Resources

Technical Update 00-7: Increased Guarantee Limit for Multiemployer Plans


December 26, 2000

Purpose

The Consolidated Appropriations Act, 2001 amended Title IV of ERISA to increase PBGC's maximum guarantee limit for participants in multiemployer plans. The PBGC's Five-Year Report to Congress had recommended the increase. This Technical Update discusses how the PBGC's maximum guarantee limit works under the multiemployer insurance program and explains the change.

Background

The 1,800 multiemployer defined benefit pension plans insured by the PBGC cover about 9 million workers and retirees. A multiemployer plan is a collectively bargained pension arrangement involving two or more unrelated employers, usually in a common industry where workers often move from job to job, such as construction and trucking. Under the multiemployer plan program, the PBGC provides financial assistance to plans that become insolvent. A multiemployer plan is considered insolvent if the plan is unable to pay benefits (at least equal to the PBGC's guaranteed benefit limit) when due.

The maximum benefit that the PBGC guarantees is specified in ERISA. The guarantee limit had not been increased since 1980.

Multiemployer Plan Guarantee Limits - Before the Amendment

Before the amendment, the monthly PBGC multiemployer guarantee equaled a participant's years of service multiplied by (1) 100 percent of the first $5 of the monthly benefit accrual rate and (2) 75 percent of the next $15.

For example, for a worker with 30 years of service and a benefit accrual rate of $23 per month, the maximum guarantee would have been $487.50 per month ($5,850 per year), determined as follows:

[(100% x $5) + (75% x $15)] x 30 years = $487.50 per month

$487.50 x 12 months = $5,850 per year

Similarly, for a worker with 20 years of service and a benefit accrual rate of $25 per month, the maximum guarantee would have been $325 per month ($3,900 per year), determined as follows:

[(100% x $5) + (75% x $15)] x 20 years = $325 per month

$325 x 12 months = $3,900 per year

Multiemployer Plan Guarantee Limits - After the Amendment

Under the new guarantee limit, the guarantee will increase to 100 percent of the first $11 of the monthly benefit accrual rate and 75 percent of the next $33 for each year of service.

For example, for a worker with 30 years of service and a benefit accrual rate of $23 per month, the maximum guarantee will be $600 per month ($7,200 per year), an increase from the old guarantee of $487.50 per month ($5,850 per year), determined as follows:

[(100% x $11) + (75% x $12)] x 30 years = $600 per month

$600 x 12 months = $7,200 per year

Similarly, for a worker with 20 years of service and a benefit accrual rate of $25 per month, the maximum guarantee will be $430 per month ($5,160 per year), an increase from the old guarantee of $325 per month ($3,900 per year), determined as follows:

[(100% x $11) + (75% x $14)] x 20 years = $430 per month

$430 x 12 months = $5,160 per year

Effective Date

The increased guarantee limit will apply to any multiemployer plan that has not received PBGC financial assistance within a 1-year period ending on December 21, 2000 (the date of the enactment of the Consolidated Appropriations Act, 2001). The old guarantee limit remains in place for participants in multiemployer plans that have received financial assistance in the last year.

Further Information

Further information about the PBGC and the benefits it guarantees is available on the PBGC Web site, www.pbgc.gov.