PBGC's Guarantees for Single-Employer Pension Plans Fact Sheet
PBGC is a federal agency that protects benefits in private-sector, traditional pension plans (also known as defined benefit plans). PBGC takes responsibility as trustee for a single-employer pension plan when the plan runs out of money, when the sponsoring company liquidates and no other company is willing to maintain the plan, or when the sponsoring company demonstrates it cannot remain in business and continue funding the pension plan, among other circumstances.
PBGC insures the retirement benefits of more than 40 million Americans in nearly 26,000 pension plans. Since Congress created PBGC in 1974, more than 1.4 million workers and retirees in more than 4,400 terminated single-employer plans have come to rely on PBGC for their retirement income.
Benefits Guaranteed by PBGC in Single-Employer Pension Plans:
Subject to limits set by Congress (discussed below), PBGC guarantees basic pension benefits. These include pension benefits at normal retirement age, most early retirement benefits, disability benefits, and annuity benefits for survivors of plan participants. PBGC provides pre-retirement survivor coverage, which pays a benefit to the spouse of a participant who dies before retirement.
PBGC does not guarantee health or welfare benefits, life insurance, vacation pay, severance pay, or benefits payable because of disability that occurs after the guarantees take effect.
When an underfunded plan terminates, all additional benefit accruals cease. The guarantee applies only to benefits and rights earned before the plan terminates with one important limitation. If the plan terminates while the employer is in bankruptcy, the guarantee covers only benefits earned before the bankruptcy filing date.
How PBGC Calculates Retirement Benefits in a Trusteed Plan:
PBGC pays benefits according to the terms of each pension plan. For most participants in trusteed plans, PBGC guarantees the full benefits promised by their plans. For some participants, however, the benefits the employer has promised are higher than the legal limits that PBGC can pay. To ensure that retirees receive benefit payments without interruption or delay, PBGC pays estimated benefits while we examine plan records. If the original plan promised benefits that exceed the legal limits, these benefits are reduced on an estimated basis during this review.
We issue final benefit determinations after we finish our examination of plan records. For more than 80 percent of people, estimated benefits are the same as the final benefit determination amount. If estimated benefits are lower than the final benefit determination amount, PBGC makes up the difference in a single payment, with interest. If estimated benefits are higher than the final determination amount, the future payment will be the final benefit determination amount, further reduced by no more than 10 percent each month.
Participants who retire before PBGC trustees their plan continue to receive their elected form of benefit. Participants who retire later can choose from a variety of annuity options that provide a benefit for life plus survivor benefits for a spouse or other beneficiary. Benefits are paid on a monthly basis, except for monthly benefits of $50 or less which are paid on an annual basis. PBGC pays most benefits that have a total value of $5,000 or less in a lump sum.
Eligibility for Benefits from PBGC:
A participant who is not yet receiving payments from a terminated plan can begin receiving benefits at the plan's normal retirement date. A participant who met all plan requirements (such as a minimum number of years of service) for early retirement on the date the plan terminated (or the bankruptcy filing date, if the plan ended during bankruptcy) can start early retirement payments after reaching early retirement age provided the person no longer works for the plan sponsor.
Limits set by Congress on the benefits that PBGC can pay are as follows:
Maximum Guarantee: The maximum guarantee is established as of the date guarantees become effective for the plan (the plan termination date or, if applicable, the bankruptcy filing date). For 2013, the maximum guarantee for a life annuity with no survivor benefits is $57,477.24 yearly ($4,789.77 monthly) at age 65; $45,407.04 yearly ($3,783.92 monthly) at age 62; and $25,864.80 yearly ($2,155.40 monthly) at age 55. The maximum guarantee is based on a participant's age at the date guarantees become effective for the plan if payments have already begun. For those participants whose payments have not yet begun, the maximum guarantee is based on age when payments begin.
The maximum guarantee is adjusted to reflect annuity forms other than a single-life annuity. For example, in the case of a joint-and-50%-survivor annuity the maximum guarantee for a 65-year-old retiree with a spouse the same age is $4,310.79 (adjusted from $4,789.77 to reflect the continuing monthly payments for the survivor's life after the death of the participant). Were the spouse older or younger than the retiree, the benefit would be adjusted further.
- Accrued at Normal: PBGC does not guarantee payments that exceed the amount payable at normal retirement age that the participant had accrued as of the date guarantees take effect. This is why PBGC cannot guarantee most early retirement supplements.
Phase-In: Benefits and benefit increases only receive partial (phased-in) protection if they have been provided by the plan for less than five years before the termination date (or the bankruptcy filing date if applicable). PBGC guarantees the larger of 20 percent or $20 per month of the increase for each whole year since the benefit increase went into effect. Participants may receive the full benefit increase if the increase has been provided by the plan for five years or more. Phase-in for shutdown benefits is based on the number of years since the shutdown event (such as a plant closing).
Additional Benefits Payable by PBGC:
If the plan has enough assets, some participants — most often those who retired (or could have retired) three years before the date the guarantees take effect — may receive benefits above the guarantee limits.