The Pension Benefit Guaranty Corporation (PBGC) was created by the Employee Retirement Income Security Act (ERISA). ERISA was enacted to lead the way for pension reform by offering benefits protections for millions of employees. The PBGC was created by the ERISA to help maintain private-sector benefit pension plans and guarantee employees continuing access to their retirement income.

PBGC is funded by insurance premiums from employers and the investments remaining in the employers’ pension funds. This allows PBGC to fund eligible, private sector-defined pension plans so that workers will continue to get paid even if the employer cannot pay the promised pension. In simplified terms, the PBGC can act like an insurer for unpaid pension payments up to a certain limit.

Who Does the PBGC Serve?

PBGC provides service primarily to the participants (over a million workers and retirees) in private-sector employer plans administered by the PBGC and service to other personnel (including pension sponsors and administrators). Through its website and through other venues, PBGC regularly communicates information to its customers to educate them about their rights.

The PBGC responds to a full range of retirement benefit concerns of their customers who work for various employers, including Congress, federal and state agencies, and the general public.

How Does the PBGC Work Exactly?

Millions of Americans rely on their 401(k) to take care of them upon their retirement. This employer-sponsored, employee contribution retirement plan depends on the value of those investments to get the retiree through their retirement. There is a small group of traditional pensioners who are covered by employer pension plans that do not depend on the uncertainty of the investment markets.

Normally, if the employer makes bad investments for the pension plans or goes bankrupt, employees are usually left with little or no pension when they retire. The PBGC guarantees the funds in the retirement plans for these workers.

The PBGC steps up when the employer goes bankrupt, goes out of business, disappears or is otherwise unable to continue paying under the pension plans. When the PBGC’s guarantee is triggered, the PBGC will fund that amount of the employee’s pension that remains unpaid. The PBGC can do this in part because it insures payment under pension plans that aren’t exorbitantly high. It also acts conservatively by reducing the retirement incomes of workers who retire relatively young and start receiving benefits early. Sponsors of PBGC covered plans generally cannot waive coverage and cannot trigger coverage simply by paying the PBGC premiums if they are not otherwise eligible

Are There Plans Not Covered By The PBGC?

PBGC covers most private-sector defined plans and excludes others. Those excluded plans include 401 (k) retirement programs. A 401(k) retirement plan is a plan sponsored by an employer that allows both the employer and employee to fund the plan.

The employee decides what percentage of their salary will be contributed to the fund, which the employer can decide to match. It is essentially an investment plan that the employee can grow over time and which includes certain penalties if the employee withdraws before the permitted retired age.  

Also not covered are certain small professional service plans (i.e. employer has not covered more than 25 active participants since 1974 and is owned and controlled by  professional individuals such as lawyers, accountants, doctors, dentists and psychologists) or substantial owner plans (within the last 60 months, owners control the entire interest in an unincorporated trade or business, own more than ten percent in the case of a partnership, or more than ten percent in value of the voting stock or all the stock in the case of a corporation).

With few exceptions, church plans and plans based in Puerto Rico also are not covered. If you are concerned whether your plan is covered by PBGC, request a coverage determination.

What is the Latest News About the Pension Benefit Guaranty Corporation?

Since 1974, the PBGC has been guaranteeing the retirement security of millions of Americans participating in private-sector defined benefit pension plans. In its November 2018 report, the PBGC wrote that it had covered 4,919 failed single-employer plans and 81 multiemployer plans covering 62,300 retirees.

While the PBGC claims its Single-Employer program has shown a “positive net position” for the year, its Multiemployer Program will run out of funds by approximately 2025.

Do I Need an Attorney for Help with the Pension Benefit Guaranty Corporation?

If you are an employer or employee who is interested in learning more about whether the PBGC covers your circumstance, you can find out more information on the PBGC website or by requesting a coverage benefit determination.

Employees who have determined they are covered by the PBGC and that their employer is violating its pension obligations can seek the assistance of an employment attorney. An employment attorney can help you understand your rights and sort through any procedures to ensure you receive your pension benefits.