Your Guaranteed Pension
PENSION BENEFIT GUARANTY CORPORATION
Your Guaranteed Pension
Full Text Questions and Answers
PBGC is a federal agency that insures and protects pension benefits in certain pension plans. If your plan is insured by PBGC, we guarantee your pension benefits, up to certain legal limits. If your employer has financial difficulty and cannot fund the plan, and the plan does not have enough money to pay all promised benefits, your plan ends (plan termination). PBGC then takes the plan over as the trustee and begins to pay pension benefits. The amount and types of pension benefits we pay are determined by your plan and the Employee Retirement Income Security Act (ERISA), which established PBGC. PBGC is not funded by taxes. Our financing comes mainly from insurance premiums paid by companies whose plans we protect. If your plan is the type of plan insured by PBGC, your plan is insured even if your employer fails to pay the required premiums.
What types of plans are insured by PBGC?
PBGC insures defined benefit plans, the type that promise to pay participants a specific monthly benefit at retirement. PBGC does not insure retirement plans that do not promise specific benefit amounts ("defined contribution pension plans"), such as profit sharing or 401(k) plans.
The easiest way to find out if your plan is insured by PBGC is to ask your employer or plan administrator, the person who administers the plan. Although PBGC insures most defined benefit plans, there are some that are not covered. For example, plans offered by professional service firms (such as doctors and lawyers) with fewer than 26 employees, by church groups or by federal, state or local governments usually are not insured. This booklet covers only single-employer plans, by far the larger group of plans insured by PBGC. These are normally sponsored by an individual company for the benefit of its workers. (PBGC also insures multiemployer plans, which are collectively bargained pension arrangements covering workers of nonrelated employers in the same industry, such as trucking or construction.)
Pension plans usually end for one of three reasons: (1) the employer is having financial problems and can no longer support the plan; (2) the plan has enough money to pay all promised benefits and the employer wants to end the pension plan; or (3) the plan does not have enough funds to pay participants and PBGC decides that it should be ended in order to protect the interests of participants or PBGC.
Employers can end pension plans through a process called termination. There are two types of termination.
In a standard termination, an employer ends a plan that is fully funded after showing PBGC that there is enough money to pay all benefits owed plan participants and beneficiaries. Depending on the plan’s provisions, the employer either pays each participant and beneficiary all the benefits owed in a lump sum or the employer purchases an annuity for those benefits from an insurance company. The insurance company will then pay the retirement benefits. Your plan administrator must tell you what insurance company or companies your plan is considering as a possible annuity provider before the money in the plan is distributed. PBGC’s guarantee is ended when the employer purchases the annuities or otherwise pays participants the value of their pensions.
In a distress termination, an employer ends a plan that does not have enough money to pay all benefits owed plan participants and beneficiaries. To do so, however, the employer must prove to PBGC that the business is financially unable to support the plan. PBGC takes over the plan as trustee and uses its own assets and any remaining assets in the plan to make sure that current retirees and future retirees of the plan receive their pension benefits, within the legal limits.
Under certain conditions, PBGC may terminate a pension plan, even if a company has not filed to terminate the plan on its own initiative. PBGC can take such action if, for example, a plan does not have sufficient assets to pay benefits currently due.
If your employer is seeking to end the plan, your plan administrator must notify you in writing that your plan is ending at least 60 days before the "termination" date. This notice is called the Notice of Intent to Terminate. If PBGC itself is seeking to end the plan, we notify the plan administrator and often publish a notice about our action in local and national newspapers.
In a standard termination, you should receive a second letter, called the Notice of Plan Benefits, that gives you information about the benefits your will receive.
In a distress termination, the plan administrator will send information regarding your benefits to PBGC. We will then determine the amount of your benefit under our insurance program and will notify you in writing of our determination.
We try to notify all participants quickly when we take over a plan. We then begin reviewing the plan’s records to determine what benefits each person will receive from PBGC. If you are already retired and receiving benefits, we will continue paying benefits without interruption during our review. These payments will be an estimate of the benefits you are eligible for under our insurance program. Once we complete our review, we will tell you in writing what your pension amount will be under the law and what rights you have to appeal our decision. The pension benefit that PBGC can pay will depend on (1) your age, (2) the provisions of your plan, (3) your employer’s funding of the plan before it ended, (4) the form of your benefit, (5) PBGC’s maximum benefit payments, and (6) whether and when benefits were increased before the plan ended.
To ensure PBGC has the proper information on all participants, we will contact you periodically to request any changes, such as your new address, if you have moved.
An estimated benefit can fall short of or exceed the actual benefit you are due under the insurance program. In general, if you are underpaid, you will receive the amount underpaid plus interest in a single payment when PBGC has completed calculations. PBGC recoups overpayments by reducing future monthly payments, usually by no more than 10 percent of the monthly benefit amount due under the insurance program. You also may repay the overpayment in a lump sum. If both overpayments and underpayments have been made, special rules apply.
PBGC guarantees "basic benefits," which include (1) pension benefits at normal retirement age, (2) most early retirement benefits, (3) disability benefits for disabilities that occurred before the plan was terminated, and (4) certain benefits for survivors of plan participants. PBGC does not guarantee such benefits as health care, vacation pay, severance pay, or other benefits that are not considered "basic" pension benefits.
The maximum benefit PBGC can pay is set by law each year, under provisions of ERISA. For pension plans ending in 1998, for example, the maximum guaranteed amount is $2,880.68 per month ($34,568.16 per year) for a worker who retires at age 65. This maximum monthly amount will be reduced if you begin receiving payments before age 65 or if your pension includes benefits for a survivor or other beneficiary. The table at the end of these questions and answers lists examples of PBGC’s maximum guaranteed benefits.
PBGC pays survivor benefits if you retired before your plan ended and your benefit included a survivor benefit, or if you were receiving a survivor benefit before the plan ended. If you are married and begin receiving retirement benefits after the plan ends, we will provide joint-and-survivor annuitycoverage unless you and your spouse tell us in writing that you do not want this annuity. Joint and survivor coverage provides that if you die first, your spouse will continue to receive a portion of your benefit. With a joint-and-survivor annuity, your monthly benefit is generally reduced during your lifetime to pay for the cost of the annuity.
For plans terminated on or after August 23, 1984, PBGC also provides preretirement survivor annuity coverage, which pays a benefit to the surviving spouse of a participant who dies before retirement. PBGC provides this coverage free of charge after plan termination.
Yes. If the benefits under your plan are increased and the plan is taken over by PBGC within five years of this change, the increase may not be fully guaranteed. A "phase-in" rule is applied to determine how much of the increase is guaranteed.
If you are already retired and receiving benefits when we take over your plan, you will continue to receive payments, although the amount will be estimated until we determine your PBGC benefit. If you have not yet retired, we will begin paying your benefits when you become eligible for them and you have applied for those benefits.
Normally, benefits are paid in the form of an annuity on a monthly basis. However, if the monthly benefit is $50 or less, payments generally will be made on a yearly basis. If the full value of the benefit is $3,500 or less, participants will receive a lump sum distribution. If, in this case, the benefit is at least $25 a month, the participant may elect to receive it as an annuity.
Yes. If the taxable portion of your lump sum payment is transferred directly by the plan or PBGC into an IRA, you will not have to pay taxes on your benefit until you begin receiving IRA payments. This deposit is called a "tax-free rollover." For more information about tax-free rollovers and the laws controlling IRAs, call or write the Internal Revenue Service office nearest you.
No, there is no cost of living adjustment. The amount of your benefit is fixed as of the date your plan ends (date of termination), subject to the maximum limits and restrictions already mentioned in these questions and answers.
PBGC only deducts federal income taxes. You will have to make your own arrangements to pay state taxes and other amounts now being deducted.
If you have questions about a pension plan that PBGC has taken over or about our insurance programs and retirement guarantees, contact PBGC’s Technical Assistance Division at 1200 K Street, NW, Suite 930, Washington, DC 20005-4026, or call us at (202) 326-4000. For TTY/TDD users, call the federal relay service toll-free at 1-800-877-8339 and ask to be connected to (202) 326-4000. If you have specific questions about your plan or your benefits, you should first contact your plan administrator or your employer.
Examples of the maximum guarantee for a single life annuity with no survivor benefits are shown for retirement at ages 65, 62, 60 or 55. The maximum is further reduced if the benefit is paid in a form other than a single life annuity, such as a form that provides for survivor benefits. The actual guarantee limit will depend on a participant’s date of birth and plan provisions.
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