The Pension Benefit Guaranty Corporation (PBGC) insures the retirement benefits of nearly 44 million Americans in 29,400 pension plans.

Since 1974, when Congress created PBGC to guarantee payment of defined benefit pensions, some 1,152,000 workers and retirees in 3,860 terminated pension plans, and 122,000 participants in multiemployer plans receiving financial assistance, have come to rely on PBGC for their retirement income.

Under PBGC's single-employer program, PBGC takes responsibility for paying benefits to current and future retirees when a pension plan runs out of money, when a company liquidates and has an underfunded plan, when PBGC must end a plan to protect participants and the insurance fund, or when a sponsoring company demonstrates it cannot continue funding a pension plan and stay in business. When PBGC terminates and takes over a pension plan, all additional benefit accruals, vesting, and other regular plan obligations cease. Under the separate multiemployer program, if a PBGC-insured multiemployer plan is unable to pay guaranteed benefits when due, PBGC will provide the plan with financial assistance, in the form of a loan, so the plan can continue to pay participants their guaranteed benefits.

Benefits Paid:

PBGC pays benefits according to the provisions of each individual pension plan up to the limits of PBGC's maximum guarantee. Most participants of plans taken over by PBGC receive the full benefit they would have received under the plan. But, some have found their benefit exceeds PBGC's limits and they do not receive all of their benefit. For example, those who retire early with supplements to their benefits and highly compensated individuals may find that some of their pension amount exceeds PBGC's guarantee. Participants who retire before their plan terminates generally will continue to receive the same form of benefit they had chosen. Those not yet retired will receive a single-life annuity or a joint-and-survivor annuity, depending on marital status at time of retirement, if their payments started before May 2002. Retirees whose payments start in May 2002 or later are able to choose from a variety of annuity benefit forms.

To assure that there is no interruption in retiree benefit checks after PBGC takes responsibility for a plan, participants receive estimated benefit payments while their plan is examined, a detailed process that takes time. Payments of estimated benefits may result in some overpayments or underpayments. PBGC reimburses participants for any underpayment plus interest. Participants must reimburse PBGC for any overpayments, without interest, usually through a reduction of not more than 10 per cent of each future monthly benefit payment. If both overpayments and underpayments have been made, special rules apply.

Normally, benefits are paid 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 $5,000 or less, most participants will receive a lump sum distribution.

PBGC paid about $4.3 billion in benefits to retirees of terminated pension plans in fiscal 2008.

Coverage:

PBGC guarantees basic benefits including certain early retirement, disability, and survivor benefits. Generally, for participants who are not retired at plan termination, normal and early retirement benefits are guaranteed if all the conditions of the plan for receipt of those benefits are met, even if the participants are not yet old enough to receive the benefit. PBGC will begin payments when the participant becomes eligible to receive the benefits. PBGC also provides preretirement survivor coverage, which pays a benefit to the survivor of a participant who dies before retirement.

Some types of benefits are not guaranteed. These include health and welfare benefits, severance benefits, lump-sum death benefits and disability benefits when death or disability occurs after plan termination.

Guarantee Limits:

There is a statutory limit on the amount that PBGC can guarantee. Under the single-employer program, the limit is adjusted annually based on changes in the Social Security contribution and benefit base and is permanently established for each pension plan based on the date the plan terminates except for cases in which termination occurs during a plan sponsor's bankruptcy or for certain airline industry plans. For plans with a 2009 termination date, the maximum guarantee is $54,000.00 yearly ($4,500.00 monthly) for a single life annuity beginning at age 65. The maximum is adjusted downward for retirees younger than age 65. For example, the maximum guarantee for a participant who retires at age 62 is $42,660.00 yearly ($3,555.00 monthly) for a single-life annuity. At age 55, the maximum guarantee is $24,300.00 yearly ($2,025.00 monthly).

For those already retired, the age used to determine the maximum guarantee is the participant's age as of the date of plan termination except for cases where termination occurs during a plan sponsor's bankruptcy or for certain airline industry plans, in which an earlier date may apply. For those not yet retired, the maximum guarantee is based on their age when they do retire. There is also an adjustment to reflect a form of payment other than a single-life annuity.

In the case of a joint-and-50%-survivor annuity, for example, the adjustment reflects both the cost of the additional survivor benefit and the difference in ages of the retiree and the spouse. To illustrate, a 65-year-old retiree with a 60-year-old spouse, who as a single annuitant would have received the maximum $4,500.00 monthly, would instead receive about $3,847.50 monthly. Upon the retiree's death, PBGC would pay the survivor a monthly amount equal to 50 percent of the retiree's benefit for the remainder of the survivor's life.

PBGC does not guarantee benefit payments that exceed the amount of a participant's accrued plan benefit payable at normal retirement age.

Benefit increases and new benefits are only partially covered by PBGC's guarantee if they have been in the plan less than five years on the date of plan termination. PBGC guarantees the larger of 20 percent or $20 per month of the increase for each whole year since the benefit increase. Participants may receive the full benefit increase if the increase has been in the plan more than five years. Generally, benefit increases occurring within one year of plan termination are not guaranteed. Different rules may apply if the plan terminated while the plan sponsor was in a bankruptcy proceeding or for certain airline industry plans.

Under the multiemployer program, PBGC guarantees a portion of the pension earned up to $35.75 per month times the years of credited service.

Additional Benefits:

Under the single-employer program, there are circumstances where retirees can receive more than the maximum guaranteed benefits, such as when a plan has sufficient assets to pay nonguaranteed benefits or when funds are recovered from companies on behalf of trusteed plans in excess of those needed to pay guaranteed benefits.