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Practitioners

Multiemployer Benefit Guarantees

Overview of Multiemployer Benefit Guarantees

(ERISA Secs. 4022A and 4022B )

When a multiemployer pension plan fails, PBGC guarantees benefits up to the legal limit.

PBGC's guarantee for multiemployer plan benefits depends on:

  • the type of benefit,
  • the dollar amount of the benefit,
  • the date on which the benefit provision was added, and
  • a participant's years of service in the plan.

For the most part, PBGC guarantees the same type of benefits for multiemployer plans as for benefits in the single-employer program. However, a preretirement survivor annuity in a multiemployer plan is not guaranteed if the participant dies after plan termination. A preretirement survivor annuity is typically a monthly payment to a surviving spouse when a participant with vested benefits dies before starting to receive benefit payments.

"Basic" benefits include:

  • Pension benefits payable at normal retirement age,
  • Some early retirement benefits,
  • Disability benefits for persons who were disabled before the plan terminated, and
  • Some survivor benefits.

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Limits of Guarantees

There are three limits that apply to multiemployer pension benefits:

1)   Accrued-at-normal retirement age

(ERISA Sec. 4022A(c))

PBGC guarantees only up to the monthly amount that the participant's multiemployer plan would have paid the participant as a straight-life annuity starting at normal retirement age. (A straight-life annuity pays benefits, typically monthly, for one person's life, with no survivor benefits after that person dies.) PBGC cannot guarantee the portion of any combined early retirement benefit and temporary supplemental benefit that is above this amount.

2)   Phase-in of guarantee (60-month rule)

(ERISA Sec. 4022A(b))

PBGC does not guarantee a participant's pension benefit or benefit increase until it has been part of the plan for 60 full months.

If the multiemployer plan was insolvent or terminated by mass withdrawal in any month, that month does not count toward the 60-month requirement.

3)   Guarantee

(ERISA Sec. 4022A(c))

Generally, PBGC's guarantee is based on a pension for each year of service a person earns under his or her pension plan. As a monthly benefit amount, we guarantee a payment equal to:

  • 100% of the first $11 of the monthly benefit rate, plus 75% of the next $33 of the monthly benefit rate,
  • times the participant's years of credited service.

The guaranteed monthly benefit, therefore, is limited to $35.75 per month (($11 x 100%) + ($33 x 75%) = $35.75) times a participant's year of credited service. The guaranteed benefit is not adjusted for inflation or cost-of-living increases.

Example 1

Plan's monthly benefit rate is $9 per year of service.

  • This is fully guaranteed, since $9 is below the $11 that is 100% guaranteed.

PBGC's maximum annual guaranteed benefit for a participant who has:

  • 30 years of service is $3,240 ($9 x 12 months x 30 years)
  • 20 years of service is $2,160 ($9 x 12 months x 20 years)
  • 10 years of service is $1,080 ($9 x 12 months x 10 years)

Example 2

Plan's monthly benefit rate is $16 per year of service.

  • The guaranteed benefit is limited to $14.75 per year of service, as follows:
    $11.00 = 100% of the first $11.00
    $3.75 = 75% of the next $ 5.00 ($16 - $11)
    $14.75

PBGC's maximum annual guaranteed benefit for a participant who has:

  • 30 years of service is $5,310 ($14.75 x 12 months x 30 years)
  • 20 years of service is $3,540 ($14.75 x 12 months x 20 years)
  • 10 years of service is $1,770 ($14.75 x 12 months x 10 years)

Example 3

Plan's monthly benefit rate is $56 per year of service.

  • The guaranteed benefit is limited to $35.75 per year of service, as follows:
    $11.00 = 100% of the first $11.00
    $24.75 = 75% of the next $33.00 ($56 - $11 = $45, partial guarantee of up to $33)
    $35.75

PBGC's maximum annual guaranteed benefit for a participant who has:

  • 30 years of service is $12,870 ($35.75 x 12 months x 30 years)
  • 20 years of service is $8,580 ($35.75 x 12 months x 20 years)
  • 10 years of service is $4,290 ($35.75 x 12 months x 10 years)

For more examples using a different format, see the Multiemployer Insurance Program FAQs.

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