Summary c1

PBGC’s Guarantee Limits—an Update

September 2008
Contents

Summary 1

PBGC’s Benefit Limitations 3

The “Accrued-at-Normal” Limitation 3

The “Maximum Insurance” Limitation 4

The “Phase-In” Limitation 4

Benefits Exceeding PBGC’s Guarantees 5

Methodology 6

Results of this Study 8

Plans 8

Participant Status 8

Industry 15

Conclusions 21

 
Summary 1

PBGC’s Guarantee Limits—an Update

Summary

The 1999 edition of the Pension Benefit Guaranty Corporation’s (PBGC) Pension 

Insurance Data Book contained an article describing the statutory and regulatory 

limitations on PBGC’s guarantees and the effects of these limitations on the 

benefits PBGC paid to participants in certain single-employer plans it trusteed.1

 

That report found that less than six percent of the more than 90,000 participants in 

the 22 trusteed plans in the study had their benefits reduced by PBGC’s guarantee 

limits. Those whose benefits were reduced had their benefits cut by 16 percent, on 

average, although there was a rather broad range in the degree to which earned 

benefits were reduced. 

Since 1999, PBGC has experienced an unprecedented number of plan terminations 

and claims. The majority of recent claims were from plans sponsored by companies 

in the airline and primary metal, mostly steel, industries. PBGC was asked 

whether the findings of the 1999 study continued to hold for participants in the 

recent influx of new claims. This report attempts to answer that question.2

 The 

current study’s results are based on a review of the impacts of the three limitation 

provisions applied by PBGC to the benefits of more than 525,000 participants in an 

expanded sample of 125 trusteed plans sponsored by 55 large controlled groups. (A 

controlled group is a company or a group of affiliated companies under a common 

control; in the remainder of this article, we refer to these controlled groups as 

companies.) These 125 plans were trusteed by PBGC from 1990 to 2005.

The plans in the expanded study were more likely than those in the earlier study to 

have participants whose benefits were reduced by one or more of the three benefit 

limitation provisions.3 We found: 

1

 The 1999 study is in the Pension Insurance Data Book 1999, which may be found at www.pbgc.gov/

docs/1999databook.pdf. 

2

 An abridged version of this study was included as a chapter in the Pension Insurance Data Book 2006 which is 

available on PBGC’s web site at www.pbgc.gov/docs/2006databook.pdf. 3

 The Pension Protection Act of 2006 (PPA) contained several provisions that affected the guarantee limitations. 

The plans in this study all terminated before 2006 and were not affected by the PPA provisions. However, 

the PPA modifications will impact how the limitation provisions affect the benefits of participants whose 

plans terminate after the law’s provisions become effective. The PPA modifications are these: (1) if the plan 

sponsor entered bankruptcy after September 16, 2006, and was in bankruptcy when the plan terminated, 

PBGC’s guarantees will generally be determined as of the date the plan sponsor began bankruptcy proceedings, 

rather than as of the date of plan termination; (2) these same bankruptcy-related provisions will affect which 

priority categories plan participants fall into for the allocation of plan assets and employer recoveries; (3) if a 

commercial airline plan sponsor elected funding relief under PPA and the plan terminates within 10 years of 

the election, PBGC’s guarantees are determined as of the first day the funding relief applied to the plan; and (4) 

if, after July 26, 2005, benefits were increased as a result of an event (such as a facility shutdown) that triggered 

an “unpredictable contingent event benefit,” the benefit increase will be treated as if it were the result of a plan 

amendment and will be subject to the “Phase-In” limitation. 
2 Summary

• The vast majority of participants in both studies received 100 percent of the 

benefits they earned under their plans; 

• 16 percent of participants had benefits reduced by one or more of the limitation 

provisions in the current study compared to less than six percent in the 1999 

study; 

• on average, this study found that benefits were reduced by 28 percent for those 

affected compared with an average reduction of only 16 percent in the earlier 

study; and 

• more than 80 percent of the plans in this study and more than 75 percent in the 

1999 study had at least one participant whose benefits were reduced by one or 

more of the limitation provisions. 

Neither the change in the number of participants whose benefits were reduced 

nor the change in the size of the reductions is unexpected. The impacts of these 

limitations depend critically on the characteristics of both the plans being trusteed 

(whether they provide temporary supplemental benefits, whether they regularly 

increase benefits through plan amendments, whether they provide generous 

benefits or highly subsidized early retirement benefits) and the participants in the 

plans (whether they are highly paid). 

This updated study includes several recently trusteed large plans from the steel 

and airline industries. These industries are heavily unionized and their plans are 

relatively generous. Steel plans often provide temporary supplemental benefits 

and generous benefits that are available after 30 years of employment. Many 

steel workers can retire with immediate pension benefits while in their late 40s or 

early 50s. Many airline plans also provide generous benefits and often allow their 

participants to retire at relatively young ages. These characteristics make steel and 

airline plans more likely to be subject to the guarantee limitations than the average 

defined benefit plan. 
PBGC’s Benefit Limitations 3

PBGC’s Benefit Limitations

PBGC pays participants the benefits they accrued under the terms of their 

plan, subject to certain constraints set by Title IV of the Employee Retirement 

Income Security Act of 1974, as amended (ERISA) and by PBGC’s implementing 

regulations. When PBGC takes control of a terminated underfunded plan, it 

takes over responsibility for the plan’s assets and the payment of benefits to plan 

participants and their beneficiaries. PBGC determines, on a participant-byparticipant basis, the benefits to which each participant or beneficiary is entitled. 

Three limitation provisions constrain the level of PBGC’s guaranteed benefits—the 

“Accrued-at-Normal” limitation, the “Maximum Insurance” limitation, and the 

“Phase-In” limitation.

The “Accrued-at-Normal” Limitation

The accrued-at-normal limitation constrains the benefits PBGC guarantees to a 

monthly amount no larger than the monthly benefit provided as a straight life 

annuity available at the plan’s normal retirement age. The portion of any combined 

early retirement benefit and supplemental benefit that exceeds this amount is 

eliminated by this provision.4 For example, suppose that the plan entitles a 

participant to a straight life annuity of $1,000 per month at the plan’s normal 

retirement age of 65. Suppose further that, if he retires at age 60, he is entitled 

to an early retirement benefit of $750 per month and a temporary supplemental 

benefit of $400 per month between the ages of 60 and 62. His total benefit under 

the plan from age 60 to age 62 would be $1,150 per month. The accrued-at-normal 

limitation will reduce the supplemental benefit by $150. In this case, PBGC would 

pay the participant a benefit of $1,000 per month from age 60 to age 62, instead of 

$1,150. At age 62, PBGC would stop paying the reduced supplemental benefit in 

accordance with the plan’s terms. From that point forward, the participant would 

be paid a monthly benefit of $750, the same amount he would have received from 

the plan at that age if the plan had not terminated. 

4 Plans in certain industries, such as steel and motor vehicle manufacturing, often pay early retirees a 

supplemental benefit until they become elgible for Social Security benefits.
4 PBGC’s Benefit Limitations

The “Maximum Insurance” Limitation

The maximum insurance limitation puts a dollar cap on the benefits PBGC may 

guarantee. The amount of the maximum guaranteed benefit depends on the 

calendar year in which the underfunded plan terminates.5 The maximum benefit 

guarantee is adjusted yearly but is fixed for any plan once that plan terminates.6 

For a plan terminating in 2008, the maximum benefit guarantee is $4,312.50 per 

month, or $51,750 per year, for a straight-life annuity that PBGC begins paying at 

age 65. The guarantee is actuarially reduced for those who begin receiving benefits 

from PBGC at younger ages or who receive a benefit that includes a survivor 

benefit, and it is actuarially increased for those who first receive benefits from 

PBGC at older ages. The participants whose benefits are affected by the maximum 

insurance limitation tend to be those with high salaries, those whose plans provide 

very generous benefits, and those whose plans provide subsidized or unreduced 

early retirement benefits at a relatively young age.7 

The “Phase-In” Limitation

The phase-in limitation restricts the proportion of recent plan benefit improvements 

provided through a plan amendment that PBGC will guarantee.8 Although any 

type of plan can be amended to improve benefits, collectively bargained plans 

often regularly increase benefits in this manner, making them more likely than 

nonbargained plans to be subject to the phase-in limitation. PBGC will fully cover 

benefit improvements made more than five years prior to the date of the plan’s 

termination. It will not cover any benefit increase implemented through a plan 

amendment that was made within one year of the date of the plan termination. For 

benefit improvements that became effective (or that the sponsor adopted, if later) 

more than one year but less than five years prior to the plan’s termination, PBGC 

will guarantee the larger of 20 percent of the benefit increase or $20 per month of 

the increase for each full year the increase was in effect.9 

5 The Pension Protection Act of 2006 modified this provision. If the sponsor entered bankruptcy after 

September 16, 2006, and the plan terminates while the sponsor is in bankruptcy, the maximum benefit 

guarantee will be based on the calendar year the sponsor entered bankruptcy. 

6

 The maximum guaranteed amount is adjusted annually based on changes in the Social Security “Old-law” 

contribution and benefit base. The “Old-law” base is the base that would have been effective without enactment 

of the 1977 amendments to the Social Security Act.

7

 An example of this latter type of benefit is a “30 and out” plan that allows a participant to retire at any age 

with unreduced benefits once he or she has completed 30 years of service with the plan’s sponsor.

8

 PPA applied this limitation to payments for “unpredictable contingent event benefits” that are triggered by a 

specific event, such as a plant shutdown. The trigger date begins the five-year phase-in period. The bankruptcy 

provision of PPA also comes into play for the phase-in provision. If the plan terminates while the employer is in 

bankruptcy, then the date the employer filed for bankruptcy (if after September 16, 2006) will be treated as the 

termination date for purposes of applying the phase-in limitation provision.

9 A less generous phase-in provision is applicable for substantial owners of companies that sponsored PBGCtrusteed plans. The substantial owner provision was changed to a majority owner provision by PPA. It now 

applies to fewer owners and is less onerous when it does apply. This type of phase-in is rarely applicable to 

participants in large plans. 
Methodology 5

Benefits Exceeding PBGC’s Guarantees

Some participants in PBGC-trusteed plans receive benefits that exceed the PBGC 

guarantee level. This can occur if the plan has sufficient assets to fund benefits 

above the guarantee or if PBGC recovers, or is deemed to recover, additional funds 

from the plan sponsor through bankruptcy proceedings. Recoveries are shared with 

participants according to a specified formula, and the participants’ share is used to 

fund benefits that exceed PBGC’s guarantee.10 

10 PPA changed this provision so that, for plans whose sponsors enter bankruptcy after September 16, 2006 

and are in bankruptcy when the plan terminates, the date the sponsor entered bankruptcy proceedings will be 

used to assign participants to the priority categories that PBGC uses to allocate any available plan assets and 

employer recoveries.
6 Methodology

Methodology

To determine the impact of the limitation provisions on the benefits of the 525,700 

participants in the 125 trusteed plans in this study, we calculated the present value 

of the reduction in benefit payments caused by each limitation. PBGC’s internal 

valuation records describe which guarantee limitations applied to each participant’s 

benefit. We calculated the estimated present value of the vested plan benefits the 

participants would have received over their lifetimes without any reductions and 

then estimated the present value of their lifetime benefits after PBGC applied each 

individual limitation.11 From the difference in these calculations, we determined 

the number and percentage of participants whose benefits were reduced by 

each limitation and the average percentage reduction in benefits. The average 

percentage reductions reported in Tables 3, 7, and 9 of this study were calculated by 

dividing the aggregate present value of benefit reductions by the aggregate present 

value of vested benefits the affected participants would have received if their 

benefits had not been reduced. 

These limitations can affect the different types of participants—active workers, 

retirees, and separated vested workers (workers who earned a nonforfeitable 

right to a pension benefit but left the plan sponsor’s employ without commencing 

a pension benefit)—in different ways. For this reason, the effects of each 

limitation are reported for each type of participant. (See Tables 2 through 6.) 

The 125 plans in the sample contained 525,700 participants at their dates of plan 

termination—206,600 retirees, 171,600 separated vested workers, and 147,500 

active vested workers. Beneficiaries of deceased workers were not included in 

the study. Because the impact of each limitation also depends heavily on the 

characteristics of the trusteed plan, the effects are also reported by the industry 

of the plan sponsor. (See Tables 8 through 10.) The rationale behind reporting 

results by industry is that plans in specific industries are likely to have similar 

provisions, especially if there is one union that represents the majority of workers in 

a particular occupation. 

We note that the sample of 125 plans is not a random sample of trusteed plans. 

We chose the controlled group sponsors based on the total amount of unfunded 

liabilities in their trusteed plans and on whether PBGC had completed its actuarial 

valuations. Some recently trusteed plans with very large unfunded liabilities were 

not included in the study because PBGC had not completed its actuarial valuations 

at the time the sample was selected. The distribution of participants by type and 

industry in the sample differs from that of the plans PBGC has trusteed.12 The 

percentages of participants from the steel industry and retail sector in the study 

are comparable to their percentages in all trusteed plans, while the percentage of 

11 The lifetime benefits estimated after the limitation provisions were applied include PBGC-guaranteed 

benefits and any nonguaranteed benefits that were funded by plan assets or recoveries. 

12 We do not have readily available data on the distribution of participants by type for all the plans PBGC has 

trusteed. Thus, we do not know on this basis how representative the sample is for all trusteed plans. 
Methodology 7

airline participants in the sample is more than twice the comparable percentage in 

all trusteed plans. Participants from all other sectors are under-represented in the 

sample of participants. The results of this study have not been weighted to adjust 

for distributional differences between the sample and full population of trusteed 

plans. 
8 Results of this Study

Results of this Study

Most of the plans in the sample had at least one participant whose benefit was 

reduced by one of the limitation provisions. However, when PBGC takes over 

a pension plan, the overwhelming majority of participants receive 100 percent 

of their vested accrued benefit. In this sample of 525,700 participants, only 16 

percent, about 84,000, had their vested accrued benefits reduced by any of the 

benefit limitation provisions. The other 84 percent received 100 percent of the 

vested benefits they had earned under their plans. Those whose benefits were 

reduced received, on average, 72 percent of the vested benefits they had earned 

under their plans.

Plans

The benefit limitation provisions reduced the benefits of at least one participant 

in more than 80 percent of the plans in the sample. (See Table 1.) The maximum 

insurance limitation reduced benefits of some participants in 60 percent of the 125 

plans, while the accrued-at-normal and phase-in limitations each reduced benefits 

of some participants in almost half the plans. In most plans where any benefits 

were reduced, however, the benefits of only a small percentage of participants were 

affected. For example, the maximum insurance limitation reduced the benefits of 

fewer than five percent of plan participants in 54 of the 75 plans it affected.

Table 1. Number of Plans with Benefits Reduced by One or More Benefit 

Limitation Provision, By Limitation Provision

Total Plans

Number With Benefits Reduced By:

At Least One 

Limitation

AccruedAt-Normal 

Limitation

Maximum 

Insurance 

Limitation

Phase-In 

Limitation

125 104 55 75 61

Participant Status

Participants who were active in their plan at the time of plan termination were 

most likely to face reductions in their benefits. (See Table 2.) Almost 30 percent of 

the active participants had their vested benefits reduced compared with 16 percent 

of retirees and only four percent of separated vested participants. More than twice 

as many participants had their benefits reduced by the phase-in provision than by 

either of the other two limitation provisions. About two percent of all participants 

had their benefits reduced by either two or all three of the limitation provisions.
Results of this Study 9

Table 2. Participants with Benefits Reduced by One or More Benefit Limitation 

Provisions, By Participant Status and Limitation Provision

Status

Number of 

Participants

Percent 

Receiving 

100% of 

Vested 

Accrued 

Benefit

Percent Affected By:

At Least 

One 

Limitation

AccruedAt-Normal 

Limitation

Maximum 

Insurance 

Limitation

Phase-In 

Limitation

Retired 206,600 84% 16% 5% 6% 10%

Separated 171,600 96 4 * * 4

Active 147,500 71 29 1 9 21

All Participants 525,700 84% 16% 2% 5% 11%

* Less than 0.5 percent.

Note: Some participants had their benefits cut by more than one limitation provision. 

Table 3 summarizes the average percentage reduction in the lifetime value 

of benefits caused by each of the benefit limitation provisions for the affected 

participants. Tables 4, 5, and 6 provide additional information about the impacts 

each individual limitation has on those it affects. The 16 percent of participants 

whose benefits were reduced had their benefits reduced, on average, by 28 percent 

(measured in present value terms).13 From Table 3 it is clear that the maximum 

insurance limitation caused the greatest average reduction in benefits. It reduced 

the benefits of those it affected by a third. The phase-in limitation reduced benefits 

of those it affected by 15 percent, and the accrued-at-normal limitation reduced 

benefits by an average of 10 percent. 

Table 3. Average Benefit Reduction for Participants Whose Benefits Were Reduced 

by One or More Benefit Limitation Provision, By Participant Status and 

Limitation Provision

Status

Number With 

Reduced 

Benefits

Average Percent Reduction From:

All 

Limitations

AccruedAt-Normal 

Limitation

Maximum 

Insurance 

Limitation

Phase-In 

Limitation

Retired 32,900 22% 10% 21% 15%

Separated 7,400 19 19 26 21

Active 43,400 34 12 43 14

All Participants 83,700 28% 10% 33% 15%

13 The benefit reductions, if spread across all participants in the sample, would average only four percent per 

participant. 
10 Results of this Study

Tables 4, 5, and 6 show how each of the limitations affected the present value 

of future benefits for those participants whose benefits were reduced by that 

limitation. Table 4 shows the impacts of the accrued-at-normal limitation. This 

limitation reduced the supplemental benefits of almost 12,000 of the more than 

525,000 participants in the sample. The benefits of relatively few participants were 

affected because most plans do not provide substantial supplemental benefits. More 

than 90 percent of those affected by the accrued-at-normal limitation were retirees. 

The present value of benefits for the affected participants before the limitation was 

applied was almost $2.5 billion, or about $210,000 per participant, on average. The 

accrued-at-normal limitation reduced the present value of benefits for all affected 

participants by almost $260 million or just over 10 percent of the present value of 

benefits accrued under the plan. 

Table 4. Impact of the Accrued-at-Normal Limitation on Benefits of Affected Participants

Participant 

Category

Number of 

Participants 

Affected 

by the 

Accruedat-Normal 

Limitation

Present 

Value of 

Benefits 

Before 

Applying 

the Accruedat-Normal 

Limitation* 

Present 

Value of 

Benefits 

After 

Applying 

the 

Accruedat-Normal 

Limitation* 

Percent 

of Prelimitation 

Benefit 

Received

Present 

Value of 

Benefits 

Lost Due 

to the 

Accruedat-Normal 

Limitation* 

Average 

Loss of 

Present 

Value per 

Affected 

Participant

Retired 10,800 $2,356.3 $2,116.6 90% $239.7 $22,200

Separated 100 14.3 11.6 81 2.7 27,000

Active 1,000 123.8 109.0 88 14.8 14,800

All Participants 11,900 $2,494.4 $2,237.2 90% $257.2 $21,600

*Dollars in millions

The average percentage of full benefits received by participants affected by the 

accrued-at-normal limitation increased from 83 percent in the 1999 study to 90 

percent in this study. The decline in the impact of this limitation was caused, we 

believe, by a decline of average monthly supplemental benefits relative to average 

monthly early retirement benefits. The average monthly supplemental benefit in 

most steel plans (the plans whose participants are most affected by the accruedat-normal provision in this study) has remained constant for many years while the 

average monthly early and normal retirement benefits have increased. Thus, over 

time the supplemental benefit has become responsible for a smaller share of the 

average affected participant’s total early retirement benefit. This is reflected in the 

smaller percentage reduction in benefits caused by the accrued-at-normal limitation 

provision. 
Results of this Study 11

Table 5 shows the impacts of the maximum insurance limitation. This limitation 

affected the benefits of more than 27,000 participants and resulted in substantial 

reductions in their present value of future benefits of more than $140,000, on 

average. As noted earlier, the maximum insurance limitation tends to affect those 

participants with relatively large benefits. The average present value of future 

benefits for participants whose benefits were reduced by this limitation provision 

was $430,000, more than twice as high as the average present value of future 

benefits of those whose benefits were reduced by either the accrued-at-normal or 

phase-in limitations. 

The average benefit loss from the maximum insurance limitation was twice as 

large for active participants as for retired participants. Part of the reason for this 

pattern is that the maximum benefit guarantee is actuarially adjusted. It is higher 

for older participants than it is for younger participants. For 2008, the annual 

maximum benefit guarantees, payable as a single-life annuity, are approximately 

$33,600 for a 60-year-old, $51,750 for a 65-year-old, and $85,900 for a 70-yearold. If a participant of each age were entitled to a benefit of $60,000 per year 

under their plan, the maximum insurance limitation would reduce the benefit 

of the 60-year-old by $26,400 per year and that of the 65-year-old by $8,250 per 

year, but would not reduce the benefit of the 70-year-old. A second reason retired 

participants had a lower average benefit reduction is the procedures PBGC uses to 

allocate assets in the plan. Assets are used to cover the benefits of those who were 

eligible to retire at least three years prior to the date the plan terminated before 

they are used to cover the benefits of other participants.14 In many plans that 

PBGC trustees, assets are sufficient to cover all benefits earned by most retirees, 

even if their benefits exceed the guarantee level for their age. These two reasons 

explain why the benefits of retirees affected by the maximum insurance limitation 

were reduced by only 21 percent while the benefits of affected active participants 

were reduced by 43 percent (see Table 3). 

14 Assets are allocated first to cover that portion of participants’ accrued benefits that are derived from their 

own voluntary or mandatory contributions to the plan. After these allocations are made, the remaining assets 

are used to cover benefits funded by employer contributions. Most private-sector defined benefit plans do not 

require or allow participant contributions. Thus, in most trusteed plans, asset allocations begin by covering 

the benefits of those retired or eligible to retire three years before the plan terminated. Going forward, the 

plan termination date for this purpose will be deemed to be the bankruptcy filing date, if that date is after 

September 16, 2006 and the sponsor is still in bankruptcy when the plan actually terminates.
12 Results of this Study

Table 5. Impact of the Maximum Insurance Limitation on Benefits of Affected Participants

Status

Number of 

Participants 

Affected 

by the 

Maximum 

Insurance 

Limitation

Present 

Value of 

Benefits 

Before 

Applying 

Maximum 

Insurance 

Limitation* 

Present 

Value of 

Benefits 

After 

Applying 

Maximum 

Insurance 

Limitation* 

Percent 

of Prelimitation 

Benefit 

Received

Present 

Value of 

Benefits 

Lost Due 

to the 

Maximum 

Insurance 

Limitation* 

Average 

Loss of 

Present 

Value per 

Affected 

Participant

Retired 12,800 $5,235.3 $4,155.6 79% $1,079.7 $84,400

Separated 800 171.6 127.6 74 44.0 55,000

Active 13,500 6,246.0 3,542.0 57 2,704.0 200,300

All Participants 27,100 $11,652.9 $7,825.2 67% $3,827.7 $141,200

*Dollars in millions

The average percentage of full benefits received by participants affected by the 

maximum insurance limitation fell from 83 percent in the 1999 study to 67 

percent in this study. The decrease is due to the large number of participants 

in airline and steel plans in this study. Pilots were especially affected by this 

provision. Almost 60 percent of pilots had their benefits reduced by the maximum 

insurance limitation. Their high average incomes provided very generous benefits 

that were often two to three times the maximum insurance limitation, putting 

them at risk of large benefit reductions. For example, a 60-year-old pilot whose 

plan terminated in 2003 could have earned a benefit of about $6,300 per month. 

For plans terminating in 2003, the PBGC maximum insurance limitation for a 

person aged 60 was $2,382.10 per month. Absent other considerations, this pilot’s 

benefit would be reduced by more than 60 percent or almost $4,000 per month by 

the maximum insurance limitation. In some cases, retired pilots and pilots who 

were eligible to retire at least three years before the date the plan terminated got 

a measure of relief because of the way plan assets and recoveries are allocated 

across participants. For them, the asset allocation reduced or eliminated the 

maximum insurance limitation reduction. However, the vested accrued benefits 

of active pilots who were not eligible to retire at least three years before the plan’s 

termination date were usually cut back to the PBGC guarantee level for their 

expected retirement age. 

Many steel plans also had provisions that provided participants with reasonably 

generous benefits at relatively young ages. Because PBGC’s guarantee is 

actuarially reduced for participants drawing benefits before age 65, young retirees 

with generous benefits are likely to have those benefits reduced by the maximum 

insurance limitation. For example, a 50-year-old who had worked for a steel 

company for 30 years could have been eligible for a benefit in 2002 of $1,575 per 
Results of this Study 13

month ($52.50 per year of service). However, the maximum insurance limitation 

for a 50-year-old in 2002 was only $1,252.84 per month. The limitation would have 

reduced the retired steelworker’s benefit by almost $325 per month, or 20 percent. 

The impact of the phase-in limitation is shown in Table 6. Eleven percent of all 

participants in the sample lost some or all of the benefit increases their plans 

had provided within five years of the date their plan terminated. This limitation 

reduced the benefits of more than 57,000 of the 525,700 participants in the study. 

A part of the reason for the widespread impact of this limitation is that affected 

participants do not need to have high benefit levels to be affected. They only need 

to be in plans that provided recent benefit increases through plan amendments. 

In fact, the average present value of future benefits before the limitation was 

applied ($152,800) was lower for this group of participants than for participants 

affected by either of the other two limitation provisions. For those affected, this 

provision reduced benefits by about 15 percent or an average of $22,700 in present 

value terms. 

Table 6. Impact of the Phase-In Limitation on Benefits of Affected Participants

Status

Number of 

Participants 

Affected 

by the 

Phase-In 

Limitation

Present 

Value of 

Benefits 

Before 

Applying 

Phase-In 

Limitation*

Present 

Value of 

Benefits 

After 

Applying 

Phase-In 

Limitation*

Percent 

of Prelimitation 

Benefit 

Received

Present 

Value of 

Benefits 

Lost Due 

to the 

Phase-In 

Limitation*

Average 

Loss of 

Present 

Value per 

Affected 

Participant

Retired 19,900 $4,952.3 $4,223.1 85% $729.2 $36,600

Separated 6,500 362.4 287.3 79 75.1 11,600

Active 30,900 3,443.1 2,946.3 86 496.8 16,100

All Participants 57,300 $8,757.8 $7,456.7 85% $1,301.1 $22,700

*Dollars in millions
14 Results of this Study

The average percentage reduction from the phase-in limitation increased from 

two percent in the 1999 study to 15 percent in the 2007 study. Given the make 

up of our 1999 sample, we expressed a belief that the phase-in provision probably 

affected more than the 0.5 percent of participants that were affected in that study. 

This expanded study supports that belief. However, we believe the size of the 

impact reported in this study probably overestimates the average impact of this 

provision. Several airline and steel plans granted very large benefit increases 

(as high as a 50 percent increase) within three years of the plans’ terminations. 

Generally, we would not expect sponsors to increase benefits by this magnitude or 

for plans to terminate this quickly after a benefit increase was granted. The phasein provision generally eliminated 40 to 60 percent of these large increases in the 

plans in the sample. 

On an aggregate basis, the almost 84,000 participants whose benefits were 

reduced by any of these benefit limitations had the present value of their future 

benefits reduced by an average of 28 percent relative to the present value of their 

benefits before the limitation provisions were applied. This average covers a 

wide range of benefit reductions. Almost half of those affected lost less than 20 

percent of the value of their lifetime benefits,15 and for more than 25 percent the 

provisions reduced benefits by less than 10 percent. (See Table 7.) The lifetime 

values of benefits of about 7,000 participants (eight percent of the participants 

whose benefits were reduced) were reduced by more than 50 percent. Two-thirds 

of this last group were participants in airline plans and another 30 percent were 

participants in steel plans. 

15 The median participant whose benefit was reduced by the limitation provisions lost 22 percent of his 

unreduced benefit. 
Results of this Study 15

Table 7. Distribution of the Percentage Reduction in the Present Value of Future Benefits

Caused by the Benefit Limitation Provisions

Number Percent of All

Percent of Those 

with a Reduction

Total 525,700 100.0% Not Applicable

No Reduction 442,100 84.1 Not Applicable

Total with a Reduction 83,700 15.9 100.0%

Size of Reduction

 Less than 5% 11,300 2.1 13.5

 5% < 10% 10,100 1.9 12.1

 10% < 15% 6,000 1.1 7.2

 15% < 20% 13,300 2.5 15.9

 20% < 25% 19,700 3.7 23.5

 25% < 50 % 16,300 3.1 19.5

 50% or More 6,900 1.3 8.2

Note: Numbers and percents may not add up to their respective totals because of rounding.

Industry

Participants in airline and steel plans were much more likely to have their benefits 

reduced by the three guarantee limitations—more than 20 percent had their 

benefits reduced—than were participants from other industries, where only five 

percent experienced benefit reductions. (See Table 8.) 
16 Results of this Study

Table 8. Participants with Benefits Reduced by One or More Benefit Limitation 

Provisions, By Industry and Limitation Provision

Industry

Number of: Percent Affected By:

Plans Participants

At Least 

One 

Limitation

AccruedAt-Normal 

Limitation

Maximum 

Insurance 

Limitation

Phase-In 

Limitation

Airline 17 228,400 22% * 8% 14%

Steel 54 122,500 21 7% 6 15

Other

 Manufacturing 40 115,000 6 2 

* 4

Retail 4 30,700 * 0 * *

Other 10 29,100 5 1 1 5

All Industries 125 525,700 16% 2% 5% 11%

* Less than 0.5 percent.

Note: Some participants, especially in steel plans, had their benefits cut by more than one 

limitation provision. 

The three limitation provisions affected participants from different industries in 

different ways. Seven percent of participants in steel industry plans had their 

benefits reduced by the accrued-at-normal limitation compared with almost none in 

airline plans, only two percent in other manufacturing sector plans, and one percent 

from plans from all other industries. Supplemental benefits are commonly found in 

steel plans and plans of some other manufacturing sectors but are rarely found in 

plans outside the manufacturing sector.16 

Even though steel and airline plans tend to have generous benefits, only eight 

percent of the participants in the airline plans (mostly pilots) and six percent in the 

steel plans had their benefits reduced by the maximum insurance limitation. Few 

participants in other industries lost benefits because of this limitation. 

The phase-in limitation reduced the benefits of about one out of seven participants 

in steel and airline plans but fewer than one out of 20 in other industries. While 

relatively few participants in plans other than steel and airline plans had their 

benefits reduced by the phase-in provision, almost half of the plans in these other 

industries had at least one participant whose benefits were affected by it. 

Among participants who had their benefits reduced by one or more of the 

limitation provisions, those in airline plans had the largest average percentage 

loss of vested benefits (a 30-percent reduction). (See Table 9.) The average 

16 The participants in the “Other” category whose benefits were reduced by the accrued-at-normal limitation 

were all participants in the same plan. 
Results of this Study 17

percentage reduction for affected participants from plans in other industries was 

about 25 percent except in the non-steel manufacturing plans where it was only 

13 percent. The average reductions conceal a wide variation in the reductions 

experienced by individual participants. Some had very modest reductions while 

others lost a substantial proportion of their earned benefits. For example, the 

benefits of a few participants in pilot plans were reduced by more than 75 percent 

by the maximum insurance limitation.

Table 9. Average Benefit Reduction for Participants Whose Benefits Were Reduced by

 One or More Benefit Limitation Provision, by Industry and Limitation Provision 

Industry

Number of 

Participants

Percent 

With 

Reduced 

Benefits

Average Percent Reduction From:

All 

Limitations

AccruedAt-Normal 

Limitation

Maximum 

Insurance 

Limitation

Phase-In 

Limitation

Airline 228,400 22% 30% 6% 36% 15%

Steel 122,500 21 26 10 22 16

Other 

 Manufacturing 115,000 6 13 13 16 6

Retail 30,700 * 24 0 29 13

Other 29,100 5 26 24 26 26

All Industries 525,700 16% 28% 10% 33% 15%

* Less than 0.5 percent.

Across all industries, the maximum insurance limitation was responsible for the 

largest percentage reduction in benefits. As noted earlier, almost 60 percent of all 

pilots in the sample had their benefits reduced by this limitation provision. Given 

their very high average levels of vested benefits, many experienced very substantial 

benefit reductions. On average, the maximum insurance limitation reduced the 

benefits of affected pilots by 38 percent, compared to an average reduction for other 

affected airline plan participants of 23 percent. 

The maximum insurance limitation provision also had the largest impact on 

benefits of affected participants in other industries. While few plans provide 

benefits as high as pilots’ plans, many upper-level management participants 

receive generous benefits from their plans. In addition, many plans provide 

heavily subsidized early retirement benefits. The maximum guarantee at young 

retirement ages is fairly modest (for example, in 2008 it is $23,287.56 per year at 

age 55). A 55-year-old retiree receiving a plan-provided benefit of $2,100 per month 
18 Results of this Study

whose plan terminates (or is deemed to terminate) in 2008 will have his benefit 

reduced by about $160 per month by the maximum insurance limitation. While not 

a large percentage reduction, it demonstrates how younger retirees with benefits 

substantially below the $4,312.50-per-month limit that applies at age 65 can have 

their benefits affected by the maximum insurance limitation provision. 

Table 10 shows the number of participants whose benefits were reduced by one or 

more of the limitation provisions, broken down by both industry and participant 

type. This table shows that more than 75 percent of those whose benefits were 

reduced by the accrued-at-normal limitation were in steel industry plans and 

most of the rest were participants in plans sponsored by other companies in the 

manufacturing sector. More than 90 percent of those affected by this limitation 

were retirees. This is to be expected because retirees are most likely to meet the 

eligibility requirements for a supplemental benefit. Often these requirements 

are being eligible for an immediate early retirement benefit upon separation 

from employment and being younger than a specified age (such as age 62 when 

participants become eligible to receive Social Security benefits). Some active 

workers had met the eligibility requirements for a supplemental benefit at the time 

the plan terminated.
Results of this Study 19

Table 10. Number of Participants with Benefits Reduced by One or More Benefit 

Limitation Provision, By Industry, Participant Type, and Limitation Provision

Industry

Participant 

Type

Number of 

Participants

Number with Benefits Reduced By:

At Least

One

Limitation

Accruedat-Normal 

Limitation

Maximum 

Insurance 

Limitation

Phase-In 

Limitation

Airline

All

Participants 228,400 49,700 300 18,600 32,600

Retired 61,000 14,000 300 6,200 8,400

Separated 63,500 4,800 * 600 4,200

Active 103,900 30,900 * 11,800 20,000

Steel

All

Participants 122,500 25,200 9,100 8,000 18,100

Retired 76,200 15,100 8,500 6,200 9,600

Separated 23,000 1,500 * * 1,400

Active 23,300 8,600 600 1,800 7,100

Other 

 Manufacturing

All

Participants 115,000 6,700 2,300 300 5,000

Retired 55,800 3,400 2,200 200 1,900

Separated 51,000 800 * * 700

Active 8,200 2,500 100 * 2,400

Other

All

Participants 59,800 2,100 200 300 1,600

Retired 13,600 300 200 200 *

Separated 34,100 300 0 100 200

Active 12,100 1,400 * * 1,400

All Industries

All

Participants 525,700 83,700 11,900 27,100 57,300

Retired 206,600 32,900 10,800 12,800 19,900

Separated 171,600 7,400 100 800 6,500

Active 147,500 43,400 1,000 13,500 30,900

* Fewer than 50 participants.

Note: Numbers may not add up to column subtotals and totals because of rounding. 

Two-thirds of the participants whose benefits were reduced by the maximum 

insurance limitation worked in the airline industry and almost two-thirds of them 

were active workers when their plans terminated. Almost all the other participants 

whose benefits were affected by this provision were in steel industry plans and more 
20 Results of this Study

than three-fourths of them were retired when their plans terminated. Most of those 

in other industries whose benefits were affected by this provision were retirees. 

This disparate impact on participant types in different industries is a result of 

different earnings levels of participants in different industries and different typical 

plan characteristics in different industries.

Almost 60 percent of those whose benefits were reduced by the phase-in limitation 

were participants in airline industry plans. Another 30 percent were steel industry 

participants. In most industries, active participants bore the brunt of this provision 

because in many plans benefits are only increased for workers active at the time 

the increase is made. In some bargained plans, however, benefit increases apply to 

both active workers and retirees. The phase-in limitation cut the benefits of many 

retirees in steel industry plans because some steel companies closed down facilities 

shortly before their plans terminated, and many workers at those facilities retired 

immediately under the plans’ early retirement shutdown provisions.17 

About 10,300 participants had benefits cut by two or all three of the limitation 

provisions.18 This is about two percent of all 525,700 participants in the study but 

12 percent of the 83,700 participants with a benefit reduced by at least one of the 

limitation provisions. Three-quarters of the participants whose benefits were cut by 

more than one limitation provision were in steel industry plans. Most of these were 

retirees. About 17 percent of participants whose benefits were reduced by two or 

three limitation provisions were in airline industry plans. These participants were 

split fairly evenly between active workers and retirees.

17 We note again that all steel plans in the study terminated before the effective date that shutdown benefits 

became subject to the phase-in limitation. The phase-in limitation only reduced the benefits of these retirees 

because the plans’ regular benefits had been increased through plan amendments within five years of the date 

the plans terminated. Had the plants not shut down, many workers would not have retired and would have 

been counted as active workers whose benefits were reduced by the phase-in limitation.

18 Subtracting the number of participants with benefits reduced by at least one limitation (83,700) from the sum 

of the numbers with benefits reduced by each of the three individual provisions (96,300) in the “All Industries 

All Participants” line near the bottom of the table gives a result of 12,600. This is an overestimate of the 

number of participants whose benefits were reduced by more than one limitation provision because about 2,300 

participants had benefits reduced by all three of the limitation provisions. 
Conclusions 21

Conclusions

The major finding of this study is that the vast majority of participants in 

this sample of 125 PBGC-trusteed plans—84 percent—receive all the vested 

benefits they had accrued under their plans. However, many of the 16 percent 

of participants whose benefits were reduced by one or more of the limitation 

provisions experienced substantial benefit reductions. A quarter of them, more 

than 23,000, will lose at least 25 percent of the lifetime value of their accrued 

benefits because of these limitation provisions. However, almost as many, more 

than 21,000, will have the lifetime value of their accrued benefits reduced by less 

than 10 percent. The average benefit reduction for those affected was a 28 percent 

reduction. The maximum insurance limitation, which places a dollar limit on 

PBGC’s guarantee, continued to be the limitation that caused the largest benefit 

reductions for affected participants. That said, the phase-in limitation, which 

limits the amount of recent benefit increases PBGC will guarantee, affected the 

greatest number of participants. 

Whether a participant’s benefit is reduced depends heavily on the characteristics 

of the plan and the individual participant. Not all plans provide supplemental 

benefits for those who retire before the plan’s normal retirement age and not all will 

increase benefits through plan amendments (or, in the future, provide contingent 

event benefits). Only those plans that do will have participants whose benefits 

could be reduced by the accrued-at-normal and phase-in limitations, respectively. 

Relatively few participants have benefits sufficiently high to be reduced by the 

maximum insurance limitation. However, those with very high benefits can face 

substantial reductions in their benefits because of this latter provision. Because 

this limitation’s guarantee is actuarially reduced for first PBGC payments before 

age 65, the maximum insurance limitation can affect some participants who retire 

at young ages with relatively modest benefits. 

The sample of plans in the study is heavily weighted toward large trusteed plans, 

especially airline and steel plans that have accounted for almost 75 percent of 

all claims against the PBGC. The sample consequently underrepresents small 

trusteed plans. However, the 525,700 participants in the sample are more than 

30 percent of all participants in plans ever trusteed by PBGC. This makes 

us confident that our results provide reasonable estimates of the percent of 

participants historically affected by these three benefit limitation provisions. 

Recent changes in law will likely result in somewhat larger benefit reductions for 

some participants whose plans terminate while their employers are in bankruptcy 

proceedings. These changes in law, combined with changes in the composition 

of plans that present the highest likelihood of claims in the future, suggest that 

these results may not be representative of the benefit reductions that will be 

experienced in future terminations.
Pension Benefit Guaranty Corporation

1200 K Street NW, Washington DC 20005-4026

www.pbgc.gov