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 1-800-400-7242. For TTY/TDD users, call the Federal relay service toll-free at 1-800-877-8339 and ask to be connected to 1-800-400-7242. 

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 (this is called “plan termination”) 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 terminated.) Our financing comes from insurance premiums paid by companies whose plans we protect, from our investments, from the assets of pension plans that we take over as trustee, and from recoveries from the companies formerly responsible for the plans, but not from taxes. Your plan is insured even if your employer fails to pay the required premiums.

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 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. How can an employer terminate a pension plan?

A. 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 a 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 does not have enough money to pay all pension benefits owed to participants, 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 as trustee of the plan 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 terminate 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. Your plan administrator is required to give you an annual written notice regarding the funded status of the plan. 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 as trustee of your plan. Initially we will give you 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’s termination date?

A. No. You cannot earn additional benefits after your plan terminates.

Q. What happens when PBGC takes over as trustee of my plan?

A. PBGC reviews your plan's records to determine the benefits each person will receive. The amount we pay is subject to limits set by law.

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.

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. When does PBGC make its determination of my benefit?

A. After we have completed our review of all plan data and records, we will notify you in writing of your PBGC benefit and your right to appeal our determination. If you are receiving an estimated benefit, the letter will inform you whether your future payments will change and, if so, how much higher or lower they will be than the amount you are currently receiving.

Q. What happens if my estimated benefit is too high or too low?

A. If your estimated benefits have been lower than the amount that PBGC ultimately determines you should be receiving, PBGC will make up the difference in a single payment with interest when we have completed our calculations. If your estimated benefits have been higher than the amount you should be receiving, your future monthly payments will be corrected to the final amount as calculated by PBGC, further reduced by no more than 10 percent each month to account for the higher payments already received.  

Q. What benefits does PBGC guarantee?

A. PBGC guarantees "basic pension benefits," subject to legal limits. These benefits include (1) pension benefits at normal retirement age, (2) most early retirement benefits, (3) disability benefits, and (4) annuity benefits for survivors of plan participants. The guarantee applies only to benefits earned before the plan terminates; however, if the plan terminates while your employer is in bankruptcy, the guarantee may be limited to benefits earned before the bankruptcy. Additional limitations may apply to certain airline industry plans. PBGC does not guarantee health and welfare benefits, 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, (5) plan assets and (6) amounts (if any) PBGC recovers from employers for plan underfunding.

Q. What is the maximum amount that PBGC can guarantee by law?

A. PBGC's maximum benefit guarantee is set each year under provisions of ERISA. The maximum guarantee applicable to a plan is fixed as of that plan’s termination date except for cases where termination occurs during a plan sponsor’s bankruptcy, in which case the maximum guarantee may be fixed as of the date the sponsor entered bankruptcy. An earlier date also may apply to certain airline industry plans. For 2009, the maximum guaranteed amount is $4,500.00 per month ($54,000.00 per year) for workers who begin receiving payments from PBGC at age 65. The maximum guarantee 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 maximum guarantee is higher if you are over age 65 when you begin receiving benefits from PBGC. A Web link at the end of this booklet will take you to a table that shows PBGC's maximum guarantee 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. The maximum guaranteed amount of disability benefit in 2009—$4,500.00 per month ($54,000.00 per year)—is not reduced for age for workers who begin receiving disability benefits from PBGC before reaching age 65. This rule applies to you if you met your plan's requirements for a total disability benefit before your plan’s termination date (or the date your employer’s bankruptcy proceeding began, if applicable) whether or not you applied for the benefit by that date, and you have a Social Security disability award for that disability.

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 the plan’s termination date, your benefit may not be fully guaranteed. PBGC guarantees the larger of 20% of the benefit increase or $20 per month for each full year the benefit increase was in effect. If you own more than 50% of the business, stricter limits apply. If you become eligible for additional benefits as a result of an event such as the shutdown of a facility that occurs after July 26, 2005, and less than five years before your plan’s termination date, the increase is not fully guaranteed. Additional limits may apply if the plan terminated while your employer was in a bankruptcy proceeding and for certain airline industry plans. 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. Yes. Whether you retired before or after your plan terminated, PBGC will pay benefits to your surviving beneficiary if you elected a benefit form that provides survivor benefits. If you chose an annuity that pays benefits for the life of your beneficiary (such as a joint-and-survivor annuity), we will pay these benefits only to the beneficiary you chose when you retired. In such a case, if you remarry after you retire, your new spouse usually will not be entitled to a survivor benefit. If you chose an annuity that pays your beneficiary only for a fixed period of time (such as a certain & continuous annuity), we will pay any remaining benefits to your most recently named beneficiary. A qualified domestic relations order (QDRO) also may affect benefit payments.

PBGC allows all future retirees, whether married or not, to elect a benefit form that provides survivor benefits and to name a beneficiary at that time.

If you are married and die before retiring, we pay your surviving spouse a survivor benefit. Your spouse can begin this benefit as early as the earliest date you could have received benefits from PBGC.

If you are entitled to or are receiving a survivor benefit when your plan terminates, 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?

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 may be able to receive it in a single one-time payment.

Q. Can I put my lump sum into an Individual Retirement Arrangement (IRA)?

A. Yes, most traditional IRAs or other qualified retirement plans will accept your lump-sum payment from PBGC. 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 generally offers you a range of choices if your annuity begins after PBGC trustees your plan. The choices are explained on the Web page Your PBGC Benefit Options. 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 under the law.

Q. Will my deductions stay the same if PBGC takes over my plan?

A. PBGC only withholds federal income taxes and certain court-ordered deductions. You will have to pay separately any state taxes or other amounts (such as health insurance) now being deducted.

Q. What is the health coverage tax credit?

A. 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 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/index.html and selecting Health Coverage Tax Credit (HCTC).

If you are eligible for HCTC, you may also be able to apply for National Emergency Grant (NEG) Gap Filler funds, which are available in certain states to help people pay for qualified health coverage. Contact the U.S. Department of Labor at 1-877-US2JOBS (1-877-872-5627) and ask if your state has a NEG Gap Filler Program.

PBGC MAXIMUM MONTHLY GUARANTEES

Click the link below to see a table of the maximum amounts that PBGC can guarantee for a single life annuity with no survivor benefits and a joint-and-50%-survivor annuity for ages 45–65. 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