The Pension Benefit Guaranty Corporation (PBGC) provides retirement benefits if a company is unable to provide them. It only covers defined benefit plans.
What is the Pension Benefit Guaranty Corporation (PBGC)?
Retirement plans provide workers with guaranteed income during retirement. Although private companies no longer offer many retirement plans, government entities do. The overseers of retirement plans are responsible for funding and managing them. If they make a mistake, it can affect the income of the retirees involved.
How does the Pension Benefit Guaranty Corporation (PBGC) work?
The Pension Benefit Guaranty Corporation (PBGC) is primarily funded by insurance premiums paid by companies that guarantee their pensions. It also collects some funds from pension plans it takes over from bankrupt companies. When an employer terminates a pension plan and cannot afford to pay all the promised benefits, the PBGC steps in and pays those benefits. Participants receive the benefits they are entitled to up to the legal limit. If they are entitled to a larger amount than the permitted limit, they will not be able to collect it.
History of the Pension Benefit Guaranty Corporation (PBGC)
The Pension Benefit Guaranty Corporation (PBGC) was created by Congress under the Employee Retirement Income Security Act (ERISA) of 1974. Before that, private pension plans were largely unprotected. For example, when Studebaker terminated its pension plan in 1963, more than 4,000 auto workers lost part or even all of their benefits, and there was nothing they could do about it. ERISA established accountability requirements for the sponsors of pension plans and set rules for insurance and disclosure.
Will the Pension Benefit Guaranty Corporation (PBGC) continue to operate?
The Pension Benefit Guaranty Corporation (PBGC) faces several challenges. With a shortfall in the multiemployer program, it is expected to run out of funds by 2026 or even sooner. If that happens, the PBGC will not be able to continue paying benefits at current levels, leaving retirees with only a small portion of their expected monthly income. While the single employer program started in 2020 with a surplus, the COVID-19 pandemic has presented unprecedented financial challenges for its members. The CARES Act provided relief by deferring funding contributions until 2021. However, the pension obligations due from many of these companies, along with the premiums required from the PBGC, have burdened many companies as they try to regain financial health.
Source: https://www.thebalancemoney.com/pension-benefit-guaranty-corporation-3305994
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