Pension Benefits Guaranty Corporation (PBGC)

Scope

The PBGC protects the retirement incomes of nearly 44.3 million American workers in more than 31,000 private defined benefit pension plans.

Regulatory citations

• None

Key definitions

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Summary of requirements

PBGC 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.

PBGC has two pension insurance programs:

• The single-employer program protects about 34.5 million workers and retirees in about 29,500 pension plans.
• The multiemployer program protects more than 9.7 million workers and retirees in over 1,600 pension plans.

Multiemployer plans are set up by collectively bargained agreements involving more than one unrelated employer, generally in one industry.

How pension plans end. An employer can voluntarily ask to close its single employer pension plan in either a standard or distress termination.

• Standard 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.
• Distress termination. 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.

Premium rates. In 2011 pension plans pay PBGC yearly insurance premiums of $35 per worker or retiree in single employer plans; and $9 for each in multi-employer plans (unchanged from 2010). Premium rates increase only if Congress approves.

Maximum guaranteed benefit. The maximum pension benefit guaranteed by PBGC is set by law and adjusted yearly. For single-employer plans in 2011, workers who retire at age 65 can receive up to $4,500.00 a month (or $54,000.00 a year - unchanged from 2010). The guarantee is lower for those who retire early or when there is a benefit for a survivor. The guarantee is increased for those who retire after age 65.

PBGC leadership. PBGC is headed by an Executive Director who reports to a Board of Directors consisting of the Secretaries of Labor, Commerce and Treasury, with the Secretary of Labor as Chairman.