PBGC Puts Out 2007 Maximum Benefit Payments

December 5, 2006 (PLANSPONSOR.com) - The nation's private-sector defined benefit pension insurer announced Tuesday the maximum annual benefit for participants in plans terminating in 2007 is $49,500 for those retiring at age 65.

That represents a 3.87% or $1,844 increase over the $47,659 maximum paid by the Pension Benefit Guaranty Corporation (PBGC) to those retiring at age 65 from plans terminating in 2006.

A PBGC news release  said the amount is higher for those who retire later and lower for those who retire earlier or elect survivor benefits. If a pension plan terminates in 2007, but a participant does not begin collecting benefits until a future year, the 2007 maximum insurance limits still apply, the agency said.

According to the PBGC, two additional legal limits on PBGC’s insurance coverage can also affect participants’ benefits:

  • The first prohibits the PBGC from guaranteeing benefits that exceed the amount payable at the plan’s normal retirement age.
  • The second limits PBGC’s guarantee of benefit increases made within the five years prior to plan termination.

More than 90% of the participants in plans taken over by the agency face no reduction in benefits due to the legal limits on coverage, PBGC research shows. The largest reductions occur in cases where participants earn pensions that significantly exceed the maximum insurance benefit or provide generous early retirement subsidies.

Under the PBGC’s single-employer insurance program, retirees sometimes can receive more than the maximum guaranteed benefit. In general, three conditions must apply:

  • the participant earned a benefit in excess of the maximum guaranteed amount;
  • the participant retired or was eligible to retire three years prior to plan termination; and
  • the plan had sufficient assets to pay benefits above the guaranteed amount.