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Workers & Retirees

Jane's Guaranteed Benefit - Salaried Video Transcript

We've looked at the benefit Jane would have received if the plan had not terminated. Now that it has, we have to apply the legal limitations.

We start with the Accrued-At-Normal Limitation, which limits PBGC's guarantee to the amount that would be payable as a Straight Life Annuity beginning at age 65.

If Jane had started her benefits at age 65 in the form of a Straight Life Annuity, she would have received her Part A Basic, Part B Primary, and Part B Supplementary benefits without reductions for age and survivor coverage.

These amounts are $1,593.86, $685.74, and $641.19, for a total of $2,920.79 per month. This is her Accrued-At-Normal Limitation. That is, her PBGC Guaranteed Benefit cannot be more than $2,920.79 per month.

Before any limits, Jane's benefits were $3,049.26 up to age 62 and 1 month, and $2,031.01 thereafter. After applying the Accrued-at-Normal, the guaranteeable benefit up to age 62 and 1 month equals $2,920.79 per month, and the benefit after 62 and 1 month equals $2,031.01 per month. As you can see, only the amount up to age 62 and 1 month is affected by this limit.

Next we have to consider Jane's Maximum Guaranteeable Benefit. As we have seen, Jane's benefits are different before and after she turns age 62 and 1 month. In order to determine if Jane's benefit is affected by the MGB, we must convert her benefit to an annuity that pays the same amount over time, that is, one that does not change at age 62 and 1 month. This is because the Maximum Guaranteeable Benefit is defined in terms of a level annuity – so we need to compare apples to apples.

To do this we apply what we call a level life factor. When we apply the level life factor to Jane's benefit, we see that her non-level benefit after we apply the Accrued-at-Normal is equivalent to a level benefit of $2,507.93 if it was paid at the same amount over the life of the annuity.

Now we determine the MGB for Jane. For a retiree at age 65 with a Straight Life Annuity, the MGB is $4,500 per month. When her plan terminated, Jane was age 52 and 4 months and was receiving her benefit in the form of a Joint and 65% Survivor Pop-up Annuity. After adjusting the MGB by the applicable factors for age and form of benefit, Jane's MGB is $1,568.08.

When we compare Jane's levelized benefit after the Accrued-At-Normal Limitation to her MGB, we see that $1,568.08 of the $2,507.93 or 62.5249% is guaranteeable.

Recall that Jane's benefits after the application of the Accrued-At-Normal Limitation were $2,920.79 until age 62 and 1 month and $2,031.01 thereafter. When we multiply these amounts by 62.5249%, we get $1,826.22 until age 62 and 1 month and $1,269.89 thereafter. This is Jane's guaranteeable benefit after we apply the Accrued-At-Normal Limitation and MGB.

Now we turn to the last legal limit, Phase-In. Jane's benefit like those of most participants in the Delphi plan, is not affected by the Phase-In Limitation. Therefore, her PBGC Guaranteed Benefit is $1,826.22 per month until age 62 and 1 month, and $1,269.89 thereafter.