What is the Pension Benefit Guaranty Corporation?

Most pensions are insured by the Pension Benefit Guaranty Corporation (PBGC). The PBGC insures the retirement benefits of nearly 44 million Americans in 30,460 pension plans.

PBGC was created by the Employee Retirement Income Security Act of 1974 to encourage the continuation and maintenance of defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum.

Since 1974, when Congress created PBGC to guarantee payment of defined benefit pensions, some 1,183,000 workers and retirees in 3,793 terminated pension plans, and 122,000 participants in multiemployer plans receiving financial assistance, have come to rely on PBGC for their retirement income.

Although PBGC insures most defined benefit plans, some are not covered. For example, plans offered by “professional service employers” (such as doctors and lawyers) with fewer than 26 employees, by church groups, or by federal, state or local governments usually are not insured.

How is PBGC funded?

PBGC is not funded by general tax revenues. PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments and receives funds from pension plans it takes over.

Are there any limits on the pension amount participants will receive?

For plans ended in 2009, workers who retire at age 65 can receive up to $4.500.00 a month ($54.000.00 a year). The guarantee is lower for those who retire early or when there is a benefit for a survivor. The guarantee is increased for those who retire after age 65.

How are pension plans terminated?

1 - The employer can end the plan in a standard termination but only after showing PBGC that the plan has enough money to pay all benefits owed to participants. The plan must either purchase an annuity from an insurance company (which will provide you with lifetime benefits when you retire) or, if your plan allows, issue one lump-sum payment that covers your entire benefit.

2 - If the plan is not fully funded, the employer may apply for a distress termination if the employer is in financial distress. To do so, however, the employer must prove to a bankruptcy court or to PBGC that the employer cannot remain in business unless the plan is terminated.

When will my employer notify me of a plans termination?

If your employer wants to end the plan, your plan administrator must notify you in writing that your plan is ending. You must get this notice, called the Notice of Intent to Terminate, at least 60 days before the "termination" date. If PBGC is terminating the plan, it will notify the plan administrator and often publish a notice about their action in local and national newspapers.

In a distress termination, or a termination initiated by PBGC, PBGC’s communication with you begins when it takes over your plan as trustee. Initially PBGC will provide you with general information about the pension insurance program and its guarantees. PBGC will be able to provide more specific information about your benefits after it has had an opportunity to review the plan’s records, assets, benefit liabilities, and your participation in the plan.

You cannot earn additional benefits after the plan ends.

How can I find out if my pension plan is underfunded?

• If you are in a single-employer plan insured by PBGC that has been less than 80% funded for the past year or two and less than 90% funded for several years, your plan administrator is required to give you an annual written notice of the plan’s funded percentage and the limitations on PBGC’s insurance guarantees.

• You also have a legal right to obtain information about your plan’s funding by requesting the information in writing from your plan administrator.

What does PBGC guarantee?

PBGC guarantees "basic benefits" earned before your plan ended, which include:

• Pension benefits at normal retirement age

• Most early retirement benefits
• Annuity benefits for survivors of plan participants
• Disability benefits for disabilities that occurred before the date the plan ended

PBGC does not guarantee:

• Health and welfare benefits

• Vacation pay
• Severance benefits
• Lump-sum death benefits for a death that occurs after the date the plan ended
• Disability benefits for a disability that occurs after the date the plan ended

Legal Limits on PBGC's guarantees

• Generally, PBGC does not guarantee any monthly pension amount that is greater than the monthly benefit your plan would have provided if you had retired at your normal retirement age.

• The maximum amount that PBGC guarantees is set each year under provisions of ERISA.
• If your plan was created or amended to increase benefits within five years before it ended, your benefits may not be fully guaranteed.

What happens if I’m already receiving a pension?

If you are already receiving a pension, PBGC will continue paying you without interruption during their review. These payments, an estimate of the benefits that PBGC can pay under the insurance program, may be less than you were receiving from your plan but will be paid in the annuity form you chose at retirement.

If you have not yet retired, PBGC will pay you an estimated benefit when you become eligible and apply to PBGC to begin payments.

What doesn’t PBGC do?

PBGC will not adjust your pension yearly to account for inflation.

Also, there is a limit on the combined amount you can receive from PBGC's funds if you are entitled to benefits from more than one pension plan that PBGC has taken over as trustee.

*Source: Pension Benefit Guarantee Corporation, 2008