PBGC administers two pension insurance programs, the single-employer program and the multiemployer program. The single-employer program protects about 33 million participants in about 43,000 pension plans. Under this program, a company can voluntarily seek to terminate or close its pension plan using either a standard termination or a distress termination procedure. Additionally, PBGC may seek termination of a plan without the employer's consent to protect the interests of the plan participants, of the plan, or of PBGC. PBGC must seek termination when a plan cannot pay current benefits.
In a "standard termination," the plan must have enough money to pay all benefits, both vested and nonvested, before the plan is allowed to end. That payment is in the form of an annuity purchased from an insurance company or a lump-sum payout. Once promised benefits are provided through the purchase of an annuity or through a lump-sum payout, the PBGC guarantee ends.
A plan that does not have enough money to pay all benefits can be voluntarily ended by a "distress termination," but only if the employer meets stringent tests demonstrating severe financial distress (for example, the likelihood that continuing the plan would force the company to shut down). If the terminated plan does not have enough money to pay at least the PBGC-guaranteed benefits, PBGC uses its own funds to ensure that entitled participants and beneficiaries receive their guaranteed benefits. These guaranteed benefits usually cover a large portion of the total benefits earned. By law, employers are liable for all benefits under the plan, including guaranteed and nonguaranteed amounts, and PBGC makes vigorous efforts at recovery.
Multiemployer Plan Insurance Program
The multiemployer insurance program protects about 8.8 million participants in about 2,000 plans. Multiemployer pension plans are maintained under collectively bargained agreements involving more than one unrelated employer, generally in the same industry. The program is funded and maintained separately from PBGC's other insurance program. If a PBGC-insured multiemployer plan is unable to pay guaranteed benefits when due, PBGC will provide the plan with financial assistance, generally in the form of a loan, to enable the plan to continue paying participants their guaranteed benefits. In multiemployer plans, PBGC guarantees a portion of the pension earned up to $16.25 per month times the years of credited service.
Since 1980, PBGC has provided approximately $35 million in assistance to 19 of the 2,000 multiemployer plans it covers. A total of $361 million is needed to cover future payments to the 14 plans currently receiving PBGC financial assistance and other plans that are expected to require assistance in the near future.
The multiemployer insurance program has shown growing financial strength since 1980. PBGC projections indicate the program will remain financially strong without premium increases from Congress. The flat annual premium for multiemployer plans has been $2.60 per participant since 1988.
At the end of FY97, the multiemployer program had assets of $596 million and total liabilities of $377 million, primarily for future benefits and nonrecoverable future financial assitance. Thus, the program had a positive net position of $219 million.
rev 3/98