By Christine Steinmetz, Pension Attorney at the Mid-America Pension Rights Project at Elder Law of Michigan
You may have wondered what happens to your private defined benefit pension if your employer terminates the plan. Luckily, there is a Federal agency that protects private defined benefit pension plans. You may have heard of this agency. It is called the Pension Benefit Guarantee Corporation, commonly known as the PBGC. The PBGC was created under the Employee Retirement Income Security Act (ERISA) of 1974 to protect private defined benefit pension plans.
The PBGC will pay employees his or her pension benefit if the employer is unable to pay. So, if the plan terminates and has insufficient funds to pay the pension benefits, then the PBGC will pay a specified amount of money to the plan participant. The participant’s pension is protected up to a certain amount. However, there is a limit to the maximum amount the PBGC will pay. In addition, the PBGC does not cover all pension plans.
The PBGC only insures private pension plans. So, if you worked for a public plan, such as a city or state, then your plan is not insured by the PBGC. In addition, religious organizations can opt-out, which makes employees of religious organizations more vulnerable if the plan terminates. The PBGC also does not insure defined contribution plans, such as 401k’s or 403b’s.
The PBGC protects both single-employer plans, such as individual company plans, and multi-employer plans, such as labor unions and trade professionals. The PBGC is not funded by taxes or federal funds. Instead, it is funded by insurance premiums paid by the defined benefit plan sponsors.
In our next blog post, we will discuss the PBGC and what you can do to protect your defined pension benefit.
If you have questions about your 401(k) or defined benefit pensions, please call the Mid-America Pension Rights Project. The Mid-America Pension Rights Project is funded by the Federal government through a grant provided by the Administration for Community Living, and is a program of Elder Law of Michigan, Inc., a 501(c)(3) non-profit organization.
Since the program began in 1998, the Pension Project has assisted over 15,000 clients and recovered over 76 million dollars in pension benefits. The Pension Project assists clients that either worked in or are currently living in Indiana, Kentucky, Michigan, Ohio, Pennsylvania, and Tennessee. For more information, visit http://www.mid-americapensions.org.
If you need help with or information about your pension or 401(k) benefit, please call the Mid-America Pension Rights Project at 866-735-7737 to schedule an appointment with one of our experienced attorneys.
The information in this article is general and not intended to be a substitute for legal advice. In any legal matter you should always consider consulting with an attorney for specific advice.
Christine Steinmetz is a part-time Attorney at Elder Law of Michigan and has been a member of the Elder Law team since 2011. As an attorney at Elder Law, Christine advises clients on pension benefits issues.