If the teacher dies before retirement, only possible survivor benefit to a former spouse is a refund of the teacher’s contributions and interest. Initially, if the teacher had remarried the former spouse may have been precluded from receiving a lump sum pre-retirement death benefit. The Teachers’ Retirement Board (TRB) has started accepting court orders that assign a lump sum death benefit even if the teacher remarries. This would mean that if the divorce decree (and domestic relations order) specify that the former spouse’s right to a lump sum death benefit will be payable regardless of the teachers’ future marital status, no pre-retirement life annuity will be payable to a future spouse or beneficiary. This is an option that should be used judiciously, as the refunded contributions is often substantially less valuable than a survivor annuity. If the marriage is not long, or if the teacher is likely to remarry and have a family, life insurance may be a more equitable option than preventing a future spouse from receiving a life annuity in the event of the teacher’s pre-retirement death.. If the former spouse to get a lump sum to the exclusion of any future spouse’s rights, the separation agreement should so specify.
The separation agreement and domestic relations order can provide for survivorship benefits to the former spouse as long as the teacher doesn’t die before retiring and going into pay status. Currently, the TRB will honor the designation made in the domestic relations order.
There are two types of survivor benefits: a continuing life annuity (Plan D) or a period certain (Plan C).
Plan D: Co-Member Option: If the teacher is ordered to take this option and name the former spouse as the survivor, the former spouse will receive the assigned benefit during the teacher’s lifetime. Upon the teacher’s death, the assigned benefit terminates, and the former spouse will receive a lifetime survivor annuity, which will be a percentage of the full monthly annuity paid during the teacher’s life (the combined monthly payment to the teacher and former spouse). The co-member option is selected at the time of retirement, and can provide a survivor benefit ranging from 33% to 100%. The co-member option is paid through a reduction in the monthly retirement annuity. The greater the survivorship benefit, the greater the reduction to the monthly annuity will be.
The cost of the co-member option can be allocated to either party, or it can be shared. Some former spouses are willing to bear the entire reduction factor, in exchange for a 50% or 100% co-member option, since their benefits will increase upon the teacher’s death. The cost of the option can be significant, however, and should be determined before the option is selected. Be aware, there can only be one co-member. If the teacher remarries before retirement, there will be no survivor benefits for the new spouse if the former spouse is designated as the beneficiary under the co-member option.
Plan C: Period Certain: A certain number of payments are guaranteed from the date of the teacher’s retirement. The teacher can choose a guaranteed period of 5, 10, 15, 20 or 25 years. The guarantee starts on the effective date of retirement and extends for the term selected. If the teacher dies prior to receiving all of the guaranteed payments, the teacher’s beneficiary(ies) will receive the remaining monthly payments. This option will allow the teacher to name more than one beneficiary to share in the monthly payments for the remainder of the term selected.
There is one other retirement option available, but it does not provide benefits after the teacher’s death: Plan N: Life Option. This provides for payments for the life of the teacher only. Monthly payments terminate upon the teacher’s death.
In the event of the former spouse’s death, either before or after retirement benefits commence, the benefits must revert to the teacher.