An Overview of the Pension Benefit Guaranty Corporation (PBGC)



Updated January 8, 2021
An Overview of the Pension Benefit Guaranty Corporation
(PBGC)

The Pension Benefit Guaranty Corporation (PBGC) is a
pension plans. P.L. 96-364 requires that PBGC’s receipts
government corporation established by the Employee
and disbursements be included in federal budget totals.
Retirement Income Security Act of 1974 (ERISA; P.L. 93-
406). It was created to protect the pensions of participants
Premiums
and beneficiaries by paying participants’ benefits if the
The sponsors of private sector pension plans pay a variety
pension plan is unable to do so. PBGC insures only private
of premiums to PBGC. The sponsors of single-employer
sector defined benefit (DB) plans. These pension plans
and multiemployer pension plans pay a flat-rate, per-
provide a specified monthly benefit at retirement, usually
participant premium. The sponsors of underfunded single-
either a percentage of salary or a flat dollar amount
employer pension plans pay an additional premium that is
multiplied by years of service. Defined contribution (DC)
based on the amount of plan underfunding. In addition,
plans, such as 401(k) plans, are not insured. More detailed
pension plans that are terminated in certain situations pay a
information about PBGC is available in CRS Report 95-
per-participant premium per year for three years after
118, Pension Benefit Guaranty Corporation (PBGC): A
termination. Except for the termination premium, the
Primer.
premiums are increased annually for changes in the national
wage index.
In FY2020, PBGC insured approximately 25,000 DB
pension plans covering about 34 million people. PBGC
In 2021, the premiums are:
operates two distinct insurance programs: one for single-
employer pension plans and a second for multiemployer
Single-employer flat-rate premium: The
plans. Single-employer pension plans are sponsored by one
sponsors of single-employer DB pension
employer and cover eligible workers employed by the plan
sponsor. Multiemployer plans are collectively bargained
plans pay an annual premium of $86 for
plans to which more than one company makes
each participant in the plan.
contributions. PBGC maintains separate reserve funds for
Single-employer variable-rate premium:
each program, and funds from the reserve of one program
In addition to the flat-rate premium, the
may not be used for the other program.
sponsors of underfunded single-employer
PBGC Administration
DB pension plans pay an additional
annual premium of $46 for each $1,000
PBGC is a government-owned corporation. A three-
of unfunded vested benefits. There is a
member board of directors, chaired by the Secretary of
per-participant limit of $582 for this
Labor, administers the corporation. The Secretary of
premium.
Commerce and the Secretary of the Treasury are the other
Single-employer termination premium:
members of the board of directors. The director of PBGC is
The sponsors of single-employer DB
appointed by the President with the advice and consent of
pension plans that end in certain
the Senate. ERISA also provides for a seven-member
advisory committee, appointed by the President, for
situations pay an annual premium of
staggered three-year terms. The advisory committee advises
$1,250 per participant per year for three
PBGC on issues, such as investment of funds, plan
years following plan termination.
liquidations, and other matters.
Multiemployer flat-rate premium: The
sponsors of multiemployer DB pension
PBGC Financing
plans pay an annual premium of $31 for
PBGC is required by ERISA to be self-supporting and
each participant in the plan.
receives no appropriations from general revenue. ERISA
Section 4002(g)(2) states that the “United States is not
Pension Benefit Insurance Programs
liable for any obligation or liability incurred by the
In the single-employer program, PBGC becomes the trustee
corporation,” and some Members of Congress have
of the terminated, underfunded single-employer DB
expressed a reluctance to consider providing financial
pension plans. The terminated plan’s assets are placed in a
assistance to PBGC. The most reliable source of PBGC
PBGC-operated trust fund. The participants in the trusteed
revenue is the premiums set by Congress and paid by the
plans receive their benefits from PBGC. Since 1974, PBGC
private sector employers that sponsor DB pension plans.
has trusteed 5,031 single-employer pension plans.
Other sources of income are assets from terminated plans
taken over by PBGC, investment income, and recoveries
In the multiemployer program, PBGC does not become the
collected from companies when they end underfunded
trustee of plans. PBGC makes loans to multiemployer DB
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An Overview of the Pension Benefit Guaranty Corporation (PBGC)
pension plans when the plans become insolvent. An
to the plan year after year. Only one multiemployer plan
insolvent multiemployer plan has insufficient assets
has repaid any of its financial assistance.
available from which to pay participant benefits. Through
FY2020, PBGC has provided financial assistance to 91
PBGC guarantees benefits to multiemployer plans as it does
multiemployer plans.
for single-employer plans, although a different guarantee
ceiling applies. Multiemployer plans determine benefits by
Single-Employer Pension Insurance Program
multiplying a flat dollar rate by years of service, so the
When an underfunded plan terminates, the benefits PBGC
benefit guarantee ceiling is tied to this formula. The benefit
will pay depend on the statutory limit on guaranteed
guarantee limit for participants in multiemployer plans
benefits, the amount of the terminated plan’s assets, and
equals a participant’s years of service multiplied by the sum
recoveries by PBGC from the employer that sponsored the
of (1) 100% of the first $11 of the monthly benefit rate and
terminated plan.
(2) 75% of the next $33 of the benefit rate. For a participant
with 30 years of service, the guaranteed limit is $12,870.
Within limits set by Congress, PBGC guarantees any
This benefit formula is not adjusted for increases in the
retirement benefit that was nonforfeitable (vested) on the
national wage index or by any other measure of inflation or
date of plan termination other than benefits that vest solely
cost of living.
on account of the termination and any death, survivor, or
disability benefit that was owed or was in payment status at
Approximately 79,600 multiemployer plan participants in
the date of plan termination. In general, only that part of the
91 plans received financial assistance in FY2020. In the
retirement benefit that is payable in monthly installments
next 10 years, 101 multiemployer plans covering 1.1
(rather than, for example, lump-sum benefits payable to
million participants are expected to receive financial
encourage early retirement) is guaranteed.
assistance totaling $63.9 billion (in present value terms).
ERISA sets a maximum on the individual benefit amount
Current Financial Status
that PBGC can guarantee. The maximum pension guarantee
The most commonly used measure of PBGC’s financial
is $72,409 a year for workers aged 65 in plans that
status is its net financial position, which is the difference
terminate in 2021. This amount is adjusted annually for
between its assets and its liabilities. At the end of FY2020,
changes in the national average wage. In addition, the
PBGC’s assets were $146.6 billion, PBGC’s liabilities
benefit is decreased if participants begin receiving the
(mostly future benefit obligations) were $194.9 billion, and
benefit before age 65 (reflecting the fact that they will
its net financial position was a deficit of $48.3 billion.
receive more monthly pension checks over their expected
PBGC is not at risk of immediate insolvency, because it has
lifetime) or if the pension plan provides benefits in some
sufficient resources from which to pay benefits for the next
form other than equal monthly payments for the life of the
several years.
retiree.
Since 2018, the single-employer program has had a surplus.
In FY2020, PBGC’s single-employer program paid a total
The surplus in FY2020 was $15.5 billion.
of $6.1 billion in payments. Approximately 984,000
participants were receiving monthly benefit payments at the
The deficit in the multiemployer insurance program
end of FY2020.
increased from $8.3 billion in FY2013 to $42.4 billion in
FY2014 and to $63.7 billion in FY2020. The large increase
Multiemployer Pension Insurance Program
in the deficit in FY2014 was the result of the increase in the
In the case of multiemployer plans, PBGC insures plan
likelihood of the insolvency of several large multiemployer
insolvency rather than plan termination. Accordingly, a
pension plans in financial distress.
multiemployer plan need not be terminated to qualify for
PBGC financial assistance. A plan is insolvent when its
Some policymakers are concerned with the financial
available resources are not sufficient to pay the plan
condition of the multiemployer program. PBGC estimated
benefits for the plan year in question or when the sponsor of
that it is highly likely that the multiemployer program will
a plan in reorganization reasonably determines, taking into
be insolvent by 2026 and that it will almost certainly
account the plan’s recent and anticipated financial
become insolvent by 2027. Both the single-employer and
experience, that the plan’s available resources are
multiemployer programs are on the Government
insufficient to pay benefits that come due in the next plan
Accountability Office’s list of high-risk government
year. More information on multiemployer plans is available
programs.
in CRS Report R43305, Multiemployer Defined Benefit
(DB) Pension Plans: A Primer
.
John J. Topoleski, Specialist in Income Security
Elizabeth A. Myers, Analyst in Income Security
If it appears that available resources will not support the
payment of benefits at the guaranteed level, PBGC will
IF10492
provide the additional resources needed as a loan, which
PBGC indicates are rarely repaid. PBGC may provide loans


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An Overview of the Pension Benefit Guaranty Corporation (PBGC)


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