Pension Benefit Guaranty Corporation (PBGC)

What Is the Pension Benefit Guaranty Corporation (PBGC)?

The Pension Benefit Guaranty Corporation (PBGC) is a U.S. government agency that assumes control over the payment of pension benefits to retirees when a defined-benefit plan meeting its financial obligations covers can't.

Understanding the Pension Benefit Guaranty Corporation (PBGC)

The Pension Benefit Guaranty Corporation (PBGC) is an independent federal agency managed by the U.S. Department of Labor. Laid out by the Employee Retirement Income Security Act of 1974 (ERISA), the PBGC was framed to encourage the continuation of private-sector defined-benefit pension plans, give opportune and continuous payment of pension benefits, and keep pension insurance premiums at the very least. It doesn't cover public-sector pension plans, like those for state and neighborhood government workers.

By and large, funding for the PBGC has not come from general tax incomes. The PBGC's principal funding sources are insurance premiums paid by employers who sponsor insured pension plans, the accrued interest on those premiums, and the assets of pension plans taken over by PBGC.

In March 2021, in any case, the American Rescue Plan Act of 2021, brought in money accessible from general tax incomes to support multiemployer pension plans, large numbers of which were at risk of coming up short on account of serious underfunding. The new law permits financially troubled plans to apply to the PBGC for extra funding, adequate to cover their obligations during that time 2051.

Multiemployer pension plans regularly cover union individuals, who might work for more than one employer. The PBGC additionally covers single-employer plans, sponsored by one company or other employer for its workers.

As of December 2020, the PBGC insured retirement incomes for almost 25,000 defined-benefit plans, covering around 34 million U.S. workers and retirees. Close to 24 million workers are covered through the single-employer program, while an extra 10.9 million are covered in the multi-employer program.

Significant

The PBGC guarantees retirement benefits simply up to certain maximum sums, which can change every year.

What the Pension Benefit Guaranty Corporation Covers

The essential benefits covered by PBGC incorporate pension benefits for workers at normal retirement age, most withdrawal from the workforce benefits, annuities for survivors of plan participants, and, in certain conditions, disability benefits.

Participants whose pension plans have been taken over by the PBGC will not be guaranteed to receive similar level of benefits as they would have in the event that their plans had gone on in operation.

The maximum pension benefit guaranteed by PBGC for single-employer plans is adjusted yearly by law. In 2021, eligible single-employer plan participants resigning at age 65 could receive a maximum benefit of $6,034.09 each month, or $72,408.08 per year, on the off chance that they chose for accept their benefit as a straight life annuity. In the event that they rather picked a joint and half survivor annuity, their maximum would be $5,430.68 per month. These covers are higher for those resigning after age 65 and lower for the people who retire prior.

In its 2020 fiscal year, the PBGC paid more than $6 billion in benefits to 984,000 retirees in the single-employer program. It likewise gave $173 million in assistance to 95 multiemployer plans.

History of the Pension Benefit Guaranty Corporation

While some U.S. employers have offered pensions as a worker benefit since the late nineteenth century, there were not many protections in place for those funds. Companies that failed or were generally unfit to pay out their guaranteed benefits could leave workers without anything. In one well known case, the automaker Studebaker terminated its employee pension plan in 1963, costing nearly 4,000 workers all or part of their expected retirement benefits.

In 1967, Senator Jacob Javits acquainted federal legislation with safeguard private pension plans, and in 1974 the Congress passed ERISA, which was endorsed into law by President Gerald Ford. Among different provisions pointed toward shielding pensions, it laid out the PBGC to guarantee the retirement benefits of millions of workers.

Features

• The Pension Benefit Guaranty Corporation (PBGC) is a federal agency that guarantees the pensions of numerous workers in the private sector.
• While the PBGC is generally funded by insurance premiums, the American Rescue Plan Act of 2021 makes tax incomes accessible to help at-risk multiemployer pension plans covered by the PBGC.
• The PBGC doesn't cover public sector workers, like government employees.