A plan sponsor pays an insurance premium to PBGC while the plan is ongoing. If the plan sponsor can no longer afford to keep the plan and the plan doesn’t have sufficient funds to pay all benefits, the plan is terminated and PBGC becomes its trustee. In a trusteed plan, PBGC becomes responsible for calculating and paying pension benefits earned by participants as of the date the plan ended. Learn more: When PBGC trustees a plan.
Most defined benefit plans that end have sufficient funds to pay all benefits. These plans are not trusteed by PBGC but end in what is called a standard termination. In a standard termination, the plan sponsor pays all benefits that participants earned. The sponsor either buys an annuity contract for each participant or pays a lump sum for the full value of the benefit.