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."
PBGC 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.
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.
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.
While the U.S. faces a retirement crisis, other countries have implemented programs that provide a better level of economic security in retirement. As compared to the U.S., Australia, Canada, and the Netherlands provide higher retirement income for citizens through social security and universal/quasi-universal employer retirement plans.
These findings are in a new research brief, Lessons for Private Sector Retirement Security from Australia, Canada, and the Netherlands authored by John A. Turner, PhD, Pension Policy Center director, and Nari Rhee, PhD, National Institute of Retirement Security manager of research.
"Americans are struggling to save for retirement," says Rhee. "The typical family has only a few thousand dollars saved. Yet, other advanced countries are doing a far better job of enabling older populations to have economic security in retirement. We hope our research provides insight and ideas for U.S. policymakers working to improve Americans' economic insecurity." Download the full research brief.
The National Institute on Retirement Security originated the content of this post.