.

Pension Benefit Guaranty Corporation
(PBGC): A Fact Sheet

John J. Topoleski
Analyst in Income Security
January 30, 2012
Congressional Research Service
7-5700
www.crs.gov
95-118
CRS Report for Congress
Pr
epared for Members and Committees of Congress
c11173008


.
Pension Benefit Guaranty Corporation (PBGC): A Fact Sheet

Contents
Pension Benefit Guaranty Corporation............................................................................................ 1
PBGC Financing........................................................................................................................ 1
Premiums................................................................................................................................... 1
Pension Benefit Guaranty.......................................................................................................... 1
Current Financial Picture........................................................................................................... 2
Defined Benefit Pension Funding.................................................................................................... 3
Funding Relief........................................................................................................................... 3
Single-Employer Funding Relief ........................................................................................ 4
Certain Other plans.............................................................................................................. 4
Plans Run by Charities ........................................................................................................ 5
Multiemployer plans ........................................................................................................... 5

Tables
Table 1. PBGC Single and Multi-Employer Insurance Programs: Net Financial Position,
FY2002 -FY2011.......................................................................................................................... 2

Contacts
Author Contact Information............................................................................................................. 5

Congressional Research Service

.
Pension Benefit Guaranty Corporation (PBGC): A Fact Sheet

Pension Benefit Guaranty Corporation
The Pension Benefit Guaranty Corporation (PBGC) is a federal government agency established in
1974 by the Employee Retirement Income Security Act (ERISA; P.L. 93-406). It was created to
protect the pensions of participants and beneficiaries covered by private sector, defined benefit
(DB) plans. These pension plans provide a specified monthly benefit at retirement, usually either
a percentage of salary or a flat dollar amount multiplied by years of service. Defined contribution
plans, such as §401(k) plans, are not insured. The PBGC is chaired by the Secretary of Labor,
with the Secretaries of Treasury and Commerce serving as board members.
The PBGC runs two distinct insurance programs: single-employer and multiemployer plans.
Multiemployer plans are collectively bargained plans to which more than one company makes
contributions. The PBGC maintains separate reserve funds for each program. In FY2011, the
PBGC insured about 27,066 DB pension plans covering 44.2 million people. It paid or owed
benefits to 1.5 million people and took in 152 newly terminated pension plans. A firm must be in
financial distress to end an underfunded plan. Most workers in single-employer plans taken over
by the PBGC receive the full benefit earned at the time of termination, but the ceiling on
multiemployer plan benefits that could be guaranteed has left almost all of these retirees without
full benefit protection.
PBGC Financing
The PBGC is required by ERISA to be self-supporting and receives no appropriations from
general revenue. The most reliable source of PBGC revenue is the premiums set by Congress and
paid by the private-sector employers that sponsor DB pension plans. Other sources of income are
assets from terminated plans taken over by the PBGC, investment income, and recoveries
collected from companies when they end underfunded pension plans. The PBGC is authorized to
borrow up to $100 million from the U.S. Treasury. P.L. 96-364 requires that the PBGC’s receipts
and disbursements be included in federal budget totals.
Premiums
The minimum annual premium charged for each participant in a single-employer DB plan was
raised for the 2006 plan year from $19 to $30 by the Deficit Reduction Act (DRA) of 2005 (P.L.
109-171). This law also raised the multiemployer plan premium from a flat $2.60 annually per
participant to $8. Because these premiums are now adjusted for inflation, the 2012 rates will be
$35 and $9, respectively. The DRA added a new $1,250 per participant premium for certain plans
terminated after 2005. This premium is payable for the year of termination and each of the next
two years. An additional premium of $9 for each $1,000 of “unfunded vested benefits,” as newly
defined by the Pension Protection Act of 2006 (PPA; P.L. 109-280), is assessed against plans that
are not fully funded. Effective in 2008, the PPA also eliminated certain exemptions from this
variable premium.
Pension Benefit Guaranty
ERISA sets a maximum on the individual benefit amount that the PBGC can guarantee. The
ceiling for single-employer plans is adjusted annually for national wage growth. The maximum
Congressional Research Service
1

.
Pension Benefit Guaranty Corporation (PBGC): A Fact Sheet

pension guarantee is $55,840 a year for workers aged 65 in plans that terminate in 2012. This
amount is adjusted annually and is decreased if a participant retires before age 65 or if the
pension plan provides benefits in some form other than equal monthly payments for the life of the
retiree. Only “basic benefits” are guaranteed. These include benefits beginning at normal
retirement age (usually 65), certain early retirement and disability benefits, and benefits for
survivors of deceased plan participants. Only vested benefits are insured. The median monthly
benefit received in FY2009 was $305. In 2006, PBGC indicated that 84% of PBGC recipients
received their full benefits.
In contrast, the ceiling on guaranteed benefits for multiemployer plans is not adjusted annually.
The amount set in 1980 did not change until the Consolidated Appropriations Act, 2001 (P.L.
106-554) became law in December 2000. These plans determine benefits by multiplying a flat
dollar rate by years of service, so the benefit guaranty ceiling is tied to this formula. The new
ceiling equals 100% of the first $11 of monthly benefits per year of service plus 75% of the next
$33 of monthly benefits per year of service.
Current Financial Picture
Table 1 provides information on the net financial position from FY2002 through FY2011. In
1996, the PBGC showed a surplus in its single-employer program for the first time in its history.
That surplus peaked at $9.7 billion in 2000, helped by the strong performance of the equity
markets in the 1990s.
Table 1. PBGC Single and Multi-Employer Insurance Programs: Net Financial
Position, FY2002 -FY2011
(billions of dollars)
Single Employer
Multi-Employer
Total PBGC
Fiscal Year
Program
Program
Deficit
2002
-3.6
0.2
-3.5
2003 -11.2 -0.3 -11.5
2004 -23.3 -0.2 -23.5
2005 -22.8 -0.3 -23.1
2006 -18.1 -0.7 -18.9
2007 -13.1 -1.0 -14.1
2008 -10.7 -0.5 -11.2
2009 -21.1 -0.9 -21.9
2010 -21.6 -1.4 -23.0
2011 -23.3 -2.8 -26.0
Source: PBGC.
The weakness in the economy in 2001, particularly in the steel and airline industries, has led to
large and expensive plan terminations that eliminated the surplus. By the end of 2004, the single-
employer program had a deficit of $23.3 billion. The deficit was $13.1 billion at the end of 2007
and $10.7 billion at the end of FY2008. The deficit increased to $21.1 billion at the end of
FY2009, $21.6 billion at the end of FY2010, and $23.3 billion at the end of FY2011. The
Congressional Research Service
2

.
Pension Benefit Guaranty Corporation (PBGC): A Fact Sheet

multiemployer program had a surplus from 1982 to 2002, but the PBGC reported that it had a
deficit of $473 million at the end of FY2008, $869 million at the end of FY2009, $1.4 billion at
the end of FY2010, and $2.8 billion at the end of FY2011.
Defined Benefit Pension Funding
To ensure that sufficient money is available to pay promised pension benefits to participants and
beneficiaries, ERISA sets rules that require plan sponsors to fully fund the pension liabilities of
defined benefit plans. The funding requirements of ERISA recognize that pension liabilities are
long-term liabilities. Consequently, plan liabilities need not be funded immediately, but instead
can be amortized (paid off with interest) over a period of years.
The assets of the pension plan must be kept in a trust that is separate from the employer’s general
assets. Assets in the pension trust fund are protected from the claims of creditors in the event that
the plan sponsor files for bankruptcy. ERISA requires employers that sponsor defined benefit
plans to fund the pension benefits that plan participants earn each year. This is referred to as
funding the target normal cost of the plan. In addition, the funding obligation for plan sponsors
may be affected by the following:
• Pension benefits granted to employees for past service, but for which no monies
were set aside.
• Increases in the level of benefits by plan amendment.
• Changes in the present value of future benefit obligations as a result of interest
rate changes. Because DB pension benefits are generally paid as a stream of
payments over several years in the future, the plan calculates a current value of
the benefits by discounting the future cash flows using a specified interest rate.
Changes in the interest rate cause the value of future benefit obligations—and the
amount that plans must set aside to meet them—to change.
• Changes in the value of investments. Since many pension plans invest a least a
portion of their assets in equities and other financial assets like bonds, changes in
the stock market and other financial markets cause changes in the value of
pension plans’ assets. Decreases in value of investments must be made up by
increases in plan sponsor contributions while increases in the value of
investments may be used to offset future funding obligations.
Pension plan underfunding has increased in recent years. An analysis by Milliman found that the
average funding by the 100 largest corporate DB plans has been less than 100% since July 2008
and was 72.4% as of December 31, 2011.1
Funding Relief
The funding obligations for pension plans increased sharply in 2008 as a result of the economic
recession that began in December 2007. Three factors have contributed to the increase in DB

1 Details of the analysis are available at http://www.milliman.com/expertise/employee-benefits/products-tools/pension-
funding-index/.
Congressional Research Service
3

.
Pension Benefit Guaranty Corporation (PBGC): A Fact Sheet

pension plans sponsors’ funding obligations: (1) the PPA changed some of the methods that plan
sponsors use to value plan assets and liabilities; (2) the decline in the stockmarket in 2008 caused
the value of pension plan assets to decrease because many pension plans hold part of their
portfolios in equities; and (3) the decline in interest rates caused the value of pension plan benefit
obligations to increase. In addition, the economic downturn may have hurt the ability of some
pension plans to pay for their funding obligations. Some have suggested that monies that plan
sponsors would use to fund their benefit obligations would be better spent on other, more
immediate company priorities.
Congress provided funding relief to DB pension plan sponsors in 2010 in H.R. 3962, the
Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (P.L.
111-192), which was introduced by Representative John Dingell on October 29, 2009. The bill
passed the House on November 7, 2009, and did not contain any pension funding relief
provisions. On June 18, 2010, an amended bill passed the Senate. The Senate approved bill
contains funding relief provisions. The House passed the Senate’s amendment to H.R. 3962 on
June 24, 2010. The president signed the bill into law on June 25, 2010.2
Single-Employer Funding Relief
Changes to a pension plans funding level that result in increased required funding by a plan
sponsor may be amortized over a period of seven years. H.R. 3962 allowed pension plan sponsors
to amortize their funding shortfalls either over nine years, with the first two years of payments
consisting of interest only on the amortization charge and the next seven years consisting of
interest and principal, or over 15 years.
H.R. 3962 contained provisions that required plan sponsors that chose one of these amortization
schedules to make additional contributions to the plan if the plan sponsors pays excess
compensation or declares extraordinary dividends.
Specifically, the provisions required additional contributions to the plan from plan sponsors that
• provided more than $1 million in compensation to any employee;3 and
• (1) paid dividends or redeem company stock greater than the value of a
company’s net income for the prior year or (2) paid dividends greater than the
sum of a company’s dividends in the previous five years.
Certain Other plans
A provision allowed funding relief to plans that would otherwise be ineligible. Certain rural
cooperatives and defense contractors were allowed to delay the implementation of the funding

2 Section 202 of the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA; P.L. 110-458) allowed some
firms to delay the implementation of increased funding requirements that were required by the PPA. For more
information on this provision, see CRS Report R40171, The Worker, Retiree, and Employer Recovery Act of 2008: An
Overview
, by Jennifer Staman.
3 The following are exempted from the calculation of compensation: (1) amounts set aside for paying deferred
compensation as part of a nonqualified deferred compensation arrangement; (2) compensation for services performed
before March 1, 2010; and (3) payments for certain types of compensation as a result of a contract that was in effect
prior to March 1, 2010.
Congressional Research Service
4

.
Pension Benefit Guaranty Corporation (PBGC): A Fact Sheet

requirements of the PPA. PBGC settlement plans were not subject to any of the provisions of the
PPA. These plans would otherwise be ineligible for the funding relief provisions currently under
consideration. H.R. 3962 allows these plans to choose either the nine year amortization period
(with the first two years of payments consisting of interest only on the amortization charge) or the
15-year amortization period.
Plans Run by Charities
A credit balance is an amount of a plan sponsor’s contributions to a pension plan that exceed the
minimum funding requirement. Under current law, plans that are funded in excess of 80% may
apply previous years’ credit balances to offset the current year’s required funding. H.R. 3962
allowed charities as described in 26 U.S.C. 501(c)(3) to use prior years’ credit balances if the plan
was least 80% funded in the plan year that ended prior to September 1, 2008.
Multiemployer plans
Multiemployer plans may currently amortize their investment losses over a 15-year period. Under
the DB funding provisions passed in H.R. 3962, multiemployer plans can
• elect to amortize their net investment losses over 30 years if the plan sponsor can
certify the plan’s solvency over the amortization period; and
• use asset valuation methods that result in asset values that range from 80% to
130% of market value. They could use these valuation methods for up to 10
years.
Multiemployer plans that elect to use either of these funding relief methods are not be allowed to
increase plan benefits for two years unless the benefit increases are funded by additional
contributions to the plan.

Author Contact Information

John J. Topoleski

Analyst in Income Security
jtopoleski@crs.loc.gov, 7-2290


Congressional Research Service
5