How Pension Plans End
When an employer ends a pension plan
Employers can end a pension plan through a process called "plan termination." There are two ways an employer can terminate its pension plan.
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. Before purchasing your annuity, your plan administrator must give you an advance notice that identifies the insurance company (or companies) that your employer may select to provide the annuity. PBGC's guarantee ends when your employer purchases your annuity or gives you the lump-sum payment.
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. If the application is granted, PBGC will take over the plan as trustee and pay plan benefits, up to the legal limits, using plan assets and PBGC guarantee funds.
When PBGC terminates a pension plan
Under certain circumstances, PBGC may take action on its own to end a pension plan. Most terminations initiated by PBGC occur when PBGC determines that plan termination is needed to protect the interests of plan participants or of the PBGC insurance program. PBGC can do so if, for example, a plan does not have enough money to pay benefits currently due.
How you will know if your plan is ending
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, we notify the plan administrator and often publish a notice about our action in local and national newspapers.
In a standard termination, you should receive a second letter describing the benefits you will receive, called the Notice of Plan Benefits, generally no later than six months after the date proposed for your plan's termination.
In a distress termination, or a termination initiated by PBGC, our communication with you begins when we take over your plan as trustee. Initially we will provide you with general information about the pension insurance program and our guarantees. We will be able to provide more specific information about your benefits after we have had an opportunity to review the plan's records, assets, benefit liabilities, and your participation in the plan.
Additional benefits after a plan ends
You cannot earn additional benefits after the plan ends.