Pension Plan Termination Insurance
Program Funding
Annual program obligations reported to SAM.gov.
Program Objective
To encourage the continuation and maintenance of voluntary private pension plans for the benefit of their participants, to provide for the timely and uninterrupted payment of pension benefits to participants and beneficiaries in plans covered by the PBGC, and to maintain premiums charged by the PBGC at the lowest level consistent with carrying out its obligations.
Eligibility
Eligible Applicants
- Small businesses
- For-profit organizations
- Other private organizations
Private businesses and organizations that maintain defined benefit plans and participants (and beneficiaries) in such plans.
Beneficiaries
- 11
- 56
- 59
All participants (and their beneficiaries) in covered single-employer pension plans may be potentially eligible for plan termination insurance payments. All covered multi-employer plans may be eligible for financial assistance needed to ensure payment of guaranteed benefits.
How to Apply
Application Procedure
As soon as practicable after complying with certain statutory notice requirements, a plan administrator who intends to terminate a covered single-employer plan must submit to the PBGC either a standard termination notice or a distress termination notice depending on the type of termination sought. Applications relating to a standard or distress termination should be sent to PBGC, Processing and Technical Assistance Branch, 1200 K Street, N.W., Suite 930, Washington, DC 20005-4026. Applications for multi-employer plan matters should be made in accordance with applicable PBGC regulations and other published guidelines.
Award Procedure
The PBGC determines whether the assets of a covered single-employer plan that has notified the PBGC of its intent to terminate in a distress termination, or against which the PBGC has initiated termination proceedings, are sufficient to pay guaranteed benefits. If plan assets are found to be insufficient or the PBGC is unable to determine asset sufficiency, the PBGC will normally have itself named as trustee to administer the plan. The PBGC pays guaranteed benefits. The PBGC also pays other benefits funded by plan assets or recoveries from employers.
Program details & compliance
Use of Funds
Allowed Uses
Insurance coverage is mandatory for most private, defined benefit pension plans. A single-employer plan may terminate in a standard termination only if it has sufficient assets to provide all benefits, and in a voluntary distress termination only if the employer sponsoring the plan can satisfy specified distress criteria. Upon a voluntary distress termination or a termination initiated by the PBGC, the PBGC guarantees payment of nonforfeitable benefits under the terms of the plan within limits specified in the law. The guaranteed basic benefits payable to a participant or beneficiary under a covered single-employer plan may not exceed the actuarial value at the time of termination of a monthly benefit in the form of a life annuity commencing at age 65 equal to the lesser of: (1) A $750 adjusted annually to reflect changes in the Social Security contribution and benefit base since 1974, or (2) a participant's high consecutive five-year average monthly gross income. When covered plans or amendments to them are less than 5 years old at termination, benefits are guaranteed on a graduated basis. Benefits of persons defined as "substantial owners" are guaranteed on a 30-year graduated basis, subject to certain additional limits in the case of increased benefits due to plan amendment. For multi-employer plans there is a program of reorganization for plans with funding problems. The PBGC is required to extend financial assistance to insolvent multi-employer plans in order that they may be able to meet plan obligations for guaranteed benefits. Insurance coverage is mandatory for any plan that is an employee pension plan benefit established or maintained by: (1) An employer engaged in or affecting commerce; (2) an employee organization engaged in or affecting commerce; or (3) both, if certain requirements relating to the Internal Revenue Code are met. However, insurance coverage does not extend to any plan that is: (1) an individual account plan; (2) established and maintained for Federal, State or local government employees; (3) a church plan, unless the plan has made an election under 26 U.S.C. 410(d) and has notified PBGC of such election; (4) a plan that has not provided for employer contributions after September 2, 1974; (5) unfunded and maintained by an employer primarily to provide deferred compensation for a select group of management or highly compensated employees; (6) established and maintained outside of the U.S. primarily for the benefit of non-resident aliens; (7) maintained by an employer solely for the purpose of providing benefits for certain employees in excess of the limitations on contributions and benefits imposed by the Internal Revenue Code; (8) established and maintained exclusively for substantial owners; (9) that of an international organization that is exempt from taxation; (10) maintained solely for the purpose of complying with applicable workmen's compensation laws or unemployment compensation or disability insurance laws; or (11) established and maintained by a professional service employer that has not at any time since September 2, 1974, had more than 25 active participants.
Required Documentation
In support of a termination notice, information relating to plan asset sufficiency must be furnished by the plan administrator of a single-employer plan. Information relating to financial operations of the employer must also be furnished for a distress termination.