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News & Policy

Most PBGC Retirees Receive Full Earned Benefit, Study Shows

November 29, 2007

WASHINGTON-Eighty-four percent of retirees who receive benefits from the federal pension insurance program are paid the full benefit amount they earned under their retirement plan, according to the 2006 edition of the Pension Benefit Guaranty Corporation's Pension Insurance Data Book, released today.

Federal pension law limits the benefit amount the PBGC may guarantee when it takes responsibility for a failed pension plan. Of more than 525,000 PBGC participants studied, 16 percent saw their retirement benefits reduced. The average reduction was 28 percent. The findings update a 1999 study that showed about 94 percent of participants received 100 percent of guaranteed benefits earned under pension plans up to the date they were acquired by the PBGC.

The increased number of plan participants who experience benefit reductions was not unexpected, due to characteristics of the large airline and steel-company plans the agency has taken in since 2001. According to the study, participants in airline and steel plans were more likely to have their benefits reduced by legal limitations. The PBGC's maximum insurance limitation caused the greatest reduction in benefits for affected participants. In addition, many airline and steel plans were affected by limits on supplemental payments and recent benefit increases.

The maximum insurance limitation puts a cap on the benefits the PBGC may guarantee. It is adjusted each calendar year and applies to participants in underfunded plans that terminate during that year. For instance, for pension plans that end in 2008, the maximum benefit guarantee is $51,750 for a 65-year-old.

The PBGC conducted the study to determine how statutory and regulatory limits affected plan participants. The agency examined an expanded sample of 125 plans that were acquired from 1990 to 2005. The sample population was composed of 525,700 participants as of the date their respective plans ended. This group included 206,600 retirees, 171,600 separated vested workers, and 147,500 active vested workers. Beneficiaries of deceased workers were not included in the study.

The changing demographics of the defined benefit system are one of the many findings of the Pension Insurance Data Book, an annually updated statistical reference that tracks the experience of PBGC's insurance programs and the defined benefit pension plans they protect.

The latest edition of the Data Book also reports that about 14 percent of the single-employer defined benefit plans insured by the PBGC were "hard-frozen" at the end of the 2005 plan year, representing a 50 percent increase over the 9.5 percent hard-frozen at the end of the 2003 plan year.

When a plan has been hard-frozen, employees will receive the benefits they have earned, but no new benefits will be earned after the date that the plan has been frozen. Under this scenario, an employee who has spent 20 years at a company and intends to stay for another five years until retirement will not receive additional pension benefits for future work. New employees are not allowed to participate in the pension plan.

Information on hard-frozen plans is taken from the IRS Form 5500, the annual report filed by sponsors of defined benefit and other pension and welfare plans.

The Data Book provides researchers, journalists and others interested in the federal pension insurance program with easily accessible, detailed statistics for PBGC's two separate programs covering single-employer and multiemployer plans. For both of PBGC's insurance programs, the book includes graphs and tables on the financial condition of the program, numbers of people and plans protected by the program, the people receiving or eligible to receive benefits from PBGC and the benefits paid to them, claims against the program, and other vital statistics.

The Data Book is available on PBGC's Web site at . Single copies of the publication may be obtained by writing to: PBGC Data Book, Room 12108, 1200 K Street NW, Washington, DC 20005-4026. Requests also may be submitted by FAX to (202) 326-4344. Email: Publications@PBGC.GOV.

PBGC is a federal corporation created by the Employee Retirement Income Security Act of 1974 to guarantee payment of basic pension benefits earned by workers. Its two insurance programs cover nearly 44 million American workers and retirees participating in more than 30,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and investment returns.

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PBGC No. 08-11