How does the Pension Benefit Guaranty Corporation (PBGC) protect me against loss of benefits?


The Pension Benefit Guaranty Corporation (PBGC) is a non-profit federal organization which guarantees that pension plan participants do not lose their retirement benefits if their pension plans, for one reason or another, are terminated. This is a welcome governmental protection for all employees whose retirement security depends solely on their employers' pension plans.

How the PBGC Operates

Here are a few illustrations of how the Pension Benefit Guaranty Corporation works:

  • The PBGC insures pension plans even if they are terminated because of lack of money, paying the benefits specified in each individual pension plan (subject to certain federal limits).
  • Only defined-benefit pension plans are guaranteed by the Pension Benefit Guaranty Corporation. PBGC does not cover profit-sharing or 401k plans which do not have a specified benefit.
  • What PBGC guarantees is basic benefits such as pension benefits at normal retirement age, benefits for disability, annuity survivor benefits and early retirement benefits. Extra benefits an employer might offer, such as health benefits or vacation pay, are not provided by the PBGC. Neither can additional benefits be earned after the pension plan has terminated.
  • The maximum benefit that the Pension Benefit Guaranty Corporation guarantees is adjusted every year in accordance with ERISA provisions. The maximum guaranteed benefit in 2009 is $4,500 a month, or $54,000 per year for people who retire at 65. Individuals who retire earlier receive a lower amount, while those who retire after age 65 will get a higher amount.
  • Typically, PBGC benefits are paid in monthly installments for life. Yet, individuals whose total benefit amount is $5,000 or lower, can receive the whole amount as a lump sum.
  • According to the Pension Protection Act of 2006 provisions, every employer who terminates a pension plan leaving it to the PBGC to handle, and then recovers from bankruptcy, is required to pay termination premiums of $1250 per participant for a maximum of three years.
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