Pension Benefit Guaranty Corporation Fact Sheet
Mission and Background:
PBGC was created by the Employee Retirement Income Security Act of 1974 to encourage the growth of defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum. Defined benefit pension plans promise to pay a specified monthly benefit at retirement, commonly based on salary and years on the job.
Money PBGC Takes In and Pays Out:
PBGC is not funded by general tax revenues. PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments and receives funds from pension plans it takes over.
In 2012, PBGC paid retirement benefits, up to a guaranteed maximum, to 887,000 retirees in more than 4,500 single-employer and multiemployer pension plans that could not pay promised benefits. Including those who have not yet retired and participants in multiemployer plans receiving financial assistance, PBGC is responsible for the current and future pensions of about 1.5 million people.
PBGC's Two Pension Insurance Programs:
The single-employer program protects nearly 33 million workers and retirees in about 24,000 pension plans. The multiemployer program protects about 10 million workers and retirees in about 1,500 pension plans. Multiemployer plans are set up by collectively bargained agreements involving more than one unrelated employer, generally in one industry.
How Pension Plans End:
An employer can voluntarily ask to close its single employer pension plan in either a standard or distress termination. In a standard termination, the plan must have enough money to pay all benefits, whether vested or not, before the plan can end. After workers receive promised benefits, in the form of a lump sum payment or an insurance company annuity, PBGC's guarantee ends. In a distress termination, where the plan does not have enough money to pay all benefits, the employer must prove severe financial distress — for instance, the likelihood that continuing the plan would force the company to shut down. When this happens, PBGC pays guaranteed benefits, usually covering a large part of total earned benefits, and makes strong efforts to recover funds from the employer.
In addition, PBGC may seek to close a single-employer plan without the employer's consent to protect the interests of workers, the plan, or PBGC's insurance fund. PBGC must act to terminate a plan that cannot pay current benefits.
For multiemployer pension plans that are unable to pay guaranteed benefits when due, PBGC provides financial assistance to the plan, usually a loan, so that retirees continue receiving their benefits.
Pension plans pay PBGC yearly insurance premiums. Since 2007, the flat premium rates are adjusted annually. The rates for 2013 are $12 per worker or retiree in multiemployer plans and $42 per worker or retiree in single-employer plans plus $9 for each $1000 of unfunded vested benefits in single-employer plans.
Maximum Guaranteed Benefit:
The maximum pension benefit guaranteed by PBGC is set by law and adjusted yearly. Generally, the limit is permanently established for each pension plan based on the plan's termination date except for cases in which termination occurs during a plan sponsor's bankruptcy or for certain airline industry plans. For single-employer plans ended in 2013, workers who retire at age 65 can receive up to $4,789.77 per month, or $57,477.24 per year. The guarantee is lower for those who retire early or when there is a benefit for a survivor. The guarantee is increased for those who retire after age 65.
PBGC is headed by a Director who is appointed by the President and confirmed by the Senate. The Board of Directors consists of the Secretaries of Labor, Commerce, and Treasury, with the Secretary of Labor as Chair.