We’ve been working with a number of clients from all over Louisiana with pensions from private employers, and there have been many questions about the federal guarantees for pensions. The Pension Benefit Guaranty Corporation (PBGC) was created by congress to take over private pensions if a company fails, so that most benefits promised to workers will be paid throughout their retirement. Companies with pensions that are covered pay insurance premiums to fund the benefits of other companies that have failed. Every year, the PBGC is paying approximately $28.7 million in benefits to more than 5,400 Louisiana retirees in failed pension plans so if you’ve got a pension it’s important to understand how this important entity works.
The PBGC guarantees your pension, but only in specific ways, and sometimes not 100% of your planned benefit. Your ‘basic pension benefits’ are guaranteed, which include benefits at your normal retirement age, most early retirement benefits, disability benefits, and benefits for survivors (typically for a spouse). Additional benefits like retiree health plans, severance and vacation pay, lump-sum death benefits, and other non-pension benefits are not covered. Your PBGC benefit is level for life, there are no cost-of-living adjustments.
Your monthly pension benefit is guaranteed up to a maximum amount that changes every year, based upon your age and the year your plan sponsor went into bankruptcy. In 2012 the maximum guaranteed amount is $4,6531.41 per month for workers who begin receiving pension benefits at age 65 (Here’s the PBGC Table that shows the different monthly pension guarantees at different ages). The PBGC also protects pension benefits that are payable to your survivors, most often your spouse. You can choose a lifetime or a fixed length benefit (known in annuity terms as a ‘period certain’) based on your financial needs.
If you’re currently covered by a pension from a private employer, you should request some information from them for your records, such as the plan identification number. The PBGC has an excellent list of questions you should ask about your pension in the PDF ‘A Predictable, Secure Pension for Life‘. I highly recommend you download it and ask your benefits department to fill in the answers to the questions on page 20.
Do you have any questions about your pension? Please contact us and I’ll be glad to answer them for you. We’ve worked with clients on several different private-employer pensions and we are glad to share the knowledge we’ve gained through the years.