Widowhood: Economic Issues

Widows may also experience a decline in income when their spouse receives a single life annuity, a benefit that ceases upon the death of the annuitant. The 1974 Employee Retirement Income Security Act (ERISA) was passed in part to increase the chances that a survivor would receive a benefit from a deceased worker’s pension. ERISA requires both that private-sector, employer-provided pensions offer a joint-and-survivor benefit (i.e., one that pays some share of the retired-worker’s benefit to the designated survivor) and that the default payment to a married worker be at least a joint-and-one-half survivor annuity, unless the worker chooses otherwise. The 1984 Retirement Equity Act amended the ERISA survivorship provision to require a spouse’s notarized signature when the default joint-and-survivor option is rejected or another beneficiary designated.

Unlike Social Security, which does not reduce retired-worker benefits for a married worker with probable survivors, employer-provided pension plans (and other annuities) will reduce the amount paid to a worker when a joint-and-survivor benefit is chosen. This is because the pension is expected to be paid out over the longer period of time that includes the years when the survivor alone is alive. A survivor annuity is a specified percentage of the reduced benefit paid to the worker. Thus, a joint-and-one-half survivor benefit will pay an amount to the pensioner that is less than the single life annuity, and pay a benefit to the survivor, should the pensioner die, that is equal to 50 percent of this reduced amount. Unlike Social Security, which may pay survivor benefits to more than one surviving (or divorced, surviving) spouse, pensions are obligated only to consider one survivor.

Public employer-provided plans are not covered by ERISA, including its survivorship provisions. Although the majority of public plans offer joint-and-survivor benefits, they are not always the default, and they less frequently require notarized approval by the other spouse if a single life pension is selected. Further, the survivor provisions need not be met by retirement savings plans that are not employer-provided benefits.

About two-thirds of married male pensioners select some type of survivor benefit. For some women the loss of a husband’s pension income (because they chose a smaller survivor percentage or no survivor benefit) is a major cause of a decline in resources. Men with smaller pensions, men with other sources of income to share with their potential widow, and men whose wives had their own pensions are more likely to choose a single life pension. This last finding suggests that the increase in retirement security for women due to their own pension coverage may be offset by reductions in the probability of husbands selecting survivor benefits.