Guest Article

(From the November 17, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

PBGC Announces Maximum Guaranteed Benefit for 2009

The Pension Benefit Guaranty Corporation's (PBGC) maximum guaranteed benefit for age 65 retirees in underfunded single-employer defined benefit plans terminating in 2009 is $4,500.00 per month, or $54,000 per year. The age 65 maximum for plans terminating in 2008 is $4,312.50 per month, or $51,750 per year.

As illustrated by the following table, the maximum guaranteed benefit is higher for individuals who start receiving benefits after age 65, and lower for those who start receiving benefits before age 65 or who elect survivor benefits. The 2009 limits apply to all plans terminating in 2009, even if a participant does not begin collecting benefits until a later year. However, in the event of the plan sponsor's bankruptcy, the maximum benefit payable is determined by the limit in effect on the date of the bankruptcy and not the date of plan termination.

PBGC Maximum Guaranteed Benefit for Plans Terminating in 2009

Background on PBGC's Maximum Guaranteed Benefit

The maximum guaranteed benefit limit is set by law. 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 percent of the participants in plans taken over by the PBGC face no reduction in benefits due to the legal limits on coverage, according to PBGC data. The largest reductions occur in cases where participants earn pensions that 1) significantly exceed the maximum guaranteed benefit, or 2) provide generous early retirement subsidies.

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

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.