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PBGC Blog: Retirement Matters
ERISA at 40 – The past puts pension law in perspective

Photo provided courtesy of Drexel University's Earle Mack School of Law

From the Pension Rights Center:

The Employee Retirement Income Security Act ("ERISA"), the law governing private retirement plans, has changed quite a bit since it was signed into law in 1974. There have been numerous amendments, court cases, regulatory actions and other developments. ERISA has had such an impact on Americans' everyday lives that it has become a field of law unto itself.

ERISA buffs frequently come together to explore the law as it is now and to discuss how it impacts current and future retirees. But an in-depth exploration of ERISA's past is a much rarer occurrence. On October 25, 2013, lawyers, actuaries, and other professionals from all corners of the pension world gathered in Philadelphia for a unique, day-long discussion of the history behind the law. The topic? ERISA at 40 - What Were They Thinking? An Oral History of the Employee Retirement Income Security Act.*

The symposium, hosted by Drexel University's Earle Mack School of Law and co-sponsored by the Pension Rights Center and the American College of Employee Benefits Counsel, was organized by Norman Stein and James Wooten. Norman Stein is a Drexel University law professor and PRC Senior Policy Advisor and James Wooten is a professor at SUNY Buffalo Law School and author of The Employee Retirement Security Act of 1974: A Political History. Participants in the symposium represented a Who's Who of ERISA, including Assistant Secretary of Labor of the Employee Benefits Security Administration, Phyllis Borzi, and J. Mark Iwry, Deputy Assistant Secretary of Treasury for Retirement and Health Policy. The symposium also featured several individuals with ties to the Pension Rights Center: PRC Board members Dan Halperin, Regina Jefferson, and Ian Lanoff; Fellows Dianne Bennett, Bill Bortz, Frank Cummings, Bob Nagle, and Henry Rose; and PRC's Director, Karen Ferguson.

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Maximum Yearly Guarantee. 2012 $56,000. 2013 $57,500. 2014 $59,320.Beginning in 2014, the maximum yearly guarantee for a 65-year-old retiree will be almost $59,320 – a 3.2% increase from the $57,500 rate in 2013.

Most retirees who get their pension from PBGC – almost 85 percent according to a 2006 study  – receive the full amount of their promised benefit. In some cases, retirees can receive more than the PBGC maximum guarantee.

The PBGC maximum guarantee is based on a formula prescribed by federal law. Yearly amounts are higher for people older than age 65 and lower for those who retire earlier or choose survivor benefits.

If a pension plan ends in 2014, but a retiree does not begin collecting benefits until a future year, the 2014 rates still apply. For plans that terminate as a result of bankruptcy, the maximum yearly rates are guided by the limits in effect on the day the bankruptcy started, not the day the plan ended.

The increase is not retroactive and applies only to single-employer pension plans. The maximum guarantee limit for participants in multiemployer plans is $12,870 with 30 years of service, which has been in place since 2001.

For more information, see PBGC's Maximum Monthly Guarantee Tables or a previous blog post "Making Sense of the Maximum Insurance Benefit."

Pennfield Corporation logoPBGC will pay retirement benefits for nearly 580 current and future retirees of Pennfield Corp., an animal feed mill based in Lancaster, Pa.

The agency stepped in because Pennfield sold the majority of its assets in bankruptcy proceedings to agribusiness giant Cargill, Inc. Cargill did not assume responsibility for the pension plan.

PBGC will pay all pension benefits earned by Pennfield retirees up to the legal limit of about $56,000 for a 65-year-old.

Retirees will continue to get benefits without interruption, and future retirees can apply for benefits as soon as they are eligible.

According to PBGC estimates, Pennfield's plan was 54 percent funded with $15 million in assets to pay $28 million in benefits. The agency expects to cover the entire $13 million shortfall.

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There's a growing trend among employers who want to exit the pension game. Some have decided to close out their traditional pension plans and instead offer lump-sum payouts or an annuity from an insurance company.

Many of the reasons companies give for leaving traditional pensions are understandable: the boom and bust market cycles that make it difficult to maintain a reliable funding stream and the often complex regulatory hassles connected to such plans.

But the problem with this practice is the responsibility for helping people prepare for retirement is shifting away from companies, which are well-suited to handle this burden, to retirees who aren't. The heavy lifting of managing investments, making sure returns can pay for a lifetime, and possibly the lifetime of a surviving spouse, all rest on the shoulders of retirees.

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Pen and calculator on a sheet of paperConfused about saving for retirement? Or have you been procrastinating on getting started? Here's a recommendation on how to begin.

Last year, Time magazine ran a top 10 hit list to improve your financial health. Coming in at number three: "Put 10% of Your Income Toward Retirement." One of the experts in the piece suggests that saving and investing at least 10 percent of your income no matter how much you make will put you on the right path.

In April, the retirement publication, PlanSponsor, echoed this approach with the headline, "Households Saving 10% on Track for Retirement." The piece was based on findings from a Lifetime Income Survey by Putnam Investments. "Overall, the study found that American households deferring 10% or more of their income to retirement savings are on track to replace more than 106% of pre-retirement income."

So if you've been putting off saving for retirement and don't know where to begin, start putting away 10% and grow your nest egg from there.

A lot of jobs only offer a 401(k)-style plan to new employees – worse yet, most employees don't have a workplace retirement plan at all.

But there's good news too: about 75 million Americans, and their families, can still rely on lifetime income from a defined benefit pension plan. That's income that they'll get no matter how long they live, and no matter what happens in the markets.

We think that's important. We fight hard so that companies going through bankruptcy reorganization keep their pension plan promises. And, since it's up to the company whether to offer pensions or not, we work hard to reduce regulatory burdens, and to increase flexibility, for companies willing to offer them.

And, when a company's finances are so bad that it can't keep its pension promises, PBGC is there with a safety net.

Jobs that come with pensions are rarer these days, but landing one can help enhance the security of your retirement in these too-often uncertain times.

Visit our Press Room to see what we're doing to protect pensioners and what we do to help employers continue to offer them.