Plan Termination and The Pension Benefit Guaranty Corporation

The Pension Benefit Guaranty Corporation ("PBGC") is a federal corporation created under ERISA. The PBGC's role is to carry out the purposes of Title IV of ERISA. Those purposes are: 




 

The PBGC currently guarantees payment of basic pension benefits earned by about 44 million American workers and retirees participating in over 35,000 private-sector defined benefit pension plans. The PBGC receives no funds from general tax revenues. Its operations are financed by insurance premiums paid by companies that sponsor pension plans, plan assets of pension plans that PBGC takes over, and by PBGC's investment returns.^[21]

The main activities of the PBGC are regulating and overseeing the termination of plans covered by Title IV of ERISA and administering the program of termination insurance.^[22] Defined benefit plans are covered under Title IV. Defined contribution plans such as 401(k) and profit sharing plans are not covered.

The Title IV benefit guarantee program is called "plan termination insurance." If the defined benefit plan of any airline is terminated, in the course of bankruptcy proceedings or otherwise, this plan termination insurance would apply. The PBGC would guarantee and actually pay nonforfeitable pension benefits in terminated, underfunded single employer plans, up to a prescribed limit.^[23]

Under federal pension law, when there are insufficient plan assets to fund the entire pension benefit originally promised, there is a maximum amount that each worker can be paid by PBGC. The maximum pension guaranteed for workers in plans that terminate in 2003 is $3,664.77 a month (or $43,977.24 a year) for persons retiring at age 65. This maximum guarantee is adjusted for those who elect to retire at ages younger than 65 or who elect survivor benefits.^[24]

 The PBGC guarantees "basic benefits." Basic benefits include:

ð pension benefits at normal retirement age;

            ð most early retirement benefits;

ð disability benefits for disabilities that occurred before the plan
                  as terminated (for terminations starting after December 7,
                  1994, the reduced maximum guarantee for ages younger than
                  65 does not affect the benefits received by disabled
                  participants who receive a disability benefit from both the
                  pension plan and Social Security); and certain benefits for
                  survivors of plan participants. 

The PBGC does not guarantee health care, vacation pay, or severance pay. Also, there may be limitations on benefits created or amended within five years of the plan's termination.

There are no cost of living adjustments for payments made by the  PBGC. Federal taxes are deducted. You are responsible for state taxes and any other amounts presently deducted from your pension payment.

^[20]Conison, Jay, Employee Benefit Plans, 2^nd Ed., West Group, 1998, p. 426.

^[21]PBGC Press Release, December 16, 2002, PBGC to Protect Pensions of  95,000 at Bethlehem Steel, http://www.pbgc.gov/news/press_releases/2002/pr03_09.htm

^[22] Title IV covers only pension plans and only those plans that, in fact, have operated as qualified plans for at least five years or that have received a favorable determination letter from the IRS. ERISA '4021(b). More specifically, Title IV covers only single employer and multi-employer plans. Title IV does not cover defined contribution plans. Ibid.

^[23]Conison, p. 427-428.

^[24]The information in this part is from the PBGC web site, www.pbgc.gov . PBGC is located at 1200 K Street, N.W., Suite 930, Washington, DC 20005-4026, 202-326-4000. The  guaranteed monthly payments for those retiring before age 65 are: $2,895.17 at age 62; $2,382.10 at age 60; and $1,649.15 at age 55. There are monthly maximums set for every year of age between age 50 and 70.