Overview of Multiemployer Benefit Guarantees

(ERISA Secs. 4022A and 4022B )

PBGC’s guarantee for multiemployer pension plan benefits depends on the type of benefit, the dollar amount of the benefit, and the date on which the benefit provision was adopted.For the most part, the PBGC guarantees the same type of benefits for multiemployer pension plans as for benefits in the single-employer program, with the exception that preretirement survivor annuities are forfeitable in multiemployer plans if the participant has not died as of the termination date.

“Basic” benefits include:

1. Pension benefits payable at normal retirement age,
2. Some early retirement benefits,
3. Disability benefits for persons who were disabled before the plan terminated, and
4. Some survivor benefits.

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Limits on Guarantees

There are three limits that apply to multiemployer pension benefits:

Accrued at normal retirement age

(ERISA Sec. 4022A(c))

The maximum monthly benefit may not exceed the amount of a straight life annuity payable under the plan at normal retirement age.

Phase-in of guarantee (60-month rule)

(ERISA Sec. 4022A(b))

PBGC does not guarantee a participant’s pension benefit until provisions of the plan providing for the benefit have been in existence for 60 full months. This rule also applies to benefit increases that have been in effect for less than 60 months.

In addition, if the multiemployer plan was insolvent or terminated by mass withdrawal in any month, that month does not count toward the 60-month requirement.

Maximum guarantee

(ERISA Sec. 4022A(c))

The current multiemployer maximum benefit is:

• 100% of the first $11 of the monthly benefit rate, plus
• 75% of the next $33 of the monthly benefit rate, times
• participant’s years of service.

There is no dollar limit on the monthly benefit payable under the multiemployer program, only a limit on the benefit rate used to calculate the monthly benefit. The maximum guaranteed benefit is not indexed  

Example 1

Plan’s benefit rate is $9 per year of service. This is fully guaranteed, since $9 is below the $11 that is 100% guaranteed.

 

Example 2

Plan’s benefit rate is $16 per year of service. The guaranteed benefit is limited to $14.75 per year of service, as follows: $11.00 = 100% of the first $11.00 $ 3.75 = 75% of the next $ 5.00 $14.75

 

Example 3

Plan’s benefit rate is $56 per year of service. The guaranteed benefit is limited to $35.75 per year of credited service. This comes from the following: $11.00 = 100% of the first $11.00 $24.75 = 75% of the next $33.00 ($56 - $11 = $45, partial guarantee of up to $33) $35.75

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