Pension Benefit Guaranty Corporation or PBGC is a USA based independent agency by the government of the United States. It was created under ERISA (Employee Retirement Income Security Act), 1974, to maintain and encourage the voluntary defined benefit pension plans by the private corporations. It also ensures uninterrupted and timely payment of pension benefits to the retired employees. It provides basic guaranteed benefits to all its participants.
It refers to a Non- profit Corporation which functions under the Department of Labor and which also guarantees the payment of certain specified benefits under the defined benefit plans.
How does it work?
• Basic benefit consists of pension upon retiring at the age of 65, which is the necessary retirement age set by the law.
• It also covers annuities for survivors of plan participants, most early retirement benefits and disability payments.
• According to the law, an eligible participant can receive a maximum amount of $4,789 per month as pension.
• Retirement before the age of 65 reduces the benefits received, whereas retiring after the age of 65, increases the benefits.
Type of plans:
• Single Employer Plan: This plan is maintained by a single employer, either unilaterally or through a collective bargaining agreement.
• Multiple Employer Plan: It refers to a plan in which more than one employer contributes and it has to be maintained in accordance with the collective bargaining agreement between one or more employers or employee- organizations.
Who funds PBGC?
It is not funded by the general tax revenues; instead it is funded by the following four sources:
• Defined benefit plan sponsors funds PBGC by the premiums collected by them
• Assets from the defined benefit plans are also used to fund PBGC, for which it serves as a trustee
• All the recoveries from bankruptcy and unfunded pension liabilities from the previous benefit plan sponsors
• Investment Income- Earnings from investing in assets
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