The federal government insures certain pension benefits. Specifically, it insures defined benefit plans (but not other types of retirement plans) through the Pension Benefit Guaranty Corporation (PBGC), a federal agency created by ERISA.
A defined benefit plan is a qualified employer pension plan that promises to pay a specific monthly benefit at retirement. Although the PBGC insures most defined benefit plans, it doesn't insure defined contribution plans. Defined contribution plan participants have individual accounts, and these plans don't promise to pay a specific dollar amount to participants. Examples of defined contribution plans include 401(k) plans and profit-sharing plans.
To find out if your defined benefit plan is insured by the PBGC, ask your employer or plan administrator. In general, though, your defined benefit plan will be covered unless it meets an exception. Plans not covered include those belonging to professional service corporations (e.g., doctors and lawyers) with fewer than 26 employees, church groups, and state and local governments.
If your employer's pension plan is to be terminated, you'll receive notification from your plan administrator and/or the PBGC. If the PBGC takes over the pension plan because your employer doesn't have enough money to pay benefits owed, the PBGC will review the plan's records and estimate what benefits each person will receive.
The PBGC guarantees that you'll receive basic pension benefits up to a certain annual amount. This amount may be lower than what you would normally have received from your plan. For plans ending in 2018, the maximum annual amount is $65,045 (or $5,420 per month) for a worker who retires at age 65. If you begin receiving payments before age 65 or if your pension includes benefits for a survivor or other beneficiary, the maximum amount is lower. For more information on these amounts, please visit the PBGC web site.
Types of benefits guaranteed include the following:
- Pension benefits at normal retirement age
- Most early retirement benefits
- Disability benefits for disabilities that occurred before the plan was terminated
- Certain benefits for survivors of plan participants