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Your Guaranteed Pension

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 insure and protect pension benefits in private traditional pension plans known as defined benefit plans. If your plan ends without sufficient money to pay all benefits, PBGC's insurance program will pay you a benefit. Our financing comes mainly from insurance premiums paid by companies whose plans we protect, 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 pension plans"), such as profit sharing or 401(k) plans.

Q. How can I find out if my pension plan is insured by PBGC?

A. The easiest way is to ask your employer or the plan administrator. Although PBGC insures most defined benefit plans, some are not covered. For example, plans offered by professional service firms (such as doctors and lawyers) with fewer than 26 employees, by church groups or by federal, state or local governments usually are not insured. This booklet covers only single-employer plans, which are normally sponsored by an individual company for the benefit of its workers. PBGC also insures multiemployer plans covering unionized workers of non-related employers in the same industry, such as trucking or construction.

Q. Why do pension plans end?

A. Pension plans usually end for one of three reasons: (1) the employer is having financial problems and can no longer support the plan; (2) the plan has enough money to pay all promised benefits and the employer wants to end the pension plan; or (3) the plan does not have enough funds to pay participants and PBGC decides that it should be ended in order to protect the interests of participants or the PBGC insurance program.

Q. How do pension plans end?

A. Employers can end (terminate) pension plans in one of two ways.

In a standard termination, an employer ends a fully funded plan after showing PBGC that there is enough money to pay all benefits. The plan will provide the benefits owed either by purchasing an annuity from an insurance company which will provide periodic payments for life or, if your plan allows, all at once in a lump-sum. Your plan administrator must tell you what insurance company or companies your plan is considering as a possible annuity provider before making a final selection. PBGC's guarantee ends when the employer purchases the annuities or otherwise pays you the value of your pension.

In a distress termination, an employer ends a plan that does not have enough money to pay all benefits owed. To do so, however, the employer must prove to PBGC that the business is financially unable to support the plan. PBGC takes over the plan as trustee and uses its own assets and any remaining assets in the plan to make sure that current and future retirees receive their pension benefits, within the legal limits.

Under certain conditions, PBGC may terminate a pension plan, on its own initiative. PBGC can take such action if, for example, a plan does not have sufficient assets to pay benefits currently due.

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 in writing that your plan is ending at least 60 days before the "termination" date. This notice is called the Notice of Intent to Terminate. 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, called the Notice of Plan Benefits, describing the benefits you will receive.

In a distress termination, the plan administrator will send PBGC information about your benefits. We will figure the amount of your benefit that is guaranteed and inform you of it in writing.

Q. Can I earn additional benefits after my plan ends?

A. No. After the plan ends, you cannot earn additional benefits.

Q. What happens when PBGC takes over my plan?

A. PBGC reviews your plan's records to determine what benefits each person will receive.

l If you are already retired and receiving benefits, we will continue paying you without interruption during our review. These payments will be an estimate of the benefits that PBGC can pay under the insurance program, and they may be less than you were receiving from your plan.

l If you have not yet retired, we will pay you an estimated benefit when you become eligible.

Once we complete our review, we will tell you in writing what your pension amount will be and what rights you have to appeal our decision.

The pension benefit PBGC pays depends on (1) provisions of your plan, (2) legal limits, (3) the form of your benefit, (4) your age, and (5) amounts PBGC recovers from employers for plan underfunding.

To ensure PBGC has the proper information for all participants, we will contact you periodically to request any changes, such as your new address if you have moved.

Q. What happens if PBGC's estimate is too high or too low?

A. If PBGC underpaid your benefit, we will make it up in a single payment with interest when we have completed our calculations. If we overpaid you, we will reduce future payments until the overpayment has been repaid. The reduction is no more than 10 percent of each payment. If both overpayments and underpayments were made, we will calculate the net overpayment or underpayment.

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

A. PBGC's maximum benefit guarantee is set each year under provisions of ERISA. For pension plans ending in 2002, for example, the maximum guaranteed amount is $3,579.55 per month ($42,954.60 per year) for a worker who retires at age 65. This guarantee is lower if you begin receiving payments before age 65 or if your pension includes benefits for a survivor or other beneficiary. The table at the end of this booklet shows PBGC's maximum guarantee for retirement at various ages.

Q. What benefits does PBGC guarantee?

A. PBGC guarantees "basic benefits," which include (1) pension benefits at normal retirement age, (2) most early retirement benefits, (3) disability benefits for disabilities that occurred before the plan was terminated (for terminations started 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 (4) certain benefits for survivors of plan participants. PBGC does not guarantee health care, vacation pay, or severance pay.

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 it ended, your benefit may not be fully guaranteed. Generally, the larger of 20% or $20 per month of the benefit is guaranteed for each full year the benefit was in effect.

Q. Does PBGC pay survivor benefits?

A. PBGC pays survivor benefits if you retired before your plan ended and your benefit included a survivor benefit, or if you were receiving a survivor benefit before the plan ended. If you are married and begin receiving retirement benefits after the plan ends, unless you and your spouse tell us in writing to do otherwise, we will pay you the benefit during your life, and then pay your surviving spouse a reduced amount. To pay for the cost of the survivor benefit, your monthly benefit is reduced during your lifetime .

If you are married and not yet retired, PBGC will provide a benefit to your spouse if you die before you retire. Your spouse would start receiving this benefit as early as the earliest date your plan states you can retire.

Q. Can I receive my benefit from PBGC in a lump sum or as a monthly annuity?

A. Normally, we pay benefits in monthly payments for life. But, if the monthly benefit is $50 or less, we generally pay on a yearly basis. If the total value of the benefit is $5,000 or less, you will receive a single, lump-sum payment. However, if the benefit is at least $25 a month, you can receive it in monthly payments if you prefer.

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

A. Yes. If the taxable portion of your lump-sum payment is transferred directly by the plan or PBGC into an IRA, you will not have to pay taxes on your benefit until you begin receiving IRA payments. This deposit is called a "tax-free rollover." For more information about tax-free rollovers and the laws controlling IRAs, call 1-800-TAX-FORM or write the Internal Revenue Service office nearest you.

Q. Will PBGC adjust my pension yearly for inflation?

A. No, there is no cost-of-living adjustment. Your benefit is fixed as of the date your plan ended.

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

A. PBGC only deducts federal income taxes. You will have to pay separately the state taxes and other amounts now being deducted.

Q. If I have other questions about PBGC, how can I find the answers?

A. If you have questions about a pension plan that PBGC has taken over or about our insurance programs and retirement guarantees, contact PBGC's Technical Assistance Branch at 1200 K Street, N.W., Suite 930, Washington, DC 20005-4026, or call us at (202) 326-4000 (not a toll-free number). For TTY/TDD users, call the federal relay service toll-free at 1-800-877-8339 and ask to be connected to (202) 326-4000. If you have specific questions about your plan or your benefits, you should first contact your plan administrator or your employer.

PBGC MAXIMUM MONTHLY GUARANTEES

Examples of the maximum guarantee for a single life annuity with no survivor benefits are shown for retirement at ages 65, 62, 60 or 55. The maximum is lower if the benefit is paid in a form other than for a single life annuity, such as a form that provides for survivor benefits. The pension benefit that PBGC can pay will depend on your age, the provisions of your plan, the form of your benefit, the legal limits on what PBGC can guarantee, and amounts PBGC recovers from employers for plan underfunding.

Maximum Monthly Guarantee