What Is the Pension Benefit Guaranty Corporation (PBGC)?

The Pension Benefit Guaranty Corporation (PBGC) is a U.S. government agency that takes over the payment of pension benefits to retirees when a defined-benefit plan it covers is unable to meet its financial obligations.

Key Takeaways

  • The Pension Benefit Guaranty Corporation (PBGC) is a federal agency that insures the pensions of many workers in the private sector.
  • The PBGC does not cover public sector workers, such as government employees.
  • While the PBGC is generally funded by insurance premiums, the American Rescue Plan Act of 2021 makes tax revenues available to assist at-risk multiemployer pension plans covered by the PBGC.

Understanding the Pension Benefit Guaranty Corporation (PBGC)

The Pension Benefit Guaranty Corporation (PBGC) is an independent federal agency overseen by the U.S. Department of Labor. Established by the Employee Retirement Income Security Act of 1974 (ERISA), the PBGC was formed to encourage the continuation of private-sector defined-benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum. It does not cover public-sector pension plans, such as those for state and local government workers.

Historically, funding for the PBGC has not come from general tax revenues. 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, however, the American Rescue Plan Act of 2021, made money available from general tax revenues to support multiemployer pension plans, many of which were at risk of failing because of serious underfunding. The new law allows financially troubled plans to apply to the PBGC for additional funding, sufficient to cover their obligations through the year 2051.

Multiemployer pension plans typically cover union members, who may work for more than one employer. The PBGC also covers single-employer plans, sponsored by one company or other employer for its workers.

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

Important

The PBGC guarantees retirement benefits only up to certain maximum amounts, which can change each year.

What the Pension Benefit Guaranty Corporation Covers

The basic benefits covered by PBGC include pension benefits for workers at normal retirement age, most early retirement benefits, annuities for survivors of plan participants, and, in some circumstances, disability benefits.

Participants whose pension plans have been taken over by the PBGC won't necessarily receive the same level of benefits as they would have if their plans had continued in operation.

The maximum pension benefit guaranteed by PBGC for single-employer plans is adjusted annually by law. In 2021, eligible single-employer plan participants retiring at age 65 could receive a maximum benefit of $6,034.09 per month, or $72,408.08 a year, if they elected to take their benefit as a straight life annuity. If they instead chose a joint and 50% survivor annuity, their maximum would be $5,430.68 a month. These caps are higher for those retiring after age 65 and lower for those who retire earlier.

In its 2020 fiscal year, the PBGC paid more than $6 billion in benefits to 984,000 retirees in the single-employer program. It also provided $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 19th century, there were few protections in place for those funds. Companies that went bankrupt or were otherwise unable to pay out their promised benefits could leave workers without anything. In one famous case, the automaker Studebaker terminated its employee pension plan in 1963, costing some 4,000 workers all or part of their expected retirement benefits.

In 1967, Senator Jacob Javits introduced federal legislation to protect private pension plans, and in 1974 the Congress passed ERISA, which was signed into law by President Gerald Ford. Among other provisions aimed at safeguarding pensions, it established the PBGC to guarantee the retirement benefits of millions of workers.