Pension Benefit Guaranty Corporation 

76-103 

August 23, 1976 

REFERENCE: 

 [*1] 4022(a) Benefits Guaranteed. Type of Benefits Guaranteed 

OPINION: 

 This is in response to your letter to * * * of my staff concerning the extent of the guarantee by the Pension Benefit

Guaranty Corporation (the "PBGC") of retirement benefits under * * * (the "Plan"). You explained why, in your opinion,

the PBGC should interpret its Regulation on Guaranteed Benefits, 29 CFR § § 2605.1 - 2605.8, (the "Regulation") to

include as guaranteed benefits both the post-retirement lump-sum death benefit and the partial restoration for 30 year

employees provided for under the Plan. 

Section 2605.4(c) of the Regulation provides that the PBGC will not guarantee a benefit payable in a single

installment upon the death of a participant "unless that benefit was substantially derived from a reduction" in the

retirement benefit otherwise payable. Under the Plan, the entitlement to a survivors' annuity results in an automatic

reduction of five percent from the single life annuity otherwise payable. You indicated that if true actuarial reductions

were applied to each participant's benefit to fully reimburse the Plan for the cost of the survivors' annuity and the lumpsum death benefit, the average reduction [*2] would be in the range of 15-18 percent. You also indicated that

participants, through collective bargaining, sacrificed improvements in other pension benefits in return for having these

two survivors' benefits together "cost" them only the five percent reduction. In your opinion, therefore, the two survivors'

benefits together "are substantially derived" from a reduction in the pension benefit payable. 

 Although the Plan provides for a reduction in the pension benefit in return for the survivor's annuity, it does not

provide for any reduction in the pension benefit in return for the lump-sum death benefit. Consequently, the lump-sum

death benefit is not "substantially derived from a reduction" in the pension benefit and, thus, is not guaranteed by the

PBGC pursuant to § 2605.4(c) of the Regulation. Although, in collective bargaining, participants may have given up

other potential benefits in return for the lump-sum death benefit, such "implicit" reductions cannot be taken into account

in determining whether the lump-sum death benefit is "substantially derived from a reduction" in the pension benefit.

Under the Plan, participants who retire before age 62 have their "basic [*3] benefits" reduced by the early retirement

reduction factors specified in the Plan. After age 65, those early retirees with 30 years or more of service who were

eligible for certain supplemental benefits under the Plan have their retirement benefits recomputed, so that the "basic

benefit" is reduced, not by the early retirement reduction factors of the Plan but by four percent (a less severe reduction)

for each year that the participant's age at retirement preceded age 62. You refer to this recomputation as a partial

restoration (to the basis level payable to participants who retired at age 62 or later) and suggest that this higher restored

level should be viewed by the PBGC as the applicable reduced basic retirement benefit, rather than the lower level which

results from the application of the Plan's early retirement reduction factors. We agree with this position; inasmuch as

the reductions in benefit payments as of April 1, 1976 were instituted in anticipation of the final determination of

guaranteed amounts, future payments will be increased accordingly and the PBGC will reimburse participants the amount

of any cutbacks in excess of guaranteed amounts. 

Henry Rose 

General Counsel