Death and Disability BenefitsEmployees who die or become disabled are treated very differently depending on whether they participate in a defined-benefit or a defined-contribution plan. Furthermore, within defined-benefit plans, employers have the discretion to decide how to structure benefits for such participants or their survivors. Defined-benefit plans typically offer benefits to employees who become disabled and to survivors of employees who die before reaching retirement. Death benefits are provided almost universally; typically, they equal the amount that the survivor would have received had the employee retired at that time. Disability benefits are also common, extending to 76 percent of participants in private businesses (in 2002), to 97 percent of participants in state and local governments (in 1998), and to all federal employees. However, plans may make eligibility for such benefits contingent on length of service: for instance, as much as 10 years for state and local employees and 15 years for private-sector employees. Defined-contribution plans do not offer explicit death or disability benefits. Upon the death of a participant, the balance in the account is transferred to his or her designated beneficiaries, who can withdraw funds, regardless of their ages, without incurring the penalty tax. Disabled individuals under age 59½ can also draw on their account balances without incurring penalty taxes.
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