Your Guaranteed Pension
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Pension Benefit Guaranty Corporation |
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Pension Benefit Guaranty Corporation |
Following are answers to questions frequently asked by workers, retirees, and their beneficiaries about PBGC and its benefit guarantees. If you do not find the answer to your particular question, please contact our customer service representatives for assistance at (202) 326-4000. Please note that this is not a toll-free number and PBGC cannot accept collect calls. 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.
Q. What is the Pension Benefit Guaranty Corporation (PBGC)?
A. PBGC is a federal agency created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect pension benefits in private-sector traditional pension plans known as defined benefit plans. If your plan ends without sufficient money to pay all benefits, PBGC's insurance program will pay you the benefit provided by your pension plan up to the limits set by law. (Most people receive the full benefit they had earned before the plan ended.) Your plan is insured even if your employer fails to pay the required premiums. Our financing comes from insurance premiums paid by companies whose plans we protect, from our investments, and from the assets of pension plans that we take over, but not from taxes.
Q. What types of plans are insured by PBGC?
A. PBGC insures defined benefit plans, the type that promise to pay 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.
This booklet covers only single-employer plans, which are normally sponsored by an individual company for the benefit of its workers. Another PBGC program insures multiemployer plans covering unionized workers of non-related employers in the same industry, such as trucking or construction.
Q. How can I find out if my pension plan is insured by PBGC?
A. The easiest way is to ask your employer or plan administrator for a copy of the “Summary Plan Description,” or SPD. The SPD will state whether your plan is covered by the PBGC program. Although PBGC insures most defined benefit plans, some are not covered. For example, plans offered by “professional service employers” (such as doctors and lawyers) with fewer than 26 employees, by church groups, or by federal, state or local governments usually are not insured.
Q. When can an employer end a pension plan?
A. Employers can end a pension plan through a process called “plan termination.” There are two ways an employer can terminate its pension plan.
The employer can end the plan in a standard termination but only after showing PBGC that the plan has enough money to pay all benefits owed to participants. The plan must either purchase an annuity from an insurance company (which will provide you with lifetime benefits when you retire) or, if your plan allows, issue one lump-sum payment that covers your entire benefit. Before purchasing your annuity, your plan administrator must give you an advance notice that identifies the insurance company (or companies) that your employer may select to provide the annuity. PBGC’s guarantee ends when your employer purchases your annuity or gives you the lump-sum payment.
If the plan is not fully funded, the employer may apply for a distress termination if the employer is in financial distress. PBGC cannot grant the application, however, unless the employer proves to a bankruptcy court or to PBGC that the employer cannot remain in business unless the plan is terminated. If the application is granted, PBGC normally will take over the plan as trustee and pay plan benefits, up to the legal limits, using plan assets and PBGC guarantee funds.
Q. When does PBGC terminate a pension plan?
A. Under certain circumstances, PBGC may take action on its own to end a pension plan. Most terminations initiated by PBGC occur when PBGC determines that plan termination is needed to protect the interests of plan participants or of the PBGC insurance program. PBGC can do so if, for example, a plan will be unable to pay benefits when due.
Q. How can I find out if my pension plan is underfunded?
A. If you are in a single-employer plan insured by PBGC that has been less than 80% funded for the past year or two and less than 90% funded for several years, your plan administrator is required to give you an annual written notice of the plan’s funded percentage and the limitations on PBGC’s insurance guarantees. You also have a legal right to obtain information about your plan’s funding by requesting the information in writing from your plan administrator.
Q. How will I know if my pension plan is ending?
A. If your employer wants to end the plan, your plan administrator must notify you of this in writing. You must get this notice, called the Notice of Intent to Terminate, at least 60 days before the proposed "termination" date. If PBGC is terminating the plan, we notify the plan administrator and often publish a notice about our action in local and national newspapers.
Q. What other information should I receive?
A. In a standard termination, you should receive a second letter describing the benefits you will receive, called the Notice of Plan Benefits, generally no later than six months after the date proposed for your plan’s termination.
In a distress termination or a termination initiated by PBGC, our communication with you begins when we take over your plan as trustee. Initially we will provide you with general information about the pension insurance program and our guarantees. We will be able to provide more specific information about your benefits after we have had an opportunity to review the plan’s records, assets, benefit liabilities, and your participation in the plan.
Q. Can I earn additional benefits after my plan ends?
A. No. After the plan ends, you cannot earn additional benefits.
Q. What happens when PBGC takes over my plan?
A. PBGC reviews your plan's records to determine what benefits each person will receive. To ensure PBGC has the correct information, we will ask you to complete an Information Form.
If you are already receiving a pension, we will continue paying you without interruption during our review. These payments, an estimate of the benefits that PBGC can pay under the insurance program, may be less than you were receiving from your plan but will be paid in the annuity form you chose at retirement.
If you have not yet retired, we will pay you an estimated benefit when you become eligible and apply to PBGC to begin payments. About four months before you are ready for your benefits to begin, contact PBGC by calling the Customer Contact Center toll-free at 1-800-400-7242 or by visiting our Web site at www.pbgc.gov.
We pay most benefits by Electronic Direct Deposit, sending your monthly payments directly to your financial institution. If you do not want to use direct deposit, you may still receive your benefit by check.
Q. What happens if PBGC's estimate is too high or too low?
A. If PBGC underpaid your benefit, we will make it up in a single payment with interest when we have completed our calculations. If we overpaid you, we will reduce future payments until the overpayment has been repaid. The reduction is normally no more than 10 percent of each payment.
Q. What benefits does PBGC guarantee?
A. PBGC guarantees "basic benefits" earned before your plan ended, 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) annuity benefits for survivors of plan participants. PBGC does not guarantee health care, vacation pay, or severance pay.
The pension benefit PBGC pays depends on
(1) provisions of your plan
(2) legal limits
(3) the form of your benefit
(4) your age, and
(5) amounts PBGC recovers from employers for plan underfunding.
Q. What is the maximum amount that PBGC can guarantee?
A. PBGC's maximum benefit guarantee is set each year under provisions of ERISA. For pension plans ending in 2005, the maximum guaranteed amount is $3,801.14 per month ($45,613.68 per year) for workers who retire at age 65. This guarantee amount is lower if you begin receiving payments from PBGC before age 65 or if your pension includes benefits for a survivor or other beneficiary. The guarantee amount may be higher if you are over age 65 when you begin receiving benefits from PBGC. The tables shows PBGC's maximum guarantee for retirement at various ages. For certain disability benefits, special rules apply (see the following question). Other guarantee limitations that may apply are described in the questions and answers that follow.
Q. How does the maximum benefit guarantee apply to the benefits of disabled workers?
A. If you met your plan's requirements for a disability benefit before your plan ended (whether or not you applied for the benefit), and you have a Social Security disability award for that disability, PBGC will not reduce the maximum benefit guarantee if you begin receiving payments from PBGC before age 65. For pension plans ending in 2005, the maximum guaranteed amount of disability benefit is $3,801.14 per month ($45,613.68 per year) for workers who begin receiving benefits from PBGC at age 65 or any younger age. Other adjustments to the maximum guarantee are the same as for non-disabled workers: the maximum is increased if you begin receiving payments from PBGC after age 65 and it is reduced if your pension includes benefits for a surviving spouse or other beneficiary.
Q. Are there other limits on PBGC's guarantee?
A. Yes. For example, if your plan was created or amended to increase benefits within five years before it ended, your benefit may not be fully guaranteed. PBGC guarantees the larger of 20% of the benefit or $20 per month for each full year the benefit was in effect. If you own more than 10% of the business, stricter limits apply. Also, if your plan provides supplemental benefits, such as temporary payments, they may not be fully guaranteed. Generally, PBGC does not guarantee any monthly pension amount that is greater than the monthly benefit your plan would have provided if you had retired at your normal retirement age.
Q. Does PBGC pay survivor benefits?
A. PBGC pays survivor benefits if the benefit form you elected (or elect in the future from PBGC) provides for survivor benefits. PBGC will allow all future retirees, whether married or not, to elect a benefit form that provides survivor benefits.
If you are married and die before electing a benefit form, we pay your surviving spouse a survivor benefit. Your spouse can begin this benefit as early as the earliest date your plan states you can retire.
If you are entitled to or are receiving a survivor benefit when your plan ends, PBGC will continue to pay your survivor benefit for the period provided by your plan.
Q. Can I receive my benefit from PBGC in a lump sum or as a monthly annuity?
A. Normally, we pay benefits in monthly payments for life rather than as a lump sum. However, if the total value of your benefit is $5,000 or less, you can receive a lump sum.
Q: Can I put my lump sum into an Individual Retirement Arrangement (IRA)?
A. Yes, you generally can put all or part of your lump sum into a traditional IRA or other qualified plan. If you have PBGC pay the lump sum directly to your IRA or other plan, PBGC will not withhold tax from the payment. With this type of payment, called a "tax-free rollover," you will not have to pay tax until you receive payments from the IRA or other plan. You can get more information about tax-free rollovers by contacting your local Internal Revenue Service office, calling 1-800-TAX-FORM, or visiting www.irs.gov.
Q. Can I choose the form of my benefit from PBGC?
A. Yes, PBGC offers a range of annuity choices that are explained in "Your PBGC Benefit Options: Questions and Answers for Participants." At the time you retire, we will tell you the amount you can receive under each of these annuity choices.
Q. Will PBGC adjust my pension yearly for inflation?
A. No, there is no cost-of-living adjustment.
Q. Will my deductions stay the same if PBGC takes over my plan?
A. PBGC only deducts federal income taxes. You will have to pay separately any state taxes or other amounts (such as health insurance) now being deducted.
Q. What is the new health coverage tax credit?
Certain PBGC benefit recipients who are age 55 or over and are covered by qualified health insurance are eligible for the Health Coverage Tax Credit (HCTC) administered by the Internal Revenue Service.
The credit is not available to everyone. For example, a PBGC benefit recipient receiving certain specified health coverage, such as Medicare, will be ineligible to use the HCTC program. For more information about this program and about what is considered qualified health insurance, you may call the HCTC Program Customer Contact Center's toll-free telephone number of 1-866-628-4282 (for TTY/TDD users, call 1-866-626-4282). You can find more information about the HCTC program by visiting the IRS Web site at www.irs.gov/individuals/ and selecting Health Coverage Tax Credit (HCTC).
PBGC MAXIMUM MONTHLY GUARANTEES
Examples of the maximum guarantee for a single life annuity with no survivor benefits are shown for ages 65, 62, 60 or 55. The maximum is based on your age at the date you begin receiving benefits from PBGC. The age reduction does not apply to certain disability retirement benefits, as described in Your Guaranteed Pension. The maximum is lower if the benefit is paid in a form other than a single life annuity, such as a form that provides for survivor benefits.
Maximum monthly guarantee tables
| Pension Benefit Guaranty
Corporation 1200 K Street, NW Washington DC 20005-4026 |
 www.pbgc.gov |
Revised: January 2006
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