What Happens to Your Benefits if You Die While Still Working?

Federal employees should know what happens to their benefits if they die while still employed.

What happens to your benefits if you die while still working? This is a question we do not want to ponder, as we all plan on living long after we retire. When it comes to Ben Franklin’s quote, “Plan like you’ll live forever; pray like you’ll die tomorrow,” we all tend to focus on the first part. However, it is helpful to know what will happen to our federal benefits, should we die while still employed.

Your health insurance will no longer do you any good, but it may be a great deal for your surviving spouse. If your spouse is enrolled with you on a self and family policy on the date of your death and is entitled to a survivor annuity (see discussion of survivor annuities later in this article), he/she will be able to continue federal employee health benefits and Uncle will continue to pay his share.

Your life insurance will be paid to your designated beneficiary. Your beneficiary will be given a choice of a “Total Control Account” (a type of retained asset account) from MetLife, or of receiving payment of the death benefits by check/deposit. If your beneficiary does not make a choice, they will be given the account.

Speaking of beneficiary forms, do you know who your beneficiaries are? If you have any doubts, you may wish to check your personnel records. More and more agencies have electronic personnel folders that are easy for you to access and review. The last thing you want is to have your ex-spouse walking off with all you have saved over your career.

If you are married at the time of your death, the survivor benefits your spouse will receive are dependent on your retirement system. If you are CSRS, your spouse will receive a full survivor annuity (55% of what your annuity would be). In the unlikely event you have less than 22 years of service, your spouse will receive a “guaranteed minimum” annuity.

If you are FERS, your spouse will receive a lump-sum death benefit of ½ of your final salary (or ½ of your high-3, whichever is higher) and $32.326.57 (in 2015) as long as you had at least 18 months of service at the time of your death. If you have worked ten years or more, your spouse will be entitled to a full survivor annuity (50% of what your annuity would be).

Under both retirement systems, if your surviving spouse remarries before the age of 55, he/she forfeits the survivor annuity.

Your annual leave, credit hour, and comp time balance are considered “unpaid compensation” and will be paid to the designated beneficiary named on your beneficiary form for unpaid compensation.

Your TSP will go to your designated beneficiary. If your beneficiary is your spouse and is also a federal employee or retiree, they may combine your TSP account with their own. If your beneficiary is your spouse who is not a federal employee or retiree, they may take ownership of your account, but may not make any deposits. Your spouse could also choose to elect an inherited IRA or withdraw the money.

If your TSP beneficiary is a non-spouse, they may elect an inherited IRA or take the money out. In all cases, the beneficiary would be responsible for any deferred taxes.

In all of the above cases, if you do not have a beneficiary form (or if the person or persons named on the form have pre-deceased you), the standard order of precedence for federal benefits is followed. The standard order of precedence is as follows:

  • Valid court order (applies to FEGLI only)
  • Surviving spouse
  • Children (per stirpes)
  • Parents
  • Executor or administrator of your estate
  • Next of kin according to state law

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at johnfgrobe@comcast.net to discuss schedules and costs.

About the Author

John Grobe is President of Federal Career Experts, a firm that provides pre-retirement training and seminars to a wide variety of federal agencies. FCE’s instructors are all retired federal retirement specialists who educate class participants on the ins and outs of federal retirement and benefits; there is never an attempt to influence participants to invest a certain way, or to purchase any financial products. John and FCE specialize in retirement for special category employees, such as law enforcement officers.