Most Retirees' Benefits not Reduced by PBGC Plan Takeover

In a news release, the PBGC said that, while federal pension law limits the benefit amount the PBGC may guarantee when it takes responsibility for a failed pension plan, of more than 525,000 PBGC participants studied, only 16% saw their retirement benefits reduced.  The average reduction was 28%, according to the release. 

A 1999 study that showed about 94% of participants received 100% of guaranteed benefits earned under pension plans up to the date they were acquired by the PBGC. The agency said this was mostly due to airline and steel plans it has taken on.

According to the news release, the study indicated that participants in airline and steel plans were
more likely to have their benefits reduced by legal limitations. The PBGC’s maximum insurance limitation caused the greatest reduction in benefits for affected participants, but many airline and steel plans were also affected by limits on supplemental payments and recent benefit increases.

The latest edition of the Data Book also reports that about 14% of the single-employer defined benefit plans insured by the PBGC were “hard frozen” at the end of the 2005 plan year, compared to 9.5% that were hard frozen at the end of the 2003 plan year.

The PBGC conducted the study to determine how statutory and regulatory limits affect plan participants. The agency examined an expanded sample of 125 plans that were acquired from 1990 to 2005, composed of 525,700 participants as of the date their respective plans ended. This group included 206,600 retirees, 171,600 separated vested workers, and 147,500 active vested workers. Beneficiaries of deceased workers were not included in the study, PBGC said.

The Data Book is available at  http://www.pbgc.gov/docs/2006databook.pdf .