefits if a defined benefit plan is terminated.

Before we discuss what ERISA guarantees, it is important to distinguish among the different types of employee retirement plans, since the rights guaranteed with pension plans vary according to the type of plan. Generally speaking, there are two types of pension plans: (1) defined benefit plans and (2) defined contribution plans.

What is a Defined Benefit Plan?

A defined benefit plan, usually a traditional pension plan, promises you a specified monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service, for example, one percent of your average salary for the last five years of employment for every year of service with your employer. The amount of your benefit depends on what is promised, not on the performance of the investments.

The general rules of ERISA apply to defined benefit plans, and some specialized rules also apply.

What is a Defined Contribution Plan?

A defined contribution plan, on the other hand, does not promise you a specific amount of benefits at retirement. In these plans, you or your employer (or both) contribute to your individual account under the plan, sometimes at a set rate, such as five percent of your earnings annually.

The contributions are invested on your behalf. When you retire, quit, or otherwise separate from service, you will receive the balance in your account, which is based on contributions plus or minus investment gains or losses. The value of your account will fluctuate due to changes in the value of your investments.

Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans. The general rules of ERISA apply to each of these types of plans.

To determine what type of plan your employer provides, check with your plan administrator or read your summary plan description.

There are a number of variations on the defined contribution plan. These include (1) the Money Purchase Plan, (2) the Simplified Employee Pension Plan (SEP), (3) the Profit Sharing Plan and Stock Bonus Plan, (4) the 401 (k) Plan, (5) the “Simple” IRA Plan, and (6) the Employee Stock Ownership Plan (ESOP). They are discussed below:

Money Purchase Plan. A money purchase pension plan requires fixed annual contributions from your employer to your individual account. This is a type of defined contribution plan. Because a money purchase pension plan requires these regular contributions, the plan is subject to certain funding and other rules.

Simplified Employee Pension Plan (SEP). Your employer may sponsor a Simplified Employee Pension plan (SEP). SEPs are relatively simple retirement savings vehicles which allow employers to make contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees. SEPs are subject to fewer reporting and disclosure requirements than other retirement plans. Under a SEP, you as the employee generally set up an IRA to accept your employer’s contributions. (Sometimes the employer does this.) Your employer can contribute a percentage of your pay into a SEP each year.

Related Guide: For tax rules and contribution limits on pension and other employee retirement plans, see the Financial Guide: EMPLOYEE BENEFITS: How To Handle Them.

Profit Sharing Plan and Stock Bonus Plan. A profit-sharing or stock bonus plan is a defined contribution plan under which the plan may provide, or the employer may determine, annually, how much will be contributed to the plan (out of profits or otherwise). The plan contains a formula for allocating to each participant a portion of each annual contribution. A profit sharing plan or stock bonus plan may include a 401(k) plan.

401(k) Plan. Your employer may establish a defined contribution plan that is a cash or deferred arrangement, usually called a 401(k) plan. You can elect to defer receiving a portion of your salary, which is instead contributed on your behalf, before taxes, to the 401(k) plan. Sometimes the employer matches your contributions. There are special rules governing the operation of a 401 (k) plan.

Your employer must advise you of any limits that may apply to you.

Although a 401(k) plan is a retirement plan, you may be able to access funds in the plan before retirement. For example, if you are an active employee, your plan can allow you to borrow from the plan. Also, your plan may permit you to make a withdrawal on account of hardship, generally from the funds you contributed. Sponsors cannot make your elective deferrals a condition for the receipt of other benefits, except for matching contributions.

“Simple” Plan. Recent legislation allows self-employed persons and employers with 100 or fewer employees to establish “SIMPLE” retirement plans. The SIMPLE combines the features of an IRA and a 401(k).

Employee Stock Ownership Plan (ESOP). Employee stock ownership plans (ESOPs) are a form of defined contribution plan in which the investments are primarily in employer stock. Congress authorized the creation of ESOPs as one method of encouraging employee participation in corporate ownership.

ERISA requires plan administrators, the people who run plans, to give you in writing the most important facts you need to know about your pension plan. Some of these facts must be provided to you regularly and automatically by the plan administrator. Others are available upon request, free-of-charge or for copying fees.

Your request for plan information should be made in writing.

The two most important documents you are entitled to are (1) the summary plan description and (2) the summary annual report. The summary annual report is a summary of the annual financial report that most pension plans must file with the Department of Labor. It is available to you at no cost.

To learn more about your plan’s assets, ask the plan administrator for a copy of the annual report in its entirety.

What is the Summary Plan Description?

One of the most important documents you are entitled to receive automatically when you become a participant of an ERISA-covered pension plan or a beneficiary receiving benefits under such a plan, is a summary of the plan, called the summary plan description (SPD). Your plan administrator is legally obligated to provide the SPD to you free of charge.

The SPD tells you what the plan provides and how it operates. It tells you when you begin to participate in the plan, how your service and benefits are calculated when your benefit becomes vested when you will receive payment and in what form, and how to file a claim for benefits.

Read your SPD to learn about the particular provisions that apply to you. If a plan is changed you must be informed, either through a revised summary plan description or in a separate document, called a summary of material modifications, which also must be given to you free of charge.

What if You Can’t Obtain these Documents?

If you are unable to get the summary plan description, the summary annual report, or the annual report from the plan administrator, you may be able to obtain a copy by writing to the Department of Labor, PWBA, Public Disclosure Room, Room N-5638, 200 Constitution Avenue, N.W., Washington, D.C. 20210, for a nominal copying charge. If possible, provide the name of the plan, employer identification number (a 9-digit number assigned by the IRS) and the plan number (a 3-digit number, such as 002). If you do not have this information, give the name of the plan and the city and state.

Where Else Can I Get Plan Documents?

Documents for some plans are available for public inspection at the IRS. These documents include the applications filed by pension plans to determine if they meet federal tax qualification requirements, applications filed by certain organizations to determine if they qualify as tax-exempt, and the IRS responses to these applications. For information on available documents, contact the IRS Freedom of Information Electronic Reading Room via their website: IRS Freedom of Information Electronic Reading Room

If you terminate employment and you have a vested pension benefit (see below for an explanation of vested benefits) that you are not eligible to receive until later, that information will be reported by your plan to the IRS, which, in turn, will inform the Social Security Administration. This information must also be provided to you by the plan.

Keep the plan administrator informed about any change of address or name change after you leave employment to assure that you will receive the pension benefit due you.

Generally speaking, you must be permitted to become a participant if you have reached age 21 and have completed one year of service. Even if you work part-time or seasonally, you cannot be excluded from the plan on grounds of age or service if you meet this service standard. You must be permitted to begin to participate in the plan no later than the start of the next plan year or six months after meeting the requirements of membership, whichever is earlier.

You must be in the “covered” group of employees to get the benefit of ERISA’s age and length of service guarantees. Your employer is allowed to provide one or more plans covering different groups of employees, or to exclude certain categories of employees from coverage under any plan. For example, your employer might sponsor one plan for salaried employees and another for union employees. You may not be within the group that the employer defines as covered by the plan.

ERISA imposes certain other participation rules. They depend on the type of employer for whom you work, the type of plan your employer provides, and your age. For example:

• If you were an older worker when you were hired, you cannot be excluded from participating in the plan on grounds of age just because you are close to retirement age.
• If, upon your entry into the plan, your benefit will be immediately fully “vested,” or non-forfeitable (see below), the plan can require that you complete two years of service before you become eligible to participate in the plan. 401 (k) plans, however, cannot require you to complete more than one year of service before you become eligible to participate.
• If you work for a tax-exempt educational institution and your plan benefit becomes vested after you earn one year of service, the plan can require that you be at least age 26 (instead of age 21 ) before you can participate in the plan.
• If your employer maintains a SEP, you must be permitted to participate if you have performed services for the employer in three of the immediately preceding five years.

How is “Service” Measured?

ERISA has rules for how employers must measure employees’ employment to determine how the eligibility, benefit accrual, and vesting rules apply. ERISA generally defines a year of service as 1,000 hours of service during a 12-month period. Different rules apply to counting years of service for purposes of eligibility, benefit accrual, and vesting.

A plan basically has a choice among three methods for determining whether you must be credited with a year of service for participation, vesting, and, in some circumstances, benefit accrual: the general method of counting service, a simplified equivalency method, or the elapsed time method. Refer to your summary plan description to see which method is used by your plan.

What is Benefit Accrual and How Does it Work?

When you participate in a pension plan, you accrue (earn) pension benefits. Your accrued benefit is the amount of benefit that has accumulated or been allocated in your name under the plan as of a particular point in time. ERISA generally does not set benefit levels or specify precisely how benefits are to accumulate.

Plans may use any definition of service for purposes of benefit accrual as long as the definition is applied on a reasonable and consistent basis. Service for benefit accrual generally takes into account only the years of service you earn after you become a plan participant, not all service you have performed since you were hired by your employer. Employees who work less than full-time, but at least 1,000 hours per year, must be credited with a pro rata portion of the benefit that they would accrue if they were employed full-time.

To illustrate: If a plan requires 2,000 hours of service for full benefit accrual, then a participant who works 1,000 hours must be credited with at least 50 percent of the full benefit accrual .

A special rule applies to SEPs: all participants who earn a certain minimum amount in compensation from their employers are entitled to receive a contribution.

Since ERISA generally does not regulate the amount of your benefit, you can estimate how much pension you are building up only by examining the summary plan description or the plan document. These documents should explain how you earn service credit for full benefit accrual each plan year.

Your accrued benefit includes more than just the amount of benefit you have accumulated. Your plan provides you with various rights and options, some of which are protected rights attached to your benefit amount. As a general rule, protected rights cannot be reduced or eliminated, nor can they be granted or denied at your employer’s discretion. If a plan feature you care about has been eliminated, this section is designed to help you determine whether it was a protected right.

The rights that are protected include (1) optional forms of benefit payments, (2) early retirement benefits, and (3) retirement-type subsidies.

• Optional forms of benefit payment. An example of an optional form of benefit that your plan may provide is the right to receive payment of your benefits in a lump sum payment rather than as an annuity.
• Early retirement benefit. ERISA does not require a pension plan to provide participants with the option to retire earlier than at the plan’s normal retirement age, but if such an option is offered, a plan generally may not be changed to eliminate the right to take such an early retirement as to benefits accrued before the change.
• Retirement-type subsidy. Retirement-type subsidies are also a protected part of your benefit and cannot be eliminated retroactively.

Certain important plan features are not protected, such as a Social Security supplement, the right to direct investments, the right to a particular form of investment, the right to take a loan from a plan, or the right to make employee contributions at a particular rate on either a before or after-tax basis.

ERISA does not prohibit your employer from amending the plan to reduce the rate at which benefits accrue in the future. For example, a plan that pays $5 in monthly benefits at age 55 for years of service through 2001, may be amended to provide that years of service beginning in 2002 will be credited at the rate of $4 per month.

If you are a participant in a defined benefit plan or a money purchase plan, you must receive written notice of a significant reduction the rate of future benefit accruals after the plan amendment is adopted and at least 15 days before the effective date of the plan amendment. The written notice must describe the plan amendment and its effective date.

The 2001 Tax Relief Act put teeth in this rule by imposing a penalty excise for a plan’s failure to provide notice to participants (or QDRO recipients) of plan amendments making a significant reduction in the rate of future benefit accrual. The penalty generally is imposed on the employer and applies after June 6, 2001. “Egregious” (for example, intentional) failure to give notice can in effect void the amendment. The toughened provision was prompted by widespread conversions of regular defined benefit pension plans to cash balance plans.

A break in service can have serious consequences for your pension if it extends for a long enough time and your pension benefit is not yet fully vested. However, ERISA does not permit your accrued benefit to be forfeited if you have a short break in service. ERISA in general guarantees that your service credit cannot be forfeited for absences shorter than five consecutive years.

If you need to take a leave of absence, you should carefully examine your plan’s rules so that you do not lose pension benefits you have accrued.

If you continue to work past normal retirement age without retiring, you continue to accrue benefits, regardless of age. However, a plan can limit the total number of years of service that will be taken into account for benefit accrual for anyone under the plan. If you retire and later go back to work with your employer, you must be allowed to continue to accrue additional benefits, subject to any such limit on total years of service credited under the plan.

Plans that provide for the payment of early retirement benefits may suspend payment of those benefits if you are re-employed before reaching normal retirement age. However, if the plan suspends payment of benefits before normal retirement age, under circumstances that would not have permitted a suspension after normal retirement age and the plan pays an actuarially reduced early retirement benefit, the plan must actuarially recalculate your monthly payment when you later begin to again receive payments.

Under certain circumstances (described below), your pension payments after you reach normal retirement age may be suspended if you return to work. For example, ERISA permits a multi-employer plan to suspend the payment of normal retirement benefits if you return to work in the same industry, the same trade, and the same geographical area covered by the plan as when benefits commenced.

Before suspending benefit payments, the plan must notify you of the suspension during the first calendar month in which the plan withholds payments. The notification must give you the information on why benefit payments are suspended, a general summary and a copy of the plan’s suspension of benefit provisions, a statement regarding the Department of Labor regulations, and information on how you can request a review of the decision to suspend benefit payments. If most of this information is contained in the plan’s summary plan description, the notification may simply refer to the appropriate pages of the summary plan description.

A plan that suspends benefit payments must tell you how you can request an advance determination of whether a particular type of reemployment would result in a suspension.

If you are a retiree and are considering taking a job, write to the administrator of your plan to ask if your pension benefits will be suspended.

Vesting refers to the amount of time you must work before earning a non-forfeitable right to your accrued benefit. When you are fully vested, your accrued benefit is yours, even if you leave the company before reaching retirement age.

Generally, if you are employed when you reach your plan’s normal retirement age (usually 65), you will be fully vested. You also must be permitted to earn a vested right to your accrued benefit through service as described below.

You are always entitled to 100 percent vesting in your own contributions and salary reduction contributions and their investment earnings. However, if your employer contributes to your accrued benefit (as most do) you may be required to complete a certain number of years of service with the employer before the employer portion of your accrued benefit becomes vested. Thus, if you terminate employment before working for a long enough period with your employer, you may forfeit all or part of the accrued benefit provided by your employer.

You must be permitted to earn vesting credit according to a vesting schedule that is at least as generous as prescribed in ERISA vesting schedules. Plans may provide a different standard, as long it is more generous than these minimums.

Check your summary plan description for a description of your employer’s vesting schedule.

With some exceptions, once you begin participating in a pension plan, all of your years of service with the employer after you reached age 18 must be taken into account to determine whether and to what extent your accrued benefits are vested. This includes service you earned before you began to participate in the plan and service you earned before the effective date of ERISA.

However, ERISA does allow plans to disregard certain periods for purposes of determining an employee’s vesting service.

For further details on what periods of service may be disregarded, see your summary plan description or the plan document to find out what periods are counted in your plan.

When you receive a benefit statement, compare the amount of your accrued benefit with the amount or percentage of your vested benefit to determine its accuracy. If these items are not clear from your benefit statement, ask your plan administrator.

The plan administrator may send you a benefit statement each year. If not, you may request a copy.

In order to keep track of your vesting service, you may want to keep records of your hire date, the date you began participating in the plan, and the dates of any leaves of absence that could affect your total service.

If the plan’s vesting schedule is changed after you have completed at least three years of service, you have the right to select the vesting schedule that existed prior to the change for the entire length of your service, rather than the new schedule.

Plans are considered top-heavy if they are tax qualified and more than 60 percent of the benefits accrue to certain owners and officers, otherwise known as key employees. This could, for example, occur in small companies that have frequent turnover of rank-and-file workers. In years in which a plan is top-heavy, you have the right to both faster vesting and minimum benefits, if you are not a key employee. The 2001 Tax Relief Act eased the top-heavy rules for 2002 and after. This could have the effect of increasing key employees’ shares in the plan, and reducing others’ shares.

ERISA provides specific rules governing when you may or must begin receiving your pension benefits. First, ERISA sets the latest date by which the plan must permit you to begin receiving your benefit. Under this rule, payment must begin by the 60th day after the end of the plan year in which the latest of the following events occur:

1. Your reaching of age 65 or, if earlier, the normal retirement age specified by your plan
2. The end of 10th year after you began participation in the plan
3. Your termination of service

Example: Your plan must provide-at a minimum-that you will be entitled to begin to receive your benefit 60 days after the end of the plan year in which you reach age 65, if you began participation in the plan at least 10 years before that year.

Your plan may allow you to receive payment of your benefit earlier than required by the above rule (and many plans do, subject to rules described below). However, as long as the present value of your vested accrued benefit is greater than $5,000, the plan cannot force you to begin receiving your benefit before you reach the age that is generally considered normal retirement age (or age 62 if later) .

If the present value of your vested accrued benefit under the plan is $5,000 or less, the plan may require you to receive your benefit when it first becomes distributable, such as when you terminate. Under the 2001 Tax Relief Act, such amounts, if more than $1,000, are automatically rolled over to an IRA for your benefit, unless you decide otherwise. This rule becomes effective after implementing regulations are issued.

How Early May Your Plan Allow You to Take Payments?

ERISA provides rules governing the times at which a pension plan may permit you to receive benefits. As these limitations on “distribution events” for payment vary, depending on the type of pension plan, you should consult your summary plan description for the specific conditions under which you will be entitled to receive your benefits. After the event occurs that permits payment of your benefit, your plan may require some reasonable period of time during which to calculate your benefit and determine your payment schedule, or to value your account balance and to liquidate any investments in which your account is invested.

The following are a few general rules about possible distribution events for which your plan may provide.

• If your plan is a defined benefit plan or a money purchase plan, it will set a normal retirement age, which is generally the time at which you will be eligible to begin receiving your vested accrued benefit. These types of plans may permit earlier payments, however, either by providing for early retirement benefits, for which the plan may set additional eligibility requirements, or by permitting benefits to be paid when you terminate employment, suffer a disability, or die.
• If your plan is a 401(k) plan, it may permit you to take some or all of your vested accrued benefit when you terminate employment, retire, die, become disabled, reach age 59-1/2, or if you suffer a hardship.
• If your plan is a profit-sharing plan or a stock bonus plan, your plan may permit you to receive your vested accrued benefit after you terminate employment, become disabled, die, reach a specific age, or after a specific number of years have elapsed.

Your plan’s summary plan description should describe all of the rules applicable to any of the events that permit distributions.

When Must You Take Payment?

ERISA also sets a date by which you must begin to receive your benefits, regardless of your wishes or the plan’s rules, if your plan is tax-qualified. This mandatory beginning date is generally April 1 of the calendar year following the calendar year in which you reach age 72. ERISA provides rules for determining how much of your accrued benefit you must then receive each year.

Unless you own more than 5 percent of the business, the plan can allow you to postpone taking money out of your retirement plan beyond age 72 if you’re still employed.

In What Form Will Your Benefits Be Paid?

With some very important limits, your plan can dictate the forms in which you may receive your accrued benefit. The protections that ERISA provides about form of benefit payments vary again depending on whether you have a defined benefit plan, money purchase plan, or other kind of defined contribution plan.

If you are covered under a defined benefit plan or a money purchase plan, your benefit must be available in the form of a life annuity, which means you will receive equal periodic payments (e.g., monthly, quarterly, etc.) for the rest of your life. If you are married, your benefit must be available in the form of a qualified joint and survivor annuity. (That form of benefit payment is described in the next section on spousal rights to benefit payments.) It is also free to offer benefits in a lump sum, as an alternative, subject to the participant’s or spouse’s right to insist on an annuity.

Be careful about choosing a lump sum payout instead of an annuity under a defined benefit plan. The lump sum can be calculated-legally-in an amount which is less than what pension advisers consider the present value of the annuity. Consult a professional before deciding.

If you are covered under a defined contribution plan that is not a money purchase plan, the plan may choose to pay your benefits in a single lump sum payment, or in any other form it chooses. If it offers a life annuity option, however, and you choose that option, you and your spouse (if any) will be protected by being offered a life annuity or a joint and survivor annuity that satisfies the requirements of ERISA.

ERISA provides some guarantees for surviving spouses of deceased participants who had earned a vested pension benefit before death. The nature of the guaranteed interest depends on the type of plan and whether the participant dies before or after the annuity starting date-i.e., before or after payment of the pension benefit is scheduled to begin.

The rules we discuss apply to participants who completed an hour of service (or paid leave) on or after August 23, 1984. ERISA’s survivor annuity rules are different if you are the surviving spouse of a participant who left employment before that date.

In the case of a defined benefit plan (traditional pension plan) or a money purchase plan, the plan must provide for a qualified joint and survivor annuity. In the case of a defined contribution plan (a 401(k) plan or profit-sharing plan), the protections are somewhat different. Let’s take a look at each of these.

The summary plan description will tell you the type of plan involved and whether survivor annuities or other death benefits are provided under the plan.

What is a Qualified Joint and Survivor Annuity (QJSA)?

The QJSA requirement applies to defined benefit plans and money purchase plans. ERISA says the retirement benefit payment must be paid in a series of equal, periodic payments over your lifetime, with a payment continuing to your spouse for life if you die first-unless you and your spouse have chosen otherwise. The periodic payment to your surviving spouse must be at least 50 percent and not more than 100 percent of the periodic payment received during your joint lives.

If the plan provides other forms of benefit payment, and you and your spouse want to waive your rights to receive the QJSA and select one of the other payment forms, you can do so as long as:

• You and your spouse receive a timely explanation of the QJSA,
• Your waiver is made in writing within certain time limits, and
• Your spouse consents to the waiver in writing, as witnessed by a notary or plan representative.

What is a Qualified Pre-Retirement Survivor Annuity (QPSA)?

A survivor annuity must also be offered by a defined benefit or money purchase plan if a married participant with a vested benefit dies before he or she begins receiving benefits. This survivor annuity is called a qualified preretirement survivor annuity (QPSA), and ERISA specifies how the QPSA is calculated. You and your spouse must be given a timely explanation of the QPSA. You may only waive the right to a QPSA in writing, and your spouse must consent to the waiver of the QPSA in writing, witnessed by a notary or plan representative.

What Survivor Benefit Rules Apply to Defined Contribution Plans (such as 401(k) Plans)?

Most profit sharing and stock bonus plans, e.g., 401(k) plans, generally need not offer a survivor annuity. However, there are different rules for such plans that protect the spouse as beneficiary.

Before you begin to receive your benefits under such a plan your spouse is automatically presumed to be your beneficiary. Thus, if you die before you receive your benefits, all of your benefits will automatically go to your surviving spouse. If you wish to select a beneficiary other than your spouse, your spouse must consent in writing, witnessed by a notary or plan representative. This protects your spouse in the event of your death before any payout has been made.

However, when it is time for you to take payouts from the plan (e.g., you terminate employment or reach retirement,) you may choose-without your spouse’s consent-among any optional forms of payment offered by the plan, including a life annuity. If you choose a life annuity, however, your spouse is then protected by QJSA rules, and the benefit will be paid as a QJSA unless you and your spouse consent to a different form, as outlined above.

For more in-depth information on the rules governing QJSA and QPSA rights, IRS publications are available.

Under ERISA you have a right to make a claim for benefits due under a plan. ERISA requires all plans to have a reasonable written procedure for processing your claims for benefits and for appealing if your claim is denied. The summary plan description should contain a description of your plan’s procedures.

If you believe you are entitled to a benefit from a pension plan, but your plan fails to set up a claims procedure, present the claim to the plan administrator.

If you make a claim for benefits that is denied, the plan must notify you in writing, generally within 90 days after receipt of the claim, of the reasons for the denial and the specific plan provisions on which the denial is based. If the plan denies your claim because the administrator needs more information to make a decision, the administrator must tell you what information is needed. Any notice of denial must also tell you how to file an appeal.

If special circumstances require your plan to take more time to examine your request, it must tell you within the 90 days that additional time is needed, why it is needed, and the date by which the plan expects to make a final decision. If you receive no answer at all in 90 days, this is treated the same as a denial, and you can appeal.

You must be allowed at least 60 days to appeal any denial. After receiving your appeal, the plan generally must issue a ruling within 60 days, unless the plan provides for a special hearing. If the plan notifies you that it must hold a hearing, or that it has other special circumstances, it may have an additional 60 days.

The plan must furnish you with a final decision on your appeal and the reasons for the decision with references to the relevant plan documents. If you disagree with the final decision, you may then file a lawsuit seeking your benefit under ERISA, as explained below. But courts generally require that you complete all the steps available to you under the claims procedure in a timely manner before you seek relief through a lawsuit. This is called “exhausting your administrative remedies.”

In certain defined contribution plans, instead of one group or individual making all the investment decisions for the plan’s assets, plan officials provide a number of investment options, and ask you to decide how to invest your account balance by choosing among those options.

The Department of Labor has rules about plans that permit you to direct your own investments. Under these rules, only if you truly exercise independent control in making your investment choices will plan officials be excused from fiduciary responsibility for your investment decisions.

A plan in which you actually exercise independent control over the investment of your individual account is called a 404(c) plan (after section 404(c) of ERISA). If you are a participant in a 404(c) plan, you are responsible for the consequences of your investment decision, and you cannot sue the plan officials for investment losses that result from your decision.

You are entitled to receive a broad range of information about the investment choices available under a 404(c) plan.

A plan that intends to relieve plan officials of fiduciary duties over investments must inform you of that fact.

A 404(c) plan must give you sufficient information about investment options for you to be able to make informed decisions. The information you are entitled to receive without asking includes the following:

• Notice that the plan officials may be relieved of liability of losses.
• A description of each investment option, including the investment goals, risk and return characteristics.
• Information about designated investment managers.
• An explanation of when and how to make investment instructions and any restrictions on when you can change investments.
• A statement of the fees that may be charged to your account when you change investment options or buy and sell investments.
• Information about your shareholder voting rights and the manner in which confidentiality will be provided on how you vote your shares of stock.
• The name, address, and phone number of the plan fiduciary or other person designated to provide certain additional information on request.
• For security investors, a copy of the most recent prospectus for the security.

Effective starting in 2007, a plan may arrange to provide individual investment advice, without liability for plan officials, subject to strict conditions.

ERISA sets minimum funding rules to make sure sufficient money is available to pay promised pension benefits to you when you retire. Funding rules establish the minimum amounts that employers must contribute to plans to ensure that plans have enough money to pay benefits when due. The minimum funding rules apply to defined benefit plans and money purchase plans.

Defined benefit plans generally fund future benefits over time. The plans consider probable investment gains and losses and make assumptions about factors such as future interest rates and potential workforce changes. ERISA provides detailed funding rules to protect you from financing methods that could prove inadequate to pay the promised benefits when they are due.

ERISA provides severe sanctions against an employer who fails to meet the funding obligations. Any employer who fails to comply with the minimum funding requirements is charged an excise tax on the amount of the accumulated funding deficiency, unless the employer receives a waiver of the minimum funding requirements. This tax is imposed whether the under-funding was accidental or intentional.

Certain actions can also be taken by the Department of Labor and the Pension Benefit Guaranty Corporation to enforce the minimum funding standards.

A plan that intends to relieve plan officials of fiduciary duties over investments must inform you of that fact.

If a defined benefit plan is less than 90 percent funded, you must be notified each year about the plan’s funding status and PBGC’s guarantees. This rule is effective for plan years beginning after December 8, 1994.

Although pension plans must be established with the intention of being continued indefinitely, employers are allowed to terminate plans.

If your plan terminates or becomes insolvent, ERISA provides you some protection. In a tax-qualified plan, your accrued benefit must become 100 percent vested as soon as the plan terminates, to the extent then funded.

If a partial termination occurs, for example, if your employer closes a particular plant or division that results in the layoff of a substantial portion of plan participants, immediate 100 percent vesting, to the extent funded, also is required for affected employees.

What If Your Plan Terminates Without Enough Money to Pay the Benefits?

If your terminated plan is a defined benefit plan insured by the Pension Benefit Guaranty Corporation, PBGC will guarantee the payment of your vested pension benefits up to the limits set by law. Benefits that are not guaranteed or that exceed PBGC’s limits may be paid, depending on the plan’s funding and on whether PBGC is able to recover additional amounts from the employer.

If a plan terminates, and the plan purchases annuity contracts from an insurance company to pay pension benefits in the future, plan fiduciaries must take certain steps to select the safest available annuity. Thus, in accordance with Department of Labor guidance, the plan must conduct a thorough search with respect to the financial soundness of insurance companies that provide annuities, to better assure the future payment of benefits to participants and beneficiaries.

Your employer may choose to merge your plan with another plan. If your plan is terminated as a result of the merger, the benefit you would be entitled to receive after the merger must be at least equal to the benefit you were entitled to receive before the merger.

Special rules apply to mergers of multi-employer plans, which are generally under the jurisdiction of the PBGC.

As a plan participant or beneficiary, you may bring a civil action in court to do any of these things:

• Recover benefits due you and enforce your rights under the plan.
• Get access to plan documents you requested in writing.

If your plan administrator does not supply the plan documents within 30 days of your written request, a court could find the plan administrator personally liable for up to $100 per day (unless the failure results from circumstances reasonably beyond his or her control).

• Clarify your right to future benefits.
• Get appropriate relief from a breach of fiduciary duty.
• Enjoin any act or practice that violates the terms of the plan or any provision of Title I of ERISA, such as the reporting and disclosure, participation, vesting or funding, and fiduciary provisions, or to obtain other relief.
• Enforce the right to receive a statement of vested benefits on termination of employment.
• Obtain review of a final action of the Secretary of Labor; restrain the Secretary from taking action contrary to ERISA; or compel the Secretary to take action.
• Obtain review of any action of the PBGC or its agents that adversely affects you.

A lawsuit under ERISA is filed in a federal district court. If you seek benefits or clarification of your right to future benefits, you can choose to file in a state court.

The court has the discretion to order either party in the suit (you or the plan, fiduciaries, or sponsor) to pay reasonable attorney fees and costs in a suit under ERISA

Does the Government Ever Sue Employers or Sponsors?

The Secretary of Labor may directly bring a civil action under ERISA to enforce the fiduciary duty provisions of ERISA (explained later). The Labor Secretary also has limited authority to bring a civil action to enforce ERISA’s participation, vesting, and funding standards with respect to a tax-qualified plan. In addition, the Secretary has discretion to intervene in lawsuits filed in federal court to enforce rights under ERISA.

If you sue in federal court claiming a breach of fiduciary duty, you must provide a copy of the complaint to the Secretary of Labor and the Secretary of the Treasury by certified mail.

It is not necessary to provide such notice to any government agency if you bring a lawsuit solely to recover benefits under the plan.

Can You Be Fired for Suing for Making a Claim Under ERISA?

ERISA prohibits employers from promising pensions and then firing or disciplining workers to avoid paying a pension. To that end, ERISA says it is unlawful for an employer to discharge, fine, suspend, expel, discipline, or discriminate against you or any beneficiary for the purpose of interfering with the attainment of any right to which you may become entitled under the plan or the law.

Also, employers cannot take any of these steps against you for exercising your rights under a plan or under ERISA, or for giving information or testimony in any inquiry or proceeding relating to ERISA. Further, the use of force or violence to restrain, coerce, or intimidate you for the purpose of interfering with your rights or prospective rights is punishable by a fine of up to $10,000 and/or up to one year in prison.

Can Your Creditors Get to Your Pension if You Get into Financial Trouble?

In general, your pension benefits cannot be taken away from you by people to whom you owe money. However, the IRS can attach such benefits for tax claims. And the law makes a limited further exception when family support is at stake. Thus, a state court can transfer some of your pension benefit by issuing a qualified domestic relations order (QDRO), and the plan must honor the order.

What Is a QDRO?

Before a plan honors a domestic relations order awarding part or all of your pension benefit to your spouse, former spouse, child or other dependent, the plan must determine whether the order is a qualified domestic relations order (QDRO.) The order must meet these requirements:

• It must relate to child support, alimony, or marital property rights
• It must be made under state domestic relations law.
• It should clearly specify your name and last known mailing address and the name and last known address of each alternate payee. (The alternate payee is the spouse, ex-spouse, or dependent to whom the benefits are awarded.)
• It must state the name of your plan; the amount or percentage – or the method of determining the amount or percentage – of the benefit to be paid to the alternate payee; and the number of payments or time period to which the order applies.

It cannot provide a type or form of benefit that is not provided under the plan, and it cannot require the plan to provide an actuarially increased benefit.

If an earlier QDRO applies to your benefit, the earlier QDRO takes precedence over a later one.

In certain situations, a QDRO may provide that payment is to be made to an alternate payee before you are entitled to receive your benefit. For example, if you are still employed, a QDRO could require payment to an alternate payee to begin on or after your “earliest retirement age,” whether or not the plan would allow you to receive benefits at that time.

If you are in the process of a divorce, and a QDRO is being prepared for your family, be sure that the QDRO addresses (1) whether a benefit is payable to an alternate payee on your death and (2) the consequences of the death of the alternate payee.

The court’s order can be in the form of a state court judgment, decree or order, or court approval of a property settlement agreement.

The Department of Labor enforces Title I of ERISA, which, in part, establishes participants’ rights and fiduciaries’ duties. However, certain plans are not covered by the protections of Title I. They are:

• Federal, state, or local government plans, including plans of certain international organizations
• Certain church or church association plans
• Plans maintained solely to comply with state workers’ compensation, unemployment compensation or disability insurance laws
• Plans maintained outside the United States primarily for non-resident aliens
• Unfunded excess benefit plans-plans maintained solely to provide benefits or contributions in excess of those allowed for tax-qualified plans

The Labor Department’s Pension and Welfare Benefits Administration is the agency charged with enforcing the rules governing the conduct of plan managers, investment of plan assets, reporting and disclosure of plan information, enforcement of the fiduciary provisions of the law, and workers’ benefit rights.

Other federal agencies that regulate plans include:

• The Internal Revenue Service is responsible for ensuring compliance with the Internal Revenue Code, which establishes the rules for operating a tax-qualified pension plan, including pension plan funding and vesting requirements. A pension plan that is tax-qualified can offer special tax benefits both to the employer sponsoring the plan and to the participants who receive pension benefits.
• The Pension Benefit Guaranty Corporation, PBGC, a non-profit, federally-created corporation, guarantees payment of certain pension benefits under defined benefit plans (traditional pension plans) that are terminated with insufficient money to pay benefits.

Following is a list and description of the documents that must be made available to you. If a plan administrator refuses to comply with your request for documents, and the reasons for the delay are within his or her control, a court may impose a penalty of up to $100 per day. You will have to sue to enforce your rights, since the Department of Labor does not have the authority to impose this penalty.

When you die, certain members of your family may be eligible for survivors benefits if you paid Social Security taxes and earned enough “credits.” Most people earn a maximum of four credits per year. In 2023, you earn one (1) Social Security and Medicare credit for every $1,640 in covered earnings annually. You must earn $6,560 to get the maximum four (4) credits for the year.The number of credits you need to get retirement benefits depends on your date of birth. The younger you are, the fewer credits are needed to be eligible for survivors benefits, but nobody needs more than 40 credits (10 years of work).

If you stop working before you have enough credits to qualify for benefits, your credits will remain on your Social Security record. If you return to work, later on, you can then add credits so that you may qualify. No retirement benefits can be paid until you have the required number of credits.

If you are like most people, however, you will earn many more credits than you need to qualify for Social Security. While these extra credits do not increase your Social Security benefit, the income you earn while working will increase your benefit.

Under a special rule, benefits can be paid to your children, as well as your spouse who is caring for the children even if you don’t have the number of credits needed. Benefits can be paid as long as you have credit for one-and-one-half years of work in the three years just before your death.

When you die, your widow or widower may be able to receive full benefits at full retirement age. Full retirement age is age 66 for people born in 1945-1956 and gradually increases to age 67 for people born in 1962 or later. Reduced widow or widower benefits can be received as early as age 60. If your surviving spouse is disabled, benefits can begin as early as age 50.

In addition, a widow or widower can be paid benefits at any age if she or he takes care of your child who is under 16 or disabled and who gets benefits.

Dependent parents, age 62 or older (for parents to qualify as dependents, you would have had to provide at least one-half of their support) and unmarried children under age 18 (up to age 19 if they are attending elementary or secondary school full time) are also eligible for survivors benefits. Your children can get benefits at any age if they were disabled before age 22 and remain disabled, and under certain circumstances, benefits can also be paid to your stepchildren or grandchildren.

There is a special one-time payment of $255 that can be made when you die if you have accumulated enough work credits. This payment can be made only to your spouse or minor children if they meet certain requirements.

If you have been divorced, your former wife or husband who is age 60 or older (50-59 if disabled) can get benefits if your marriage lasted at least 10 years. Your former spouse, however, does not have to meet the age or length-of-marriage rule if he or she is caring for his/her child who is younger than age 16 or who is disabled and also entitled based on your work. The child must be your former spouse’s natural or legally adopted child.

Benefits paid to you as a surviving divorced spouse who meets the age or disability requirement as a widow or widower won’t affect the benefit rates for other survivors getting benefits on the worker’s record. However, if you are the surviving divorced mother or father who has the worker’s child under age 16 or disabled in your care, your benefit will affect the amount of the benefits of others on the worker’s record.

Benefits paid to a surviving divorced spouse who is 60 or older will not affect the benefit rates for other survivors getting benefits.

The amount of money your family receives from Social Security depends on your average lifetime earnings. The higher your earnings, the higher their benefits will be. There is a limit to the benefits that can be paid to you and other family members each month. The limit varies but is generally between 150 and 180 percent of the deceased’s benefit amount.

To get an estimate of the Social Security survivors benefits that could be paid to your family, go to SSA.gov and create an online mySocialSecurity account. Creating an account gives you the control to check your Social Security Statement, change your address, verify your reported earnings, estimate your future benefits, and much more. You can also call Social Security at 800-772-1213 and ask for a Request for Earnings and Benefit Estimate Statement.

When you apply for benefits, you will need to furnish certain information including proof of death – either from a funeral home or death certificate, your Social Security number as well as the deceased worker’s, your birth and marriage certificates (if applicable), dependent children’s Social Security numbers, if available, and birth certificates.

How you sign up for survivors benefits depends on whether or not you are getting other Social Security benefits, but in general, survivors receive:

• A widow or widower, at full retirement age or older, generally receives 100 percent of the worker’s basic benefit amount;
• A widow or widower, age 60 or older, but under full retirement age, receives about 71-99 percent of the worker’s basic benefit amount; or
• A widow or widower, any age, with a child younger than age 16, receives 75 percent of the worker’s benefit amount.
• Children receive 75 percent of the worker’s benefit amount.

No Other Social Security Benefits

You should apply for survivors benefits promptly because, in some cases, benefits may not be retroactive. The rules are complicated and vary depending on your situation, so you should talk to a Social Security representative about the options available to you.

Getting Other Social Security Benefits

If you are getting benefits as a wife or husband based on your spouse’s work when you report the death to SSA, your payments will change to survivors benefits.

If you are getting benefits based on your own work, you may be able to get more money as a widow or widower. If so, you will receive a combination of benefits that equals the higher amount. You will need to complete an application to switch to survivors benefits, and SSA will need to see your spouse’s death certificate. In addition, if you get Social Security survivors benefits, the amount of your benefits may be reduced if your earnings exceed certain limits. There are no limits once you reach 70.

Pensions from work not covered by Social Security

If you get a pension from work where you paid Social Security taxes, that pension will not affect your Social Security benefits. However, if you get a pension from work that was not covered by Social Security – for example, the federal civil service, some state or local government employment or work in a foreign country – your Social Security benefit may be reduced.

If You Still Work

If you work while getting Social Security survivors benefits and are younger than full retirement age, your benefits may be reduced if your earnings exceed certain limits. The full retirement age was 65 for people born before 1938 but gradually increases to 67 for people born in 1960 or later. There is no earnings limit beginning with the month you reach full retirement age. Also, your earnings will reduce only your benefits, not the benefits of other family members.

To find out what the limits are this year and how earnings above those limits reduce your Social Security benefits, contact Social Security.

If You Remarry

In general, you cannot get survivors benefits if you remarry; however, remarriage after 60 (50 if disabled) will not prevent benefit payments on your former spouse’s record – and, at 62 or older, you may get benefits on the record of your new spouse if they are higher.

Medicare is a health insurance plan for people who are 65 or older. People who are disabled or have kidney failure also can get Medicare. Like Social Security, Medicare is financed by a portion of the payroll taxes paid by workers and their employers.

If you live in Puerto Rico you will not receive Medicare Medical Insurance (Medicare Part B) automatically. You will need to sign up for it during your initial enrollment period or you will pay a higher premium. To sign up, call the Social Security Administration at 1-800-772-1213 or contact your local Social Security office.

Medicare has four parts:

• Part A: Hospital Insurance – helps pay for inpatient care in a hospital or skilled nursing facility (following a hospital stay), some home health care and hospice care.
• Part B: Medical Insurance – helps pay for doctors’ services and many other medical services and supplies that are not covered by hospital insurance.
• Part C: Medicare Advantage – Medicare Advantage Plans are not part of original Medicare, but instead are plans offered by private health insurers approved by Medicare. People with Medicare Parts A and B can choose to receive all of their health care services through one of these provider organizations under Part C. It may also provide Prescription Drug Coverage (Part D).
• Prescription Drug Coverage – helps pay for medications doctors prescribe for treatment.

Many retirees sign up for Medigap supplement insurance plans that cover gaps (and costs) that Original Medicare (Parts A and B) does not cover. Medicare supplement plans include Plans A, B, C, D, F, G, K, L, M, and N. Each of these plans have different coverages and in some states, Plans F and G, offer high-deductible options as well.

For assistance navigating Medicare, contact your local State Health Insurance Program (SHIP).

Social Security keeps personal information on millions of people. That information, such as your Social Security number, earnings record, age, and address, is kept confidential. Generally, SSA will discuss this information only with you and needs your permission if you want someone else to help with your Social Security business.

If you send a friend or family member to an SSA office to conduct your Social Security business, send your written consent with them. Only with your written permission can SSA discuss your personal information with them and provide the answers to your questions.

In the case of a minor child, the natural parent or legal guardian can act on the child’s behalf in taking care of the child’s Social Security business.

The privacy of your records is guaranteed. There are times when the law requires Social Security to give information to other government agencies to conduct other government health or welfare programs such as Aid to Families with Dependent Children, Medicaid, and SNAP, the Supplemental Nutrition Assistance Program (formerly known as food stamps). Programs receiving information from Social Security are prohibited from sharing that information.