Pension plans could end up paying the wrong person if members don't update their files, argue pension lawyers, consultant
When a pension plan member dies, their benefit doesn’t just disappear. But who gets it, how it’s calculated, and what needs to happen next can be deeply complicated, especially when plan members are in the dark.
Across the board, legal and actuarial professionals agree that far too many pension members are unprepared for what happens to their benefit after death. After all, as Maggie Carmichael noted, determining what happens to a member’s pension after their death is rarely a simple process.
“What happens to the pension isn’t necessarily a straightforward answer, because it depends on every situation,” said Carmichael, pension and benefits lawyer at BMKP Law, noting the outcome hinges on a range of variables, like whether the death occurred before or after retirement, the existence of a spouse at the time, and whether a beneficiary was properly designated.
She also emphasized that relationship status can complicate matters, particularly in cases of separation or divorce. Compounding the complexity is Canada’s fragmented regulatory landscape. With each province having its own pension legislation, plan administrators need to be especially cautious.
Carmichael, who practices in Ontario, pointed out that “there are different rules in every jurisdiction that plan administrators need to be cognizant of when they’re administering their plans,” she added.
Notably, as both Carmichael and Rupe Prasad explain, the spouse ultimately has priority rights when it comes to death benefits.
“Regardless of who’s designated as the beneficiary, the spouse has priority rights, unless of course those rights are waived by the spouse,” explained Prasad, partner and senior consultant at PBI Actuarial.
Prasad emphasized that this is true across most jurisdictions in Canada, and particularly important when plan members believe that simply listing a child or other family member as a beneficiary will suffice.
While Sean Maxwell agrees, he was quick to underscore the administrative and legal mess that can unfold when members don’t update their files.
“Folks will have designated as their beneficiary a spouse, and then that marriage breaks down... They walk away thinking that designation is annulled. But that is not the case,” explained Maxwell, partner at BMKP Law. “That person is not entitled to a survivor benefit by virtue of being a spouse, but they are still in the administrator’s records as the beneficiary.”
According to Maxwell, this often results in surviving family members being blindsided when an ex-spouse ends up receiving the benefit. He stressed that this is an area where both legal advisors and plan administrators could play a stronger role in educating members as any significant life change - like a divorce - should prompt an immediate review and update of pension records to ensure a member’s current wishes are reflected. Failure to do so can leave survivors not only uninformed but powerless to change the outcome, he noted.
Because of these choices, it’s critical for administrators to maintain accurate records. If a death isn’t reported immediately, and payments continue, the pension fund is entitled to recover those overpayments. While it’s not unusual for there to be an overpayment, Maxwell said, particularly when there’s a delay in communication from the estate, in such cases, administrators often recoup the funds by reducing future survivor payments, if one is owed.
But delayed reporting creates deeper complications. Maxwell warned that if administrators don’t act swiftly, they risk losing the ability to recover funds at all.
In cases where there’s no surviving spouse, the outcome hinges on whether there’s a guarantee period still in effect. If there is, payments are made to the estate or a designated beneficiary. If not, the benefit simply ends.
This underscores the importance of accurate, up-to-date records on spouses and beneficiaries, something Maxwell sees as a basic administrative duty, but one that’s often tested when members fail to engage before it's too late.
Yet, he stressed that plan members can’t afford to take a passive role when it comes to decisions about their pensions. While the law provides a default - typically granting the spouse a survivor benefit - members still have the ability to choose otherwise.
As a result, Prasad outlined the broad range of communication and education services that PBI Actuarial provides as part of its pension administration practice, which she leads.
To boost engagement, PBI added interactive elements like quizzes and gamified content. Prasad said they routinely prepare FAQs, host live and virtual education sessions and provide social media content for clients looking to expand their reach. Analytics reporting is included for website clients, allowing sponsors to track member activity and identify the most relevant content.
According to Prasad, the goal is to make pension information more accessible and easier for members to understand, which often starts with simplifying materials.
“Less text is sometimes better,” noted Prasad, pointing out that members want to quickly understand what their benefits are without having to wade through technical jargon.
Beyond print materials, plan sponsors can also offer access to digital tools. These include secure member portals where individuals can view their annual statements, update personal information, and access plan-specific resources.
Maxwell acknowledged that most pension administrators are doing a solid job when it comes to providing information at key points like retirement or termination. The materials members receive typically outline the available options in a clear and comprehensive way. But he also pointed out the limits of what administrators can do.
While they’re responsible for delivering accurate and thorough information, “they’re not in the business of providing advice to members,” Maxwell emphasized. Instead, members need to take that information and seek independent financial guidance to understand how their pension fits into their broader financial and estate plans.
“When it comes to death benefits, people tend to forget about it or they don't keep a record of their annual pension statements, especially in cases where they can’t access such documents through an online member portal,” said Prasad. “It's important for members to retain those documents and share them with the surviving spouse or beneficiary so they know about the death benefits that are payable from the plan.”
