WASHINGTON — Reversing the usual trend, the Pension Benefit Guaranty Corporation today announced a proposal that makes it easier for participants in 401(k) plans to get higher returns and get lifetime income — by moving their funds into traditional pensions.
The agency wants employees that have rollover options to move their benefits from defined contribution plans to defined benefit plans. The new proposal removes the fear that the amounts rolled over would suffer under guarantee limits should PBGC step in and pay benefits.
A proposed rule slated for publication in the Federal Register on Wednesday, outlines safeguards for benefits that are rolled over from defined contribution plans. Note: Read the proposed rule, posted April 2, 2014.
"What we're doing will hopefully give people an incentive to choose a savings option that they can't outlive or outspend," said PBGC Director Josh Gotbaum. "Annuities always offer greater retirement security."
Under the new proposal, benefits earned from a rollover generally would not be affected by PBGC's maximum guarantee limits. Currently the agency's maximum guaranteed benefit for a 65-year-old retiree is almost $59,320 a year.
Also, rollover amounts generally would remain untouched by PBGC's so-called five-year phase-in limits. Normally, benefit increases from changes to a plan in the five years before it ends are partially guaranteed. For instance, 20 percent of the increase is paid after one year, 40 percent after two years and so on. Under the new proposal, these restrictions generally would not apply.
Note: This press release was edited on April 2, 2014 to include the link to the Federal Register posting of the proposed rule "Title IV Treatment of Rollovers From Defined Contribution Plans To Defined Benefit Plans."
PBGC protects the pension benefits of more than 42 million Americans in private-sector pension plans. The agency is directly responsible for paying the benefits of more than 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars and never has. Its operations are financed by insurance premiums, investment income, and with assets and recoveries from failed plans. For more information, visit PBGC.gov.