PBGC runs two pension insurance programs: single-employer and multiemployer. While each program is designed to protect pension benefits when plans fail, they differ significantly in the level of benefits guaranteed, the insurable event that triggers the guarantee, and premiums paid by insured plans. The two programs are financially separate. Assets of one program may not be used to pay obligations of the other. Here's a deeper look into both programs.
The single-employer program covers pension plans that are sponsored by one employer. The insurable event triggering PBGC's obligation to provide guaranteed benefits is termination of an underfunded plan. This typically happens when the employer sponsoring the plan goes out of business or bankrupt, and can no longer afford to keep the plan going. When this happens, PBGC takes over the plan's assets, administration and payment of plan benefits (up to the legal limit).
The single-employer program covers about 30 million people in more than 22,000 ongoing plans. While the single-employer insurance program has a considerable deficit ($24 billion as of Sept. 30, 2015), the program has significant assets ($86 billion) to pay its obligations ($110 billion) for many years.
The multiemployer program covers pension plans created and funded though collective bargaining agreements between a group of employers, usually in related industries, and a union. Multiemployer plans provide pension portability, allowing participants to accumulate benefits earned for service with different employers throughout their careers. Multiemployer plans are common in the construction, transportation, retail food, manufacturing and services industries. The insurable event triggering PBGC's obligation to provide guaranteed benefits is plan insolvency (when a plan runs out of money). When that occurs, PBGC doesn't take over operations of the plan; rather, we provide financial assistance so the plan can pay benefits up to the legal limit for multiemployer plans, which is much lower than for single-employer plans.
The multiemployer program covers 10 million workers and retirees in about 1,400 ongoing plans. The multiemployer program has a severe deficit. As of Sept. 30, 2015, assets totaled about $2 billion and obligations totaled $54 billion. It's likely that the multiemployer insurance program will run out of money by 2025 without action by Congress.
The maximum benefit guarantees that PBGC can legally pay when a plan fails are very different in the two programs. In the multiemployer program, the guarantees are much lower. For instance, PBGC's guarantee for a 65-year-old in a failed single-employer plan can be up to $60,136 annually, while a participant with 30 years of service in a failed multiemployer plan caps out at $12,870 per year. The multiemployer program guarantee for a participant with only 10 years of service caps out at $4,290 per year.
Need more information? We've created several resources dedicated to our insurance programs:
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