Reader: What Will Happen to My Pension if My Company Tanks?

Dear Planning to Retire,

I am a Ford salaried retiree. Can you tell me in general terms how the U.S. Pension Benefit Guaranty Corp. (PBGC) would take over if Ford dumps their pension liabilities on PBGC? I am sure many specifics would be needed to reply with any specificity, but I am trying to get basic information as to what would happen to my pension if Ford cannot pay. Are there limits to what might be paid out by PBGC? I am 82 and have a pension of about $55,000 now.

When an employer decides to end its pension, the plan administrator must notify workers in writing 60 days before the plan ends. Since you are already receiving a pension, the U.S. Pension Benefit Guaranty Corp. (PBGC), a government agency that insures private-sector pension plans and pays benefits to workers if the plan fails, will continue paying you an estimate of the benefits that PBGC can pay under the insurance program, which may be less than you are receiving from your plan now. When the PBGC initiates a termination, communication with employees begins on the day it takes over the plan.

The maximum insurance benefit in 2009 is $54,000 for those who retire at age 65 and elect payments as a single life annuity. That amount is up from $51,750 this year. The amount is higher for those who retire later and lower for those who retire earlier or elect survivor benefits. A worker who claims early at age 45 can receive a maximum benefit of $13,500, while someone who works until age 75 maxes out at $164,160. If a pension plan terminates or the company enters bankruptcy in 2009 and a participant does not begin collecting benefits until a future year, the 2009 maximum insurance limits still apply. Benefits also may not be fully guaranteed if the pension was created or amended to increase benefits within five years of the termination date.

PBGC is not taxpayer-financed. Funds come from a combination of insurance premiums paid by companies with pensions, assets of pension plans taken over, and investments. But your plan is insured even if your employer fails to pay the required premiums.

Rep. George Miller, a California Democrat who heads the congressional committee that oversees the PBGC, questioned the financial stability of the PBGC at a congressional hearing in October. PBGC reported a loss of $4.8 billion in equity investments in fiscal year 2008. The agency also recently adopted a new investment strategy that includes more equity. "With the current market turmoil, we have to ask the question whether it is wise to invest our nation's pension backstop in volatile equities," Miller said at the hearing.

The PBGC downplays the risks. "It gives us a better chance—three times better—to eliminate the deficit without a taxpayer bailout," PBGC Director Charles Millard said in a statement about the hearing. "Retirees who depend on us should not be concerned. The PBGC has sufficient funds to meet our benefit obligations for years into the future."

At the end of fiscal 2007, PBGC was paying benefits to approximately 630,000 retirees and beneficiaries whose retirement plans were terminated. Another 534,000 workers will become eligible to start receiving benefits from PBGC in the future. You can look up PBGC-trusteed plans here.