Pension Benefit Guaranty Corporation (PBGC)

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A federal insurance fund that pays pension benefits to retirees whose private-sector pension plans have ended, generally because the plans cannot meet their financial obligations. The PBGC was established by the Employee Retirement Income Security Act (ERISA) of 1974, which sought to regulate private pension plans. The PBGC is led by a director who is appointed by the President and confirmed by the Senate. It is governed by a Board of Directors.

The PBGC operates two pension insurance programs: single-employer and multi-employer. Under the single-employer program, one company or a group of companies under common ownership sponsor a pension plan. Under the multiemployer, a pension plan is creased between an agreement between employers and a union. PBGC Government Overview.

The PBGC does not cover defined-contribution plans, however, such as 401(k)s. Also, PBGC caps the monthly annuity amount depending on the age of the retiree. For example, a retiree aged 65 with a deceased spouse who qualifies for a monthly annuity from PBGC will receive a maximum monthly annuity of $5,812,50. PBGC Maximum Monthly Guarantee Tables. The PBGC is funded by insurance premiums paid by employers that sponsor covered plans.

In the early 2000s, the PBGC’s solvency came into question as they consistently ran deficits. In response, Congress passed the Pension Protection Act of 2006, which required pension providers to ensure that their defined-benefit plans are fully funded. Congressional Research Service, Summary of the Pension Protection Act of 2006. Unfortunately, the PBGC still struggles financially, and ran a deficit of $56.5 billion in 2019. PBGC 2019 Annual Report. These financial struggles are attributable, in large part, to employers shift away from defined-benefit plans in favor or employee- and employer-funded defined-contribution plans. Investopedia PBGC.

[Last updated in August of 2020 by the Wex Definitions Team]