Pension Benefits Guaranty Corporation (PBGC)

• The role of the PBGC is to protect retirees’ income and benefits.

The Pension Benefits Guaranty Corporation (PBGC) is a federal corporation created by the Employee Retirement Income Security Act of 1974 (ERISA). It was created to:

• Encourage the growth of defined benefit pension plans,
• Provide timely and uninterrupted payment of pension benefits, and
• Keep pension insurance premiums at a minimum.

PBGC protects the retirement incomes of nearly 44.3 million American workers in more than 31,000 private defined benefit pension plans. It is not funded by general tax revenues; PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments, and receives funds from pension plans it takes over.

PBGC pays monthly retirement benefits, up to a guaranteed maximum, to retirees in thousands of pension plans that terminated. Including those who have not yet retired and participants in multiemployer plans receiving financial assistance, PBGC is responsible for the current and future pensions of over 1 million former employees. An employer can voluntarily ask to close its single employer pension plan in either a standard or distress termination.

In a standard termination, the plan must have enough money to pay all benefits, whether vested or not, before the plan can end. After workers receive promised benefits, in the form of a lump sum payment or an insurance company annuity, PBGC’s guarantee ends. In a distress termination, where the plan does not have enough money to pay all benefits, the employer must prove severe financial distress, such as the likelihood that continuing the plan would force the company to shut down. PBGC will pay guaranteed benefits, usually covering a large part of total earned benefits, and make strong efforts to recover funds from the employer.

In addition, PBGC may seek to close a single-employer plan without the employer’s consent to protect the interests of workers, the plan, or PBGC’s insurance fund. PBGC must act to terminate a plan that cannot pay current benefits. For multiemployer pension plans that are unable to pay guaranteed benefits when due, PBGC will provide financial assistance to the plan, usually a loan, so that retirees continue receiving their benefits.