PRESENT LAW AND BACKGROUND RELATING TO 

THE PENSION BENEFIT GUARANTY CORPORATION 

Scheduled for a Public Hearing 

Before the 

HOUSE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON OVERSIGHT 

on September 24, 2008 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

September 17, 2008 

JCX-67-08
i 

CONTENTS 

Page

I. OVERVIEW ....................................................................................................................... 1

II. GOVERNANCE, COVERAGE, AND FUNDING............................................................ 3

A. Statutory Purpose and Governance ............................................................................... 3

B. Plans Subject to PBGC Coverage ................................................................................. 5

C. Minimum Funding Rules for Defined Benefit Pension Plans .................................... 18

D. Funding ....................................................................................................................... 21

1. In general .............................................................................................................. 21

2. Premiums .............................................................................................................. 21

3. Plan assets ............................................................................................................. 22

4. Recoveries from employers .................................................................................. 22

5. Earnings from investment assets ........................................................................... 22

6. Shift in investment strategy .................................................................................. 24

7. Funding sufficiency .............................................................................................. 25

E. Information Reported to the PBGC ............................................................................ 28

III. TERMINATION INSURANCE PROGRAMS ................................................................ 31

A. Single-Employer Plans................................................................................................ 31

1. In general .............................................................................................................. 31

2. Standard terminations ........................................................................................... 31

3. Distress and involuntary terminations .................................................................. 31

4. Plan restoration ..................................................................................................... 32

5. PBGC benefit payments ........................................................................................ 33

6. Procedures for payment of benefits ...................................................................... 36

7. Data regarding plan terminations .......................................................................... 37

B. Insolvency of Multiemployer Plans ............................................................................ 40
1 

I. OVERVIEW 

The Subcommittee on Oversight of the Committee on Ways and Means of the House of 

Representatives has scheduled a public hearing on the Pension Benefit Guaranty Corporation 

(“PBGC”). This document,1

 prepared by the staff of the Joint Committee on Taxation, provides 

a description of present law regarding the PBGC. 

The PBGC was created by Title IV of the Employee Retirement Income Security Act of 

1974 (“ERISA”)2

 for the purpose of ensuring that benefits promised under a defined benefit 

pension plan are paid (up to specified limits) if the sponsor of the plan is not able to fulfill its 

obligation to adequately fund the plan.3

 The benefit protection function of the PBGC is carried 

out through two insurance programs (collectively “termination insurance”). The first program is 

for single employer defined benefit pension plans. The second program is for multiemployer 

defined benefit pension plans. A multiemployer defined benefit pension plan is generally a plan 

to which more than one employer is required to contribute and which is maintained pursuant to a 

collective bargaining agreement.4

 

PBGC termination insurance serves as a backstop to the minimum funding rules 

established by ERISA for defined benefit pension plans.5 The purpose of the minimum funding 

rules is to ensure that sponsoring employers make minimum contributions that will adequately 

fund benefits promised under defined benefit pension plans. However, the minimum funding 

rules permit an employer to fund a defined benefit pension plan over a period of time. Thus, it is 

possible that a plan may be terminated at a time when plan assets are not sufficient to provide all 

benefits accrued by employees under the plan. 

As of 2007, almost 44 million participants in more than 30,000 defined benefit pension 

plans were insured under the PBGC’s termination insurance programs. Of these, almost 34 

million participants are covered by almost 29,000 single-employer defined benefit pension plans, 

and approximately 10 million participants are covered by approximately 1,500 multiemployer 

defined benefit pension plans. The PBGC paid over $4.3 billion in benefits in fiscal year 2007. 

 

1

 This document may be cited as follows: Joint Committee on Taxation, Present Law and 

Background Relating to the Pension Benefit Guaranty Corporation (JCX-67-08), September 17, 2008. 

This document is available at www.jct.gov. 

2

 References in this document to ERISA are to the Employee Retirement Income Security Act 

of 1974, as amended. 

3

 ERISA sec. 4002(a). 

4

 ERISA sec. 3(37). 

5

 The minimum funding rules have been modified over time, with significant revisions made 

by the Pension Protection Act of 2006. Pub. L. No. 109-280. 
2 

At the end of 2007, the PBGC was directly responsible for the pensions of more than 1.3 million 

people.6

The PBGC was established as a corporation within the Department of Labor and is not 

funded by general tax revenues. It is instead funded by: (1) premiums paid by employers who 

sponsor or contribute to plans that are covered by the termination insurance program; (2) assets 

in terminated plans; (3) amounts recovered from employers who terminate underfunded plans; 

and (4) investment earnings. The PBGC is vulnerable to periods of economic downturn because 

it is more likely during such periods that plans will terminate with insufficient funding to pay 

benefits and, at the same time, the PBGC itself is more likely to suffer investment losses or 

reduced earnings. 

As of September 30, 2007, the PBGC reported a total deficit of $14.1 billion, most of 

which is attributable to the insurance program for single-employer plans. This is a $4.81 billion 

improvement over fiscal year 2006 for which an $18.9 billion deficit was reported. As of 

September 30, 2007, the value of the PBGC’s total investments was approximately $62.6 billion. 

Investment income for fiscal year 2007 was $4.76 billion which is more than twice the fiscal 

year 2006 amount of $2.18 billion.7 

Many of the rules relating to the PBGC are contained in the Labor Code sections of 

ERISA. For example, the Labor Code contains the rules that establish the PBGC and the 

termination insurance programs. Some of the rules relating to the PBGC are found in the 

Internal Revenue Code (the “Code”),8 or are generally duplicated as parallel requirements in both 

the Code and the Labor Code sections of ERISA. For example, both the Code and the non-Code 

provisions of ERISA contain parallel minimum funding rules. However, the Code contains the 

excise tax that applies in the case of a failure to satisfy the minimum funding rules, while the 

Labor Code sections authorize a claim of action on the part of plan participants, beneficiaries, 

fiduciaries, and the Department of Labor to enforce violations of the minimum funding rules.9

 

6

 Source for figures is the Pension Benefit Guaranty Corporation Performance and 

Accountability Report, Fiscal Year 2007 (“2007 Annual Report”). The 2007 Annual Report and the 

PBGC’s Pension Insurance Data Book 2006 (“2006 Data Book”) are available on the PBGC’s website, 

at www.pbgc.gov. 

7

 2007 Annual Report. 

8

 References in this document to the Code are to the Internal Revenue Code of 1986, as 

amended. 

9

 ERISA sec. 502(a)(3), (a)(5), and (b)(1). 
3 

II. GOVERNANCE, COVERAGE, AND FUNDING 

A. Statutory Purpose and Governance10

In general

The PBGC was created as a corporation within the Department of Labor in 1974. ERISA 

specifies that the PBGC has the powers conferred on a nonprofit corporation under the District of 

Columbia Nonprofit Corporation Act. ERISA also lists a number of specific powers conferred 

upon the PBGC, such as the power to sue and be sued, the power to adopt and amend bylaws, 

rules, and regulations regarding the conduct of PBGC business, the power to acquire property 

and enter into contracts, and the power to use the personnel and facilities of an agency of the 

United States Government, with or without reimbursement, with the consent of the head of such 

agency. ERISA directs the PBGC to make such arrangements or agreements for cooperation or 

mutual assistance with other government agencies as required to avoid unnecessary expense or 

duplication. 

Governance

ERISA provides that the PBGC is administered by a director, who is appointed by the 

President of the United States by and with the advice and consent of the Senate. The director 

must act in accordance with policies established by the board of directors of the PBGC. 

The composition of the board of directors is specified under ERISA as the Secretary of 

the Treasury, the Secretary of Labor, and the Secretary of Commerce. The Secretary of Labor is 

the chairman of the board of directors. 

ERISA also establishes an advisory committee to the PBGC. The purpose of the 

advisory committee is to render advice relating to: (1) the appointment of trustees in plan 

termination proceedings; (2) investment of funds; (3) whether plans being terminated should be 

liquidated immediately or continued in operation under a trustee; and (4) such other issues as the 

PBGC may request from time to time. Under ERISA, the advisory committee consists of seven 

members appointed by the President for three-year terms. Of the seven members, two must 

represent the interests of employee organizations, two must represent the interests of employers 

that maintain defined benefit pension plans, and three must represent the interests of the general 

public. ERISA specifies that no more than four members may be affiliated with the same 

political party. The President designates one of the members as the chairman of the advisory 

committee. ERISA specifies that the advisory committee is to meet at least six times each year. 

A 2007 report by the Government Accountability Office (“GAO”) expressed concern that 

the PBGC’s board of directors has limited time and resources to provide policy direction and 

 

10 ERISA secs. 4002 and 4003. 
4 

oversight for the PBGC. For example, GAO noted that between 1980 and 2007, there were only 

18 official board meetings, although GAO noted that the frequency of meetings began to 

increase in 2003. The report suggested that the PBGC’s board of directors could be diversified 

so that it includes additional members with expertise relevant to PBGC operations and who can 

provide the attention required for oversight. The report also expressed concern that the board has 

not established formal procedures to ensure that PBGC management provides the board with 

information on all policy matters and that it has not developed committees to oversee PBGC 

operations. The report suggested that dedicated staff, independent of the PBGC’s executive 

management, could support the board of directors.11 

The PBGC’s internal bylaws were revised by the board of directors in 2008.12 The 

revised bylaws clarify the power that cannot be delegated to the director and the matters on 

which a designated representative of a member of the board of directors may act without later 

ratification by the board member. The bylaws also establish governance procedures that apply in 

the case of a government-wide emergency. GAO recently issued an updated report on the 

PBGC’s governance structure.13 The report notes the changes that PBGC instituted in 2008, but 

recommends that additional reforms be made. In particular, the report suggests restructuring the 

PBGC’s board to increase its size and diversity. 

Investigative authority

The PBGC is authorized under ERISA to make such investigations as are necessary to 

enforce any provision of Title IV of ERISA, and it may require any person to file with it a 

statement under oath as to all of the facts and circumstances concerning the matter being 

investigated. The PBGC is required to audit annually a statistically significant number of plans 

terminating under the standard termination procedures (i.e., plans that are not terminating with 

insufficient assets) to determine whether participants have in fact received their benefits. 

In conducting investigations, ERISA provides that the director of the PBGC, any member 

of the board of directors of the PBGC, or any officer designated by the director (or the chairman 

of the board) may administer oaths, subpoena witnesses, compel their attendance, take evidence, 

and require production of books, papers, correspondence, memoranda, or other records that the 

PBGC deems relevant or material. 

 

11 Pension Benefit Guaranty Corporation: Governance Structure Needs Improvements to 

Ensure Policy Direction and Oversight, GAO-07-808, July 2007. 

12 73 Fed. Reg. 29985 (May 23, 2008). 

13 Pension Benefit Guaranty Corporation: Need for Improved Oversight Persists, GAO-08-

1062, September 2008. 
5 

B. Plans Subject to PBGC Coverage 

General rule

The PBGC insurance programs apply to tax-qualified defined benefit pension plans, 

subject to a number of exceptions (discussed below). Tax-qualified for this purpose generally 

means that the plan satisfies, or has been determined by the Secretary of the Treasury to satisfy, 

the requirements of section 401(a) of the Code. 

A defined benefit pension plan is one of two basic types of retirement or pension plans 

that an employer may provide for its employees. The other type is a defined contribution plan 

(referred to under the Labor Code provisions of ERISA as an “individual account plan”). The 

fundamental difference between the two types of plans is the nature of the benefits that are 

promised to participating employees (“participants”). 

In the case of a defined contribution plan, the employer makes a specific contribution to 

the plan for each participant, and the participant’s sole retirement benefit under the plan is the 

amount of such contributions together with the participant’s share of the plan’s earnings or losses 

on such contributions.14 Under such a plan, no promise is made by the employer as to the 

amount of money that will be available to the participant upon retirement. The promised benefit 

is solely comprised of plan contributions, as increased by investment earnings (or reduced by 

investment losses) with respect to such contributions. 

In contrast, a defined benefit pension plan provides a participant with a specified benefit 

at a specified age.15 For example, the plan might provide for annual payments commencing at 

age 65 equal to one percent of a participant’s final average compensation for each year of the 

participant’s service with the sponsoring employer. Unlike a defined contribution plan, the 

sponsor of a defined benefit pension plan is responsible for ensuring that adequate contributions 

are made to the plan so that promised benefits can be paid. Thus, under a defined benefit 

 

14 Code sec. 414(i); ERISA sec. 3(34). 

15 See Code sec. 414(j) and ERISA sec. 3(35) (defining a defined benefit pension plan as a 

plan other than a defined contribution plan). A defined benefit pension plan can be designed in a 

manner such that it mimics a defined contribution plan. Such plans are referred to as “hybrid plans,” 

and a so-called “cash balance plan” is a typical example of a hybrid plan. Under a typical cash balance 

plan, a hypothetical account is created for each participant under the plan, and hypothetical 

contributions are credited to the account along with periodic interest credits. A participant’s retirement 

benefit under the plan is equal to his or her hypothetical account balance as of the participant’s 

retirement date. At that time, the account balance can be converted into an annuity-type payment 

(which is similar to the type of payment made by a traditional defined benefit pension plan) using 

actuarial factors specified in the plan. While a cash balance plan resembles a defined contribution 

plan, the sponsoring employer is responsible for funding the plan sufficient to ensure that the 

hypothetical account balance will be paid, even if the plan’s actual investments perform poorly. 
6 

pension plan, the sponsoring employer bears the risk of loss with respect to investment of plan 

contributions, while in a defined contribution plan the participants themselves bear that risk of 

loss. 

Coverage exceptions 

The following types of plan are excluded from termination insurance coverage:16

 A plan established and maintained for its employees by the Federal government, a 

State government or political subdivision, or an agency or instrumentality of the 

foregoing (a “governmental plan”). A governmental plan includes a plan established 

and maintained by an Indian tribal government or political subdivision (or agency or 

instrumentality) thereof as long as all participants are employees of such entity, all of 

whose services are in the performance of essential governmental functions (but not in 

the performance of commercial activities). 

 A plan established and maintained for its employees by a church or by a convention 

or association of churches which is exempt from tax under section 501 of the Code. 

However, such a plan may elect to be covered under certain requirements of ERISA, 

including termination insurance. 

 A plan that does not provide for employer contributions (i.e., the plan is solely funded 

with employee contributions). 

 A plan that is established and maintained exclusively for substantial owners of the 

entity sponsoring the plan. The term substantial owner means an individual who (at 

any time during the 60 month period ending on the date for which the determination 

is being made) owns the entire interest in an unincorporated trade or business, is a 

partner who owns more than 10 percent of either the capital or profits interest of a 

partnership, or owns more than 10 percent in value of either the voting or all stock of 

a corporation. 

 A plan that is established and maintained by a professional service employer which 

does not at any time have more than 25 active participants in the plan. A professional 

service employer means any proprietorship, partnership, corporation, or other 

association or organization that is owned or controlled by professional individuals 

and the principal business of which is the performance of professional services. 

Professional individuals includes licensed professionals in the healing arts, attorneys 

at law, public accountants, public engineers, architects, draftsmen, actuaries, 

psychologists, social or physical scientists, and performing artists. 

 A plan that is established and maintained outside the United States primarily for the 

benefit of individuals substantially all of whom are nonresident aliens. 

 

16 ERISA sec. 4021(b). 
7 

 A plan of an international organization which is exempt from taxation under the 

International Organizations Immunities Act. 

 An unfunded plan maintained by an employer for the purpose of providing deferred 

compensation to a select group of management or highly compensated employees. 

 An excess benefit plan (which is a funded or unfunded plan that provides benefits for 

certain employees in excess of the limitation on benefits that applies to tax-qualified 

plans under section 415 of the Code). 

Coverage determinations

An employer may request that the PBGC determine whether a defined benefit pension 

plan that it sponsors (or to which it contributes) is subject to coverage under the PBGC 

termination insurance program. 

Coverage data

Table 1 indicates that the number of PBGC insured plans under the single-employer 

program has declined substantially between 1985 and 2007, from a high of 112,208 plans in 

1985 to approximately 28,929 plans in 2007. In contrast, Table 2 indicates that the total number 

of participants covered by the single-employer program has gradually increased from 27 million 

participants in 1980 to over 34.5 million participants in 2004, with 33.7 million participants 

covered in 2007. Table 3 indicates that from 1980 to 2005 the proportion of separated and 

retired employee participants that are covered by the single-employer program has steadily 

increased relative to the number of active employee participants who are covered by the 

program. Thus, while the number of participants covered by the PBGC termination insurance 

program generally has increased over the years, this increase is not due to an increase in the 

number of active employees participating in employer-sponsored defined benefit pension plans. 

Tables 4, 5, and 6 demonstrate that there are similar trends with respect to the 

multiemployer plan program. 
8 

Table 1

PBGC-Insured Plans (1980-2007)

Single-Employer Program

Insured Insured Insured Insured Insured Insu

Total Plans with Plans with Plans with Plans with Plans with Plans 

Insured 10,000 or more 5,000-9,999 1,000-4,999 250-999 100-249 25-

Year Plans Participants Participants Participants Participants Participants Partici

1980 95,439 349 365 2,858 7,439 8,512 19,01985 112,208 354 435 3,125 8,230 10,003 22,61990 91,899 458 477 3,400 8,085 8,976 19,41991 82,717 495 493 3,353 7,986 8,867 17,81992 71,589 505 504 3,367 7,402 7,991 15,41993 63,778 504 517 3,336 7,064 7,358 14,31994 57,010 524 553 3,361 6,682 6,941 13,1995 53,589 528 559 3,308 6,743 6,850 11,61996 48,748 531 556 3,280 6,217 6,225 10,91997 43,902 563 550 3,199 5,962 5,734 9,81998 41,462 570 565 3,139 5,693 5,255 8,71999 37,536 603 555 2,933 5,271 4,803 7,72000 35,373 621 531 2,875 5,056 4,536 7,2001 32,954 644 522 2,787 4,757 4,154 6,32002 31,229 632 505 2,671 4,461 3,742 5,82003 30,611 621 514 2,569 4,238 3,662 5,72004 30,148 627 510 2,478 4,083 3,483 5,62005 29,605 618 509 2,404 3,935 3,379 5,42006 28,923 592 525 2,337 3,850 3,272 5,32007 28,929 592 531 2,322 3,747 3,188 5,3

Source: 2006 Data Book, Table S-31, 2006 and 2007 figures are estimates provided by PGBC staff.
9 

Total

Insured

Participants

Year (in thousands)

1980 27,518

1985 29,809

1990 31,633

1991 31,851

1992 32,056

1993 32,271

1994 32,372

1995 32,634

1996 32,724

1997 33,214

1998 33,545

1999 33,804

2000 34,108

2001 34,342

2002 34,248

2003 34,407

2004 34,523

2005 34,232

2006 34,042

2007 33,792

Source: 2006 Data Book, Table S-30, 2006 and 2007 figures are estimates provided by

PBGC staff.

Table 2

PBGC-Insured Plan Participants

(1980-2007)

Single-Employer Program
10 

Table 3

PBGC-Insured Plan Participants by Participant Status (1980-20

Single-Employer Program

Active Retired Se

Year Participants Participants 

1980 77.6% 16.0% 1985 72.2% 18.7% 1990 68.1% 19.4% 1991 66.4% 20.1% 1992 64.2% 20.9% 1993 61.9% 21.6% 1994 61.2% 21.3% 1995 57.8% 22.9% 1996 55.3% 23.0% 1997 54.7% 23.7% 1998 54.2% 23.8% 1999 53.7% 23.9% 2000 51.9% 24.4% 2001 51.3% 24.6% 2002 49.8% 25.2% 2003 48.6% 25.4% 2004 47.2% 26.1% 2005 45.8% 26.6% 

Source: 2006 Data Book, Table S-32, 2004 and 2005 figures are estimates provided by PBGC staff. Data for plan years prior to 1999 include only plaparticipants. Due to rounding, percentages may not add up to 100 percent.
11 

Table 4

PBGC-Insured Plans (1980-2007)

Multiemployer Program

Insured Insured Insured Insured Insured Insu

Total Plans with Plans with Plans with Plans with Plans with Plans 

Insured 10,000 or more 5,000-9,999 2,500-4,999 1,000-2,499 500-999 250-

Year Plans Participants Participants Participants Participants Participants Partici

1980 2,244 120 131 211 452 420 41985 2,188 137 124 216 459 402 31990 1,983 140 127 214 428 402 31991 1,926 145 127 207 414 401 31992 1,936 150 121 210 418 386 31993 1,900 143 126 204 412 378 31994 1,880 141 125 202 403 369 31995 1,879 144 123 205 409 368 31996 1,876 143 132 206 400 373 21997 1,846 145 131 206 401 365 21998 1,817 147 136 193 400 357 21999 1,800 149 137 189 403 357 22000 1,744 152 138 197 388 357 22001 1,707 159 133 210 377 327 22002 1,671 163 133 212 397 316 22003 1,612 166 129 206 391 321 22004 1,586 166 129 208 393 305 2005 1,571 164 134 204 381 309 2006 1,538 162 132 203 380 305 2007 1,529 168 123 198 390 296 

Source: 2006 Data Book, Table M-6, 2006 and 2007 figures are estimates provided by PBGC staff.
12 

Total

Insured

Participants

Year (in thousands)

1980 7,997

1985 8,209

1990 8,534

1991 8,710

1992 8,780

1993 8,657

1994 8,559

1995 8,632

1996 8,649

1997 8,740

1998 8,876

1999 8,991

2000 9,132

2001 9,423

2002 9,630

2003 9,699

2004 9,829

2005 9,887

2006 9,916

2007 10,044

Source: 2006 Data Book, Table M-5, 2006 and 2007 figures are estimates provided by

PBGC staff.

Table 5

PBGC-Insured Plan Participants

(1980-2007)

MultiEmployer Program
13 

Table 6

PBGC-Insured Plan Participants by Participant Status (1980-20

Multiemployer Program

Active Retired Se

Year Participants Participants 

1980 75.9% 17.7% 1985 66.1% 22.6% 1990 58.6% 25.2% 1991 57.2% 26.3% 1992 54.6% 27.6% 1993 53.5% 28.0% 1994 53.4% 28.0% 1995 52.4% 28.9% 1996 52.1% 29.1% 1997 52.2% 28.9% 1998 51.2% 30.4% 1999 50.9% 30.5% 2000 51.1% 30.1% 2001 49.5% 29.6% 2002 48.1% 29.7% 2003 47.1% 30.2% 2004 46.0% 30.8% 2005 45.6% 30.8% 

Source: 2006 Data Book, Table M-7, 2004 and 2005 figures are estimates provided by PBGC staff. Data for plan years prior to 1999 include only pmore participants. Due to rounding, percentages may not add up to 100 percent.
14 

The decline in employer sponsorship of defined benefit pension plans has been 

accompanied by a rise in employer sponsorship of defined contribution plans, such as section 

401(k) plans. Some commentators have argued that this trend marks a paradigm shift in the way 

in which Americans wish to implement social policy, observing that the structure of defined 

contribution plans and the attendant risks and rewards of such plans reflect current societal 

norms about property ownership and self-determination.17 Others have attributed this trend to 

the greater risk incurred by the sponsoring employer of a defined benefit pension plan, noting 

that such plans involve long-term obligations on the part of the employer and volatile funding 

requirements (as the value of plan assets increases or decreases), while defined contribution 

plans generally do not.18

Aside from funding volatility, employers may also prefer defined contribution plans over 

defined benefit plans because defined contribution plans may be less expensive and complex to 

administer. For example, there is generally no need to retain an actuary in the administration of 

a defined contribution plan. Employees also may prefer defined contribution plans for several 

reasons. The first is the transparency of the value of the benefit that an employee will receive 

under such a plan. The value of an amount in an account under a defined contribution plan is 

more readily understood than the value of an annuity that may be payable under a defined benefit 

plan many years in the future. Second, increased mobility in the workforce has affected the 

relative values that employees place on defined contribution and defined benefit plans. A 

defined contribution plan benefit may be more readily portable if the employee changes 

employment (e.g., the employee can receive an immediate distribution of the benefit) while 

traditional defined benefit formulas may provide lesser benefits to shorter term employees. 

Employers too may prefer defined contribution plans if their portability enables employers to 

limit the number of former employees with whom they must maintain a plan administration 

relationship. 

Many of the employers that currently maintain defined benefit pension plans have frozen 

their plans so that employees no longer accrue additional benefits under the plan (sometimes 

referred to as a “hard freeze”) or newly hired employees are not eligible to participate in the plan 

(sometimes referred to as a “closed plan” or “partial freeze”).19 According to a recently issued 

GAO report, an estimated 3.3 million active participants in single-employer defined benefit plans 

(or approximately 21 percent of active participants in the private, single-employer defined 

 

17 Zelinsky, Edward A., The Defined Contribution Paradigm, 114 Yale L.J. 451 (2004). 

18 Befort, Stephen F., The Perfect Storm of Retirement Insecurity: Fixing the Three-Legged 

Stool of Social Security, Pensions, and Personal Savings, 91 Minn. L. Rev. 938 (2007). 

19 The term “soft freeze” is sometimes used to describe a plan under which additional service 

accruals have been frozen but plan participants may still experience benefit growth with respect to 

prior accruals on account of wage increases. 
15 

benefit pension plan system) are affected by some type of a plan freeze.20 The GAO report also 

notes that 51 percent of plan sponsors (with plans with 100 or more total participants) had one or 

more frozen plans, while 44 percent of plans report a freeze and 51 percent of plans do not allow 

new hires to accrue benefits under the plan. The PBGC has also studied the prevalence of frozen 

plans and found that the percentages of PBGC covered plans that were hard frozen were 9.5 

percent for 2003, 12.1 percent for 2004, and approximately 14.1 percent for 2005.21 Both GAO 

and the PBGC found that hard freezes are more prevalent in smaller plans. The GAO report 

noted that sponsors of frozen plans cited a number of reasons for freezing their plans, with the 

annual contributions required to fund plans (and the effect of such contributions on cash flows) 

and the volatility of plan funding requirements being cited most frequently. 

GAO and PBGC note that the effect of plan freezes on the PBGC’s net financial position 

is not clear. Sponsors of frozen plans must continue to pay premiums to the PBGC and comply 

with ERISA’s funding requirements. Because future accruals are limited, however, sponsors 

may find it easier to bring frozen plans to full funding. If this is the case, the increase in the 

number of frozen plans may have a modestly positive effect on the PBGC’s net finances, since 

the freezes should reduce system liabilities and minimize claims by financially weak plans. The 

effect on the PBGC’s net financial position also depends, however, on whether plan freezes 

reduce the PBGC’s premium income over time as a result of a decline in participants for whom 

premiums must be paid, a decline in underfunded plans which must pay variable-rate premiums 

(such premiums are paid only by underfunded plans), or an increase in plan terminations. In 

addition, there is some concern that an adverse selection process will result in fully funded plans 

terminating while underfunded plans remain frozen and subject to the PBGC’s insurance 

responsibility, further impairing the PBGC’s net financial position. 

Tables 7 and 8 show the concentration of PBGC insured plans and participants by 

industry category under the single-employer and multiemployer insurance programs for 2006 

and PBGC insurance program premiums paid per industry category for 2006 for the singleemployer plan program. 

 

20 Defined Benefit Pensions: Plan Freezes Affect Millions of Participants and May Pose 

Retirement Income Challenges, GAO-08-817, July 2008. 

21 2006 Fact Book at 12-13. 
16 

Table 7

PBGC-Insured Plans, Participants and Premiums by Industry (200

Single-Employer Program

Industry

AGRICULTURE, MINING, AND CONSTRUCTION 2,466 8.5% 630 1.9% $26,7MANUFACTURING 7,439 25.7% 15,812 46.6% 644,8

Chemical and Allied Products 629 2.2% 1,741 5.1% 69Fabricated Metal Products 1,279 4.4% 677 2.0% 29Food and Tobacco Products 688 2.4% 1,273 3.8% 45Machinery and Computer Equipment 679 2.3% 864 2.5% 33Motor Vehicle Equipment 338 1.2% 2,084 6.1% 106Paper Manufacturing 287 1.0% 602 1.8% 21Primary Metals 439 1.5% 569 1.7% 34Rubber and Miscellaneous Plastics 377 1.3% 374 1.1% 29Other Manufacturing 2,723 9.4% 7,628 22.5% 274

TRANSPORTATION AND PUBLIC UTILITIES 1,028 3.6% 2,334 6.9% 197,5

Air Transportation 68 0.2% 608 1.8% 124Other Transportation 562 1.9% 633 1.9% 23Public Utilities 398 1.4% 1,093 3.2% 49

INFORMATION 727 2.5% 2,421 7.1% 96,5

WHOLESALE TRADE 2,073 7.2% 712 2.1% 27,2RETAIL TRADE 1,429 4.9% 1,983 5.8% 61,0FINANCE, INSURANCE, AND REAL ESTATE 5,353 18.5% 4,141 12.2% 137,2SERVICES 7,340 25.4% 5,640 16.6% 235,5

Health Care 1,928 6.7% 2,916 8.6% 125Other Services 5,412 18.7% 2,724 8.0% 110

NON-PROFIT ORGANIZATIONS 1,068 3.7% 260 0.8% 15,2

TOTAL 28,923 100.0% 33,933 100.0% $1,442,0

Source: Estimates provided by PBGC staff.Due to rounding of individual items, numbers and percentages may not add up to totals.Industry classifications are based on principal business activity codes used in the North American Industry Classification System. 

Insured Plans Insured Participants 

(in thousands)
17 

AGRICULTURE 11 0.7% 44,096 MINING 10 0.7% 159,180 CONSTRUCTION 832 54.1% 3,537,907 

Building Construction 95 6.2% 693,652 Heavy Construction 82 5.3% 383,619 Plumbing, Heating, and Air Conditioning 165 10.7% 404,792 Electrical Work 124 8.1% 738,224 Building Finishing Contractors 83 5.4% 388,095 Foundation, Structure, and Exterior Work 157 10.2% 488,977 Other Construction 126 8.2% 440,548 

MANUFACTURING 184 12.0% 1,503,303 

Food and Tobacco Products 44 2.9% 240,902 Apparel and Textile Products 12 0.8% 315,275 Paper and Allied Products 4 0.3% 85,909 Printing and Publishing 18 1.2% 155,533 Machinery and Computer Equipment 9 0.6% 235,671 Electrical and Electronic Equipment 10 0.7% 91,606 Other Manufacturing 87 5.7% 378,407 

TRANSPORTATION AND PUBLIC UTILITIES 147 9.6% 1,571,951 

Trucking 71 4.6% 938,970 Water Transportation 44 2.9% 117,575 Other Transportation and Public Utilities 32 2.1% 515,406 

INFORMATION 41 2.7% 205,029 WHOLESALE TRADE 34 2.2% 123,175 RETAIL TRADE 91 5.9% 1,355,411 SERVICES 188 12.2% 1,410,846 

Administrative/Support 48 3.1% 346,517 Health Care/Social Assistance 17 1.1% 390,818 Accommodation/Food Service 37 2.4% 340,334 Other Services 86 5.6% 333,177 

TOTAL 1,538 100.0% 9,910,898 

Source: Estimates provided by PBGC staff.Due to rounding of individual items, numbers and percents may not add up to totals.Industry classifications are based on principal business activity codes used in the North American Industry Classification System. 

Table 8

PBGC-Insured Plans and Participants by Industry (2006)

Multiemployer Program

Industry Insured Plans Insured P
18 

C. Minimum Funding Rules for Defined Benefit Pension Plans 

In general

A defined benefit pension plan is generally subject to minimum funding rules, subject to 

certain exceptions.22 For example, governmental and church plans that are not subject to PBGC 

termination insurance also are not subject to the minimum funding rules. The minimum funding 

rules for single-employer and multiemployer plans are different. 

Rules for single-employer plans

The new minimum funding rules for single-employer defined benefit pension plans 

established under the Pension Protection Act of 2006 are generally effective for plan years 

beginning after December 31, 2007. Under the new rules, the minimum required contribution 

for a plan year generally depends on a comparison of the value of the plan’s assets with the 

plan’s funding target and target normal cost. The plan’s funding target for a plan year is the 

present value of all benefits accrued or earned as of the beginning of the plan year. A plan’s 

target normal cost for a plan year is the present value of benefits expected to accrue or be earned 

during the plan year. 

In general, a plan has a funding shortfall for a plan year if the plan’s funding target for 

the year exceeds the value of the plan’s assets. A shortfall amortization base is generally 

established for each year for which a plan has a funding shortfall, and this base is amortized over 

a seven year period. As a result, in any given plan year, a plan may have a number of shortfall 

amortization installments that relate to the current or prior plan years. The aggregate of these 

installments is referred to as the shortfall amortization charge. In the case of a plan with a 

funding shortfall for a plan year, the minimum required contribution is generally equal to the 

sum of the plan’s target normal cost and the shortfall amortization charge for that year. 

If the value of the plan’s assets exceeds the plan’s funding target for a plan year, then the 

minimum required contribution is generally equal to the plan’s target normal cost for the year. 

Target normal cost for this purpose is reduced (but not below zero) by the amount by which the 

value of the plan’s assets exceed the plan’s funding target. 

The new minimum funding rules for single-employer defined benefit pension plans 

specify the interest rates and other actuarial assumptions that must be used in determining a 

plan’s target normal cost and funding target. Under the rules, present value is determined using 

three interest rates, each of which applies to benefit payments expected to be made from the plan 

during a certain period. The new rules also specify that the value of plan assets is generally fair 

 

22 Code sec. 412. Similar rules apply to single-employer defined benefit pension plans under 

the Labor Code provisions of ERISA. 
19 

market value. However, the value of plan assets may be determined on the basis of the 

averaging of fair market values, as specified under regulations. 

Rules for multiemployer plans

The Pension Protection Act of 2006 also modified the minimum funding rules for 

multiemployer defined benefit pension plans. These modifications are generally effective for 

plan years beginning after 2007. In general, contributions must be made to the multiemployer 

plan to ensure that the plan does not have an accumulated funding deficiency as of the end of the 

plan year. An accumulated funding deficiency arises when total charges to the “funding standard 

account” of the plan for all plan years exceeds total credits to the account. As an administrative 

aid to the application of the minimum funding rules, a multiemployer defined benefit pension 

plan is required to maintain a special account called a funding standard account to which 

specified charges and credits are made each plan year, including for example a charge for the 

plan’s normal cost for benefits earned or accrued during the year and credits for contributions. 

Other credits or charges may apply as a result of plan amendments or experience gains or losses 

(for example, experience gains and losses would include investment earnings or mortality rates 

that are more or less than expected). 

Failure to comply with minimum funding rules

The Secretary of the Treasury is authorized to waive a minimum funding contribution in 

the case of business hardship. However, the Secretary is generally required to provide notice to 

the PBGC of a waiver application from a single-employer plan and is required to consider the 

PBGC’s comments on the waiver application. If unpaid minimum funding contributions for a 

single-employer plan exceed $1,000,000, a lien arises in favor of the plan upon all property and 

rights to property (real or personal) belonging to the sponsoring employer (or member of the 

sponsoring employer’s controlled group) in an amount equal to the unpaid minimum 

contributions. Notice must be given to the PBGC of a funding failure that gives rise to a lien, 

and generally the lien is enforceable by the PBGC. 

A two-level excise tax is imposed under the Code with respect to a failure to comply with 

the minimum funding rules.23 The initial tax is ten percent of aggregate unpaid contributions for 

single-employer plans and is five percent of the accumulated funding deficiency for 

multiemployer plans. An additional tax is imposed if the failure is not corrected before the date 

that a notice of deficiency with respect to the initial tax is mailed to the employer by the Internal 

Revenue Service (or the date of assessment by the Internal Revenue Service of the initial tax). 

The additional tax is equal to 100 percent of the unpaid contributions or accumulated funding 

deficiency. Before issuing a notice of deficiency with respect to the excise tax, the Secretary of 

the Treasury must notify the Secretary of Labor to provide him with a reasonable opportunity to 

require the employer to correct the deficiency or comment on the imposition of the tax. A 

 

23 Code sec. 4971. 
20 

similar opportunity must be given to the PBGC in the case of certain multiemployer plans that 

are in reorganization under the multiemployer insurance program. 
21 

D. Funding 

1. In general 

The PBGC is funded by: (1) premiums paid with respect to covered plans; (2) assets in 

terminated plans for which the PBGC becomes trustee; (3) amounts recovered from employers 

who terminate underfunded plans; and (4) investment earnings. The PBGC is not funded by 

general tax revenues. 

2. Premiums 

Single-employer plans

All covered single-employer plans are required to pay a flat, per participant premium and 

underfunded plans are subject to an additional variable premium based on the level of 

underfunding. 

Under ERISA, as originally enacted, covered plans were required to pay a flat annual 

premium to the PBGC of $1 per plan participant. The annual flat-rate per participant premium 

has been increased several times since the enactment of ERISA. The Deficit Reduction Act of 

2005 set the flat rate premium at $30 for plan years beginning after December 31, 2005, with 

indexing after 2006 based on increases in average wages. For 2008, the flat-rate premium is $33 

per participant.24 

Under the Omnibus Budget Reconciliation Act of 1987, additional PBGC premiums are 

imposed on certain plans for plan years beginning after December 31, 1987. In the case of an 

underfunded plan, additional premiums are required in the amount of $9 per $1,000 of unfunded 

vested benefits. These premiums are referred to as “variable rate premiums.” The Pension 

Protection Act of 2006 provided that in the case of a small employer (25 or fewer employees), 

the per-participant premium is no more than $5 multiplied by the number of plan participants in 

the plan (as of the end of the preceding plan year). 

Under the Deficit Reduction Act of 2005, a new premium generally applies in the case of 

certain plan terminations occurring after 2005 and before 2011. A premium of $1,250 per 

participant is imposed generally for the year of the termination and each of the following two 

years. The premium applies in the case of a plan termination by the PBGC or a distress 

termination due to reorganization in bankruptcy, the inability of the employer to pay its debts 

when due, or a determination that a termination is necessary to avoid unreasonably burdensome 

pension costs caused solely by a decline in the workforce. In the case of a termination due to 

bankruptcy reorganization, the liability does not arise until the employer is discharged from the 

 

24 ERISA sec. 4006(a). 
22 

reorganization proceeding. The Pension Protection Act of 2006 made the termination premium 

permanent. 

Multiemployer plans

Under ERISA as originally enacted, the premium rate for multiemployer plans was $0.50 

per participant. The rate has been increased over the years. The Deficit Reduction Act of 2005 

set the flat rate premium at $8 per-participant for plan years beginning after December 31, 2005, 

with indexing after 2006 based on increases in average wages.25 For 2008, the rate is $9 per 

participant. This flat-rate per-participant premium is the only premium paid to the PBGC for 

multiemployer plans. 

3. Plan assets 

When the PBGC becomes the trustee of an underfunded plan, the PBGC takes control of 

the plan’s assets (if any) and assumes responsibility for liabilities under the plan.26 

4. Recoveries from employers 

Following a distress or involuntary termination of a single-employer defined benefit 

pension plan, the plan’s contributing sponsor and every member of that sponsor’s controlled 

group is generally liable to the PBGC for the excess of the value of the plan’s liabilities as of the 

date of plan termination over the fair market value of the plan’s assets on the date of 

termination.27 The liability is joint and several, meaning that each member of the controlled 

group can be held responsible for the entire liability. Generally, the obligation is payable in cash 

or negotiable securities to the PBGC on the date of termination. Failure to pay this amount upon 

demand by the PBGC may trigger a lien on the property of the contributing employer’s 

controlled group for up to 30 percent of its net worth.28 Obligations in excess of this amount are 

to be paid on commercially reasonable terms acceptable to the PBGC. 

5. Earnings from investment assets 

The PBGC’s investment assets consist of premium revenues, held in three revolving 

funds, and assets obtained from terminated plans and recovered from plan sponsors, held in the 

PBGC trust fund. Under ERISA, the PBGC and its property and income (including the income 

 

25 ERISA sec. 4006(a)(3). 

26 ERISA sec. 4042(b). 

27 ERISA sec. 4062.

28 ERISA sec. 4068. 
23 

of any revolving fund) are exempt from taxation imposed by the United States (other than certain 

employment tax obligations) and are generally exempt from state and local taxation.29 

ERISA authorizes the establishment of up to seven revolving PBGC funds, but only three 

of the seven funds have been established.30 Funds one and seven31 are credited with premiums 

collected under the single-employer program, and fund two is credited with premiums collected 

under the multiemployer plan program. Funds one and two are required to be invested in 

obligations issued or guaranteed by the United States, while portions of fund seven may be 

invested in other debt obligations.32 The assets of the revolving funds generally may be used to 

pay the operational and administrative expenses of the PBGC; however, fund seven may not be 

used to pay the PBGC’s administrative expenses or the benefits of any plan terminated prior to 

October 1, 1988, unless no other amounts are available.33 

The PBGC created a trust fund to hold assets that it collects pursuant to its termination 

insurance program other than premium payments (i.e., the assets of terminated plans and 

amounts recovered from plan sponsors). The assets of the trust fund are generally held by 

custodian banks. The assets provide a portion of benefit payments and support the operational 

functions of the PBGC. 

As of September 30, 2007, the value of the PBGC’s total investments was approximately 

$62.6 billion. The revolving funds’ value was $14.5 billion and the trust fund’s value was $48.1 

billion. Approximately 72 percent of total assets were invested in cash and fixed-income 

securities, while approximately 28 percent were invested in equity securities. A very small 

portion of the PBGC’s investment assets were invested in real estate and other financial 

securities. The total return on investment assets was 7.2 percent in 2007 (or $4.76 billion in 

investment income).34 

 

29 ERISA sec. 4002(g). 

30 ERISA sec. 4005. Funds two through six are authorized under ERISA for special purposes 

that have not been used by PBGC. For example, the third and fourth funds were intended to be used in 

connection with a PBGC guarantee of nonbasic benefits. To date, however, the PBGC has not 

instituted a nonbasic benefits guarantee. 

31 Fund seven is credited with all single-employer program premiums in excess of $8.50 per 

participant. ERISA sec. 4005(f)(1). 

32 ERISA secs. 4005(b)(3) and (f)(3). 

33 ERISA secs. 4005(b)(2) and (f)(2). 

34 2007 Annual Report, page 21. Note that the 2007 Annual Report lists the total assets of the 

single-employer and multiemployer programs as $68.483 billion (see page 32). The difference 

between the total investment assets ($62.604 billion) and total assets of the programs ($68.438 billion) 
24 

6. Shift in investment strategy 

Over the years the PBGC has invested primarily in fixed income and domestic equities, 

with the proportion of assets allocated to each class shifting according to changes in investment 

strategy. The most recent change in strategy came in February 2008 when, facing a shortfall of 

$14 billion, the PBGC adopted a more diversified approach to investments. 35 The new strategy, 

adopted after a six month review process, recognizes the PBGC’s ability to invest pursuant to a 

long-term investment horizon and allocates 45 percent of the PBGC’s assets to equity 

investments, 45 percent to fixed income, and ten percent to alternative investments such as 

private equity. In contrast, the asset allocation strategy immediately prior to February 2008 was 

75 to 85 percent fixed-income investments. 

The strategy of increased diversification aims to maximize returns and provide increased 

downside risk protection. According to PBGC estimates, the new strategy increases from 19 

percent to 57 percent the likelihood that the PBGC will achieve full funding over the next ten 

years, and increases that likelihood from 37 percent to 76 percent over the next 20 years. 

In a July 2008 report GAO raised several concerns about the new investment strategy. 36 

Most broadly, GAO observed that despite several changes in investment policy over the years, 

the PBGC’s board has never taken an active role in ensuring that investment objectives are met. 

More particularly, while acknowledging that the new investment strategy was developed in 

response to large deficits, GAO pointed out that the degree of risk inherent in the new investment 

strategy is as yet unknown and that relying solely on investment income to remedy the PBGC’s 

financial troubles will likely to lead to increases in risky investment behavior. GAO observed 

that the PBGC’s new investment strategy closely matches the investment policy of many defined 

benefit plans, exposing the PBGC to the possibility of an economic downturn that forces plans 

into PBGC trusteeship at the same time that the PBGC’s own assets have declined. GAO 

strongly encouraged the PBGC to gain a better understanding of the risks involved in the new 

strategy prior to its implementation. 

GAO made three recommendations for executive action by the PBGC with respect to the 

new investment strategy: (1) require the board to approve a written implementation plan 

outlining investment accountability measures (for example, key objectives, milestones, and time 

frames); (2) require the director to make periodic reports on progress made in meeting 

 

is comprised of receivables exclusive of receivable investment income (i.e., $5.793 billion, or $6.079 

billion less $286 million) and capital assets ($41 million). 

35 Millard, Charles E.F., Director, PBGC, PBGC’s New Diversified Investment Policy, Pension 

& Benefits Daily, Vol. 8, No. 4 (March 4, 2008). 

36 PBGC Assets: Implementation of New Investment Policy Will Need Stronger Board 

Oversight, GAO-08-667, July 2008. 
25 

investment objectives; and (3) justify any deviations from the approved implementation plan and 

document the board’s agreement or disagreement with any such deviations. 

The Congressional Budget Office (“CBO”) has also expressed concern regarding the new 

strategy. In a letter to Representative Miller in April 2008, CBO noted that while increased 

diversification is likely to produce higher returns over the long run, it also increases the risk that 

the PBGC will not have sufficient assets to cover its liabilities when the economy and financial 

markets are weak, especially if interest rates fall and the present value of accrued benefits are 

thus increased. 37 A recently issued Congressional Research Service report expresses concerns 

with the new PBGC investment strategy similar to those raised by the GAO report and CBO 

letter.38 

7. Funding sufficiency 

As of September 30, 2007, the PBGC reported a total deficit of $14.1 billion, the bulk of 

which is attributable to the single-employer program.39 This is a $4.81 billion improvement over 

fiscal year 2006 for which a $18.9 billion deficit was reported. 

During fiscal year 2007, the net position of the single-employer program improved by 

$5.03 billion, while the multiemployer program’s net position declined by $216 million. The 

single-employer program reported a gain of $5 billion for fiscal year 2007, resulting in a deficit 

of $13.1 billion. In the previous fiscal year, the program reported a gain of $4.6 billion and a 

deficit of $18.1 billion. For fiscal year 2007, the multiemployer plan program reported a net loss 

of $216 million, resulting in a deficit of $955 million. For fiscal year 2006, the multiemployer 

program reported a loss of $404 million, resulting in a deficit of $739 million. 

As of September 30, 2007, the value of the PBGC’s assets in the single-employer and 

multiemployer programs was approximately $68.4 billion. This is an increase from 

approximately $61.1 billion as of September 30, 2006. Investment income for fiscal year 2007 

was $4.76 billion which is more than twice the fiscal year 2006 amount of $2.18 billion. 

The PBGC paid over $4.3 billion in benefits in fiscal year 2007. At the end of 2007, the 

PBGC was directly responsible for the pensions of more than 1.3 million people. 

The PBGC was in a deficit for the first 21 years of its existence. From 1996 through 

2001, a surplus was reported. Since 2002, the PBGC has been in a deficit position. The deficit 

position has improved (i.e., it has decreased) each year since 2004. 

 

37 Letter dated April 24, 2008, available at www.cbo.gov. 

38 Kinneen, Kelly, Pension Benefit Guaranty Corporation (PBGC) Investment Policy: Issues 

for Congress, September 8, 2008. 

39 Information on the financial status of the PBGC for fiscal years 2006 and 2007 was 

obtained from the 2007 Annual Report. 
26 

GAO placed the PBGC single-employer program on its high-risk list in 2003.40 The 

PBGC was originally designated high risk in 1990, when GAO began reporting on government 

operations that it identified as high risk, and was removed from the list in 1995. The program 

was added to the list again in 2003 because the program’s financial health was threatened by 

structural weaknesses in pension funding rules, the program’s premium structure, and the 

potential for large bankruptcies among sponsors with underfunded plans in weak industries.41 

Following the enactment of the Pension Protection Act of 2006, GAO notes that progress has 

been made, but that the ultimate effect of the single-employer program’s deficit is unclear.42 

GAO recommends that Congress carefully monitor the effects of the Pension Protection Act’s 

reforms on the PBGC. 

Tables 9 and 10, below, summarize the PBGC’s financial position and net income for 

fiscal years 2006 and 2007. 

 

40 High Risk Series, An Update, GAO-07-301, January 2007. Since 1990, GAO periodically 

reports on government operations that it has designated as high risk. GAO’s audits and evaluations 

identify Federal programs and operations that are high risk due to their greater vulnerabilities to fraud, 

waste, abuse, and mismanagement. GAO also identifies high-risk areas to focus on the need for broadbased changes to address major economy, efficiency, or effectiveness challenges. 

41 Id. 

42 Id. 
27 

Table 9.–Summary of PBGC Financial Position 

(millions) 

Fiscal Year 

2006 

Fiscal Year 

2007 

Single-employer program assets $59,972 $67,241 

Single-employer program liabilities $78,114 $80,352 

Single-employer program surplus/(deficit)1 ($18,142) ($13,111) 

Multiemployer program assets $1,166 $1,197 

Multiemployer program liabilities $1,905 $2,152 

Multiemployer program surplus/(deficit) ($739) ($955) 

Combined surplus/(deficit) ($18,881) ($14,066) 

1 The program’s surplus is its assets less liabilities. 

Table 10.–PBGC Net Income/(Loss) 

(millions) 

Fiscal Year 

2006 

Fiscal Year 

2007 

Single-employer program income/(loss) $4,634 $5,031 

Multiemployer program income/(loss) ($404) ($216) 

Combined income/(loss) $4,230 $4,815 
28 

E. Information Reported to the PBGC 

In general

Defined benefit pension plans are required to provide certain information related to 

funding and the funded status of the plan to the IRS, the Department of Labor, and the PBGC. 

Failure to comply with these requirements may result in the imposition of monetary penalties. In 

certain cases, such as a willful violation of an ERISA requirement, criminal penalties may apply. 

Annual report

The plan administrator of a qualified retirement plan generally must submit an annual 

report of certain information with respect to the qualification, financial condition, and operation 

of the plan.43 The annual report with respect to a plan year generally must be filed by the end of 

the seventh month after the end of the plan year unless an extension applies. Information 

provided in the annual report is generally available to the public.44 The PBGC and the 

Departments of the Treasury and Labor have coordinated the filing requirements so that the 

annual return is filed on Form 5500 with the Employee Benefits Security Administration (an 

agency of the Department of Labor). 

In the case of a defined benefit pension plan, the annual report must include an actuarial 

report.45 The report must include, for example, information as to the value of plan assets, the 

plan’s normal costs and accrued liabilities, and contributions made to the plan. The report must 

be signed by an actuary enrolled to practice before the Internal Revenue Service, the Department 

of Labor, and the PBGC. 

Payment of premiums

In general, PBGC premium payments must be filed on-line, using the forms and filing 

portal available on the PBGC’s website (www.pbgc.gov). For small plans (plans with fewer than 

100 participants), both the flat-rate and variable rate premium are due on the last day of the 

sixteenth full calendar month following the end of the plan year that precedes the plan year for 

which the payment is made (e.g., April 30, 2009, for premium payments for 2008 for a calendar 

year plan). For mid-size plans (plans with at least 100 but fewer than 500 participants), the due 

date for the flat-rate and variable-rate premiums is generally the fifteenth day of the tenth 

 

43 Code sec. 6058; ERISA secs. 103-104. The annual report is made as a single submission to 

the Department of Labor on the Form 5500, which forwards copies to the Internal Revenue Service and 

the PBGC. 

44 Code sec. 6104; ERISA sec. 106. 

45 Code sec. 6059; ERISA sec. 103(d). The actuarial report is provided on Schedule B of the 

Form 5500. 
29 

calendar month in the plan year (e.g., October 15, 2008, for premium payments for 2008 for a 

calendar year plan). For large plans (500 or more participants), the flat-rate premium is due the 

last day of the second calendar month in the plan year (e.g., February 29, 2008, for premium 

payments for 2008 for a calendar year plan). The variable-rate premium for large plans is due at 

the same time as mid-size plans. Penalties and interest charges may apply in the case of late 

payment of PBGC premiums. 

Failure to satisfy minimum contribution rules

If an employer fails to make a required contribution to a single-employer plan and fails to 

obtain a funding waiver, the employer must notify the PBGC if the total contributions the 

employer failed to make exceeds $1 million and the plan’s funding target attainment percentage 

(generally, the ratio of plan assets to the plan’s funding target for the year) is less than 100 

percent.46

Multiemployer plans in endangered or critical status

The sponsor of a multiemployer plan must give notice to the PBGC if the plan reaches 

endangered or critical status. A plan will reach such status if the ratio of plan assets to liabilities 

falls below specified thresholds. 

Additional information

In some cases, certain financial information with respect to the members of a controlled 

group and actuarial information with respect to plans maintained by members of the controlled 

group must be reported annually to the PBGC.47 This reporting is required if: (1) the funding 

target attainment percentage at the end of the preceding plan year of a plan maintained by the 

sponsor or any member of its controlled group is less than 80 percent; (2) the conditions for 

imposition of a lien (i.e., required contributions totaling more than $1 million have not been 

made) have occurred with respect to an underfunded plan maintained by a member of the 

controlled group; or (3) minimum funding waivers in excess of $1 million have been granted 

with respect to a plan maintained by any member of the controlled group and any portion of the 

waived amount is still outstanding. 

Plan sponsors and plan administrators are required to notify the PBGC as to the 

occurrence of certain events (“reportable” events) unless the PBGC has waived the notice 

 

46 Code sec. 430(k)(4)(A); ERISA sec. 303(k)(4)(A). 

47 ERISA sec. 4010. 
30 

requirement.48 These events include, for example, failure to meet the minimum funding 

requirements and inability to pay benefits under a plan when due. 

Information provided to the PBGC in accordance with these requirements is not available 

to the public. 

 

 

48 ERISA sec. 4043. 
31 

III. TERMINATION INSURANCE PROGRAMS 

A. Single-Employer Plans 

1. In general 

An employer may voluntarily terminate a single-employer plan only in a standard 

termination or a distress termination.49 The participants and the PBGC must be provided notice 

of the intent to terminate. The PBGC may also require that a plan be terminated involuntarily 

(that is, the termination is not voluntary on the part of the employer). 

2. Standard terminations 

A standard termination is permitted only if plan assets are sufficient to cover benefit 

liabilities.50 Generally, benefit liabilities equal all benefits earned to date by plan participants, 

including vested and nonvested benefits (which automatically become vested at the time of 

termination), and including certain early retirement supplements and subsidies.51 Benefit 

liabilities may also include certain contingent benefits (for example, early retirement subsidies). 

If assets are sufficient to cover benefit liabilities (and other termination requirements, such as 

notice to employees, have not been violated), the plan may terminate by distributing benefits to 

participants. The plan may provide for the benefit payments it owes by purchasing annuity 

contracts from an insurance company or otherwise providing for the payment of benefits, for 

example by making lump-sum distributions. 

If certain requirements are satisfied, and the plan so provides, assets in excess of the 

amounts necessary to cover benefit liabilities may be recovered by the employer in an asset 

reversion. Reversions are subject to an excise tax.52

3. Distress and involuntary terminations 

Distress terminations

If assets in a plan are not sufficient to cover benefit liabilities, the employer may not 

terminate the plan unless the employer meets one of four criteria necessary for a ‘‘distress’’ 

termination: 

 

49 ERISA sec. 4041. 

50 Id.

51 ERISA sec. 4001(a)(16). 

52 Code sec. 4980. The excise tax is 20 percent of the amount of the reversion, and the rate 

generally is increased to 50 percent unless the employer establishes a qualified replacement plan. 
32 

 The contributing sponsor, and every member of the controlled group of which the 

sponsor is a member, is being liquidated in bankruptcy or any similar Federal law or 

other similar State insolvency proceeding; 

 The contributing sponsor and every member of the sponsor’s controlled group is 

being reorganized in bankruptcy or similar State proceeding; 

 The PBGC determines that termination is necessary to allow the employer to pay its 

debts when due; or 

 The PBGC determines that termination is necessary to avoid unreasonably 

burdensome pension costs caused solely by a decline in the employer’s work force.53

These requirements are designed to ensure that the liabilities of an underfunded plan 

remain the responsibility of the employer, rather than being shifted to the responsibility of the 

PBGC, unless the employer meets strict standards of financial need indicating genuine inability 

to continue funding the plan. 

Involuntary terminations by the PBGC

The PBGC may institute proceedings to terminate a plan if it determines that the plan in 

question has not met the minimum funding standards, will be unable to pay benefits when due, or 

has a substantial owner who has received a distribution greater than $10,000 (other than by 

reason of death) while the plan has unfunded nonforfeitable benefits, or that the PBGC’s longrun loss with respect to the plan may reasonably be expected to increase unreasonably if the plan 

is not terminated. The PBGC must institute proceedings to terminate a plan if the plan is unable 

to pay benefits that are currently due.54 

4. Plan restoration 

ERISA authorizes the PBGC to restore a terminated pension plan to its sponsoring 

employer if the PBGC determines that restoration is appropriate and consistent with its duties 

under ERISA.55 The PBGC has restored a pension plan only once, in the case of an employer 

that set up new plans (called “follow-on plans”) to provide employees with the benefits under the 

original plans that were not guaranteed by the PBGC.56

 

53 ERISA sec. 4041(c). 

54 ERISA sec. 4042. 

55 ERISA sec. 4047. 

56 See Pension Benefit Guaranty Corporation v. LTV Corporation, 496 U.S. 633 (1990). The 

opinion notes that the PBGC views follow-on plans as an abuse of the PBGC insurance program, under 

which the PBGC is responsible for benefits under a terminated plan. The establishment of a follow-on 
33 

5. PBGC benefit payments 

In general

When an underfunded single-employer plan terminates, the amount of benefits that 

participants receive depends on the plan terms, the degree of the plan’s funding, legal limits on 

the amount of guaranteed benefits that the PBGC can pay to covered participants, asset 

allocation rules, and recovery by the PBGC on its claims for unpaid employer contributions and 

employer liability. Guaranteed benefits are paid regardless of plan funding. 

When a plan terminates in a distress termination and assets are sufficient to pay 

guaranteed benefits of plan participants, the plan pays those benefits.57 When an underfunded 

plan terminates in a distress or involuntary termination and benefits are insufficient to pay 

guaranteed benefits, the plan effectively goes into PBGC receivership. The PBGC seeks a court 

order to become the trustee of the plan, and if the order is granted, the PBGC takes control of any 

plan assets and assumes responsibility for liabilities under the plan.58 

Guaranteed benefits

The PBGC guarantees the payment of nonforfeitable benefits provided under an 

underfunded, terminating plan (other than benefits that become nonforfeitable solely on account 

of the termination of the plan). Guaranteed (or “basic”) benefits generally are benefits accrued 

before a plan terminates, including (1) benefits at normal retirement age; (2) most early 

retirement benefits; (3) disability benefits for disabilities that occurred before the plan was 

terminated; and (4) certain benefits for survivors of plan participants. Retirement benefits that 

begin before normal retirement age are guaranteed, provided they meet the other conditions of 

guarantee (such as that before the date the plan terminates, the participant had satisfied the 

conditions of the plan necessary to establish the right to receive the benefit other than application 

for the benefit). Certain contingent benefits (for example, subsidized early retirement benefits) 

are guaranteed only if the triggering event occurs before plan termination. 

Three rules limit the amount of the PBGC guaranteed benefit: (1) the accrued-at-normal 

limitation; (2) the maximum insurance limitation; and (3) the phase-in limitation. A special limit 

applies in the case of benefits provided to a majority owner of the entity sponsoring the plan.59 

 

plan for benefits not covered by the terminated plan means that, in effect, the insurance program is 

being used to subsidize an ongoing retirement program. 

57 ERISA sec. 4022(c)(3)(B)(ii). 

58 ERISA sec. 4022(c)(3)(B)(iii). 

59 A majority owner generally is an individual who: (1) owns the entire interest in an 

unincorporated trade or business; (2) in the case of a partnership, is a partner who owns, directly or 
34 

Under the accrued-at-normal limitation, the amount of the guaranteed benefit is limited to 

a monthly amount that is no greater than the amount of the monthly benefit provided as a straight 

life annuity under the plan at the plan’s normal retirement age. For example, a plan may provide 

that a participant is entitled to a straight life annuity of $1,000 per month at age 65 (the plan’s 

normal retirement age), but early retirees who commence benefits at age 60 are entitled to a 

benefit of $750 per month with a temporary supplement of $400 per month from ages 60 to 62 

(for a total benefit of $1,150 per month). The accrued-at-normal limitation reduces the early 

retiree’s benefit to $1,000 per month (a reduction of $150) from age 60 to 62, and the PBGC 

would pay the participant $750 per month from age 62 onwards (since the plan’s terms only 

provide for the supplemental payment from age 60 to 62). 

The maximum insurance limitation is a dollar cap on the amount that can be paid by the 

PBGC as a guaranteed benefit. For plans terminating in 2008, the maximum guaranteed benefit 

for an individual who begins receiving benefits from the PBGC at age 65 is $4,312.50 per month 

or $51,750.00 per year, payable for the life of the recipient. The dollar limit is indexed annually 

for inflation. The guaranteed amount is reduced if PBGC payments start before age 65 and are 

increased if benefits start after age 65. The dollar limit is reduced if a benefit is payable to a 

beneficiary upon the recipient’s death (e.g., a joint and survivor annuity). If an individual is a 

participant in more than one terminated plan, the PBGC’s combined payments to that individual 

from PBGC guaranteed funds cannot exceed the maximum guarantee. 

The phase-in limitation applies in the case of a plan or plan amendment that has been in 

effect for less than five years before plan termination. Under the limitation, the amount 

guaranteed is phased in by 20 percent per year, beginning with the later of the adoption date or 

effective date of the plan or amendment.60 An unpredictable contingent event benefit provided 

under a plan is treated as if the benefit were provided pursuant to a plan amendment adopted on 

the date of the event giving rise to the benefit. Thus phase-in of an unpredictable contingent 

event benefit begins at the latest of the adoption date or effective date of the plan or plan 

amendment or the date the event occurs. An unpredictable contingent event benefit includes a 

benefit that is payable solely by reason of a plant shutdown, or an event other than the attainment 

of any age, performance of any service, receipt or derivation of any compensation, or occurrence 

of death or disability. 

If a contributing sponsor for a plan enters bankruptcy or a similar proceeding, the amount 

of guaranteed benefits payable by the PBGC is frozen. If the plan terminates during the 

 

indirectly, 50 percent or more of either the capital interest or the profits interest in the partnership; 

(3) in the case of a corporation, owns, directly or indirectly, fifty percent or more in value of either the 

voting stock of the corporation or all the stock of the corporation; or (4) at any time within the 

preceding 60 months was a majority owner under the plan. ERISA sec. 4022(b)(5). 

60 If the increase is less than $100 per month, the amount phased in each year is $20 per month 

until the full increase is phased in. 
35 

sponsor’s bankruptcy, the amount of guaranteed benefits payable by the PBGC is determined 

based on plan provisions, salary, service, and the guarantee in effect on the date the employer 

entered bankruptcy. The rule applies to bankruptcies (or similar proceedings) initiated on or 

after September 16, 2006. 

Asset allocation

ERISA contains rules for allocating the assets of a single-employer plan when the plan 

terminates.61 Plan assets available to pay for benefits under a terminating plan include all plan 

assets other than those required for expenses incurred or benefit payments due prior to plan 

termination. On termination, the plan administrator must allocate plan assets available to pay for 

benefits under the plan in the manner prescribed by ERISA. 

In general, plan assets available to pay for benefits under the plan are allocated to six 

priority categories.62 If the plan has sufficient assets to pay for all benefits in a particular priority 

category, the remaining assets are allocated to the next priority category. This process is 

repeated until all benefits in the priority category are provided or until all available plan assets 

have been allocated. Thus, an underfunded plan may have sufficient assets to pay certain 

participants more than the guaranteed benefit amount, depending on the priority category of the 

participant’s particular benefit. Special rules apply in allocating assets within a priority category 

if there are not sufficient assets to pay for all benefits in the category. 

The six priority categories are as follows: 

 Priority category one consists of the portion of a participant’s accrued benefit derived 

from voluntary contributions to the plan by the participant. 

 Priority category two consists of the portion of a participant’s accrued benefit derived 

from mandatory participant contributions. 

 Priority category three consists of benefits that were in pay status (i.e., currently being 

paid by the plan to a retired participant) or could have been in pay status three years 

before the plan termination date. The benefit amount is the lowest amount under plan 

provisions in effect during the five-year period preceding the termination date. If the 

contributing sponsor is in a bankruptcy or similar proceeding when the plan 

terminates, the benefits in priority category three are determined as of the bankruptcy 

filing date rather than the plan termination date. This rule applies to bankruptcies (or 

similar proceedings) initiated on or after September 16, 2006. 

 

61 ERISA sec. 4044(a). 

62 Id. 
36 

 Priority category four consists of all other benefits of participants under the plan 

guaranteed under the PBGC termination insurance program and benefits that would 

be guaranteed but for the special limitations that apply to majority owners. 

 Priority category five consists of all other nonforfeitable benefits under the plan. 

 Priority category six consists of all other benefits under the plan. 

Asset recoveries

In addition to the basic guaranteed benefits described above, ERISA provides that the 

PBGC pay the portion of a plan’s recovery ratio to a plan participant to the extent that the 

amount of the recovery ratio funds the participant’s benefits (other than basic guaranteed 

benefits).63 The numerator of the recovery ratio is the amount recovered by the PBGC from the 

employer responsible for the terminated plan, and the denominator is the total amount of 

unfunded benefit liabilities under the plan. For example, if PBGC recovers $100,000 on a $2 

million claim for unfunded benefit liabilities, the PBGC pays five percent of the unfunded nonguaranteed benefit liabilities of the plan. The allocation of the recovery ratio among the 

unfunded benefits of participants follows the asset allocation priorities described above, except 

that the monies are allocated only to unfunded non-guaranteed benefits. For plans with unfunded 

benefit liabilities equal to $20 million or less (generally small plans), however, the recovery ratio 

is determined by an average recovery ratio computed based on the PBGC’s recovery experience 

in recent past years.64 

6. Procedures for payment of benefits 

Prior to the appointment of the PBGC as trustee for a terminated plan, the plan 

administrator continues to administer the plan, including the payment of participant benefits. At 

the time that the PBGC is appointed as trustee for the plan, the PBGC assumes plan 

administration and issues an estimate to each plan participant of the benefits that the PBGC is 

permitted to pay the participant. In the case of a participant in pay status at the time the PBGC is 

appointed trustee, the estimate is the amount that the PBGC pays to the participant so that the 

participant continues to receive plan benefits without interruption. 

The estimate is based on information that the PBGC is able to gather regarding the plan 

and participant benefits during the initial transition period prior to and immediately after the 

PBGC becomes trustee. Factors that affect whether the estimate is accurate include the 

complexity of the plan provisions and the quality of records as to plan provisions and data on 

participants. 

 

63 ERISA sec. 4022(c). 

64 A similar average recovery approach is used to determine the value of unpaid contribution 

recoveries to be allocated along with other plan assets. 
37 

After sending the estimate, the PBGC conducts a review of the terminated plan so that it 

can issue a formal benefit determination to each participant. This process can take up to three 

years because of the complexity of many plans (which can be exacerbated by such factors as 

prior plan mergers). In more unusual circumstances, such as litigation over the termination date, 

final benefit determinations may take longer. In the event that the estimate issued by the PBGC 

was too low, the PBGC makes an additional payment with interest to the participant. In the 

event that the estimate was too high, the participant’s benefit is reduced to recover the prior 

overpayment amount. As a general matter, the PBGC limits the reduction in future benefits for 

recoupment of overpayments to no more than ten percent of a participant’s final monthly benefit 

payable by the PBGC. 

A reduction in benefits may also occur on account of payments that were made by a 

plan’s pre-PBGC plan administrator for the period after the plan’s termination date and prior to 

the appointment of the PBGC as plan trustee. In determining the total amount of payments that 

the PBGC may pay a participant, the PBGC must take into account such payments. An 

adjustment in a participant’s future benefit payments is necessary if the plan’s pre-PBGC 

administrator over-paid or under-paid the participant. 

A participant has the right to appeal the formal determination of benefits issued by the 

PBGC. Such an appeal generally must be filed with an appeals board within 45 days of the date 

of the formal determination. If a participant does not seek review by the appeals board, the 

participant may not be able to seek review of the formal determination in court.65 

7. Data regarding plan terminations 

Table 11 provides information regarding the number of terminating plans (standard, 

distress, and involuntary terminations) and the size of the liabilities resulting from distress 

terminations from 1975 to 2007. Table 12 provides a state-by-state list of the number of covered 

plans and participants in the state as of 2006, the number of cumulative distress terminations in 

the state since inception of the single-employer program (through 2006), and the aggregate 

amount of benefits paid by the PBGC to residents of the state in 2007 (and the number of payees 

that the aggregate amount of benefits represents). 

 

65 See 29 C.F.R. sec. 4003.1 through 4003.61 for rules relating to PBGC administrative 

appeals procedures. 
38 

Standard Trusteed

Terminations Terminations

1975-1979 28,572 586 $145.2 $397.4 $252.2 1980-1984 29,236 621 513.8 1,257.3 743.5 

 

1985-1989 48,519 537 651.1 2,351.4 1,700.3 

 

1990-1994 36,340 694 2,274.8 5,116.8 2,841.9 

 

1995 3,870 121 235.3 397.5 162.1 

 

1996 3,809 96 256.7 425.1 168.4 

 

1997 3,497 82 463.8 671.6 207.8 

 

1998 2,475 65 175.1 250.9 75.8 

 

1999 1,969 76 282.1 450.7 168.6 

 

2000 1,882 72 266.0 366.2 100.2 

 

2001 1,565 117 2,534.8 3,686.8 1,152.0 

 

2002 1,214 184 4,513.8 8,248.5 3,734.7 

 

2003 1,119 164 6,934.2 13,342.1 6,407.9 

 

2004 1,189 155 2,823.0 5,956.9 3,133.9 

 

2005 1,266 115 10,230.7 21,746.1 11,515.4 

 

2006 1,248 65 2,411.6 4,670.2 2,258.7 

 

2007 1,576 33 435.6 751.2 315.5 

 

TOTAL 169,346 3,783 $35,147.5 $70,086.6 $34,939.0 $

Sources: 2006 Data Book, Table S-3, 2007 figures (and revisions to prior year's figures) are estimates provided by PBGC staff.Due to rounding of individual items, numbers may not add up across columns.Trusteed terminations include plans pending trusteeship.Claims figures shown in this table are calculated on a plan basis and identified with fiscal year of plan termination for each plan.The annual numbers of trusteed terminations shown in this table may differ from those reported elsewhere as they reflect the fiscal year of plan termination rather tha the loss was incurred. For example, PBGC became responsible for 110 underfunded terminated plans during FY 2007, but only 33 of these plans had termination d The rest had termination dates in earlier fiscal years and are allocated to those years.Values are subject to change as PBGC completes reviews, establishes termination dates and determines recoveries.

Table 11

PBGC Terminations and Claims (1975-2007)

Single-Employer Program

Year Assets Liabilities Claims

Fiscal Gross

Re

(in millions) (in millions) (in millions) (in 
39 

Table 12.─STATE BY STATE PENSION PLAN INFORMATION 

State 

Covered 

Participants 

(2006) 

Insured 

Plans 

(2006) 

Failed 

Plans 

(1975-

2006) 

Benefits 

Paid 

(2007) 

Payees 

(2007) State 

Covered 

Participants 

(2006) 

Insured 

Plans 

(2006) 

Alabama 412,000 238 19 $46.6 M 12,600 Montana 117,000 39 Alaska 86,000 23 6 1.9 M 222 Nebraska 255,000 146 Arizona 541,000 466 26 59.4 M 7,200 Nevada 188,000 153 Arkansas 164,000 123 12 12.8 M 3,500 New Hampshire 193,000 118 California 3.2 M 3,836 195 300.9 M 32,700 New Jersey 1.2 M 1,617 Colorado 480,000 307 18 91.6 M 7,900 New Mexico 88,000 114 Connecticut 500,000 758 115 34.4 M 7,300 New York 2.4 M 3,837 D.C. 83,000 238 15 1.8 M 347 North Carolina 1.1 M 472 Delaware 138,000 121 11 8.9 M 1,300 North Dakota 69,000 34 Florida 2.0 M 880 80 312.0 M 43,400 Ohio 1.6 M 1,599 Georgia 738,000 513 63 90.5 M 19,900 Oklahoma 430,000 173 Hawaii 119,000 216 23 27.3 M 3,200 Oregon 506,000 216 Idaho 141,000 63 7 12.3 M 1,700 Pennsylvania 2 M 1,827 Illinois 1.7 M 1,719 260 298.7 M 35,100 Rhode Island 90,000 121 Indiana 860,000 471 109 216.9 M 25,500 South Carolina 396,000 173 Iowa 425,000 335 42 22.0 M 6,300 South Dakota 63,000 31 Kansas 257,000 160 24 16.7 M 2,600 Tennessee 548,000 350 Kentucky 611,000 263 25 25.4 M 5,400 Texas 1.9 M 1,250 Louisiana 489,000 214 25 25.9 M 4,900 Utah 202,000 129 Maine 150,000 97 13 8.6 M 2,100 Vermont 54,000 70 Maryland 722,000 548 69 176.2 M 18,800 Virginia 876,000 625 Massachusetts 824,000 925 207 98.7 M 14,300 Washington 706,000 323 Michigan 1.5 M 1,069 304 155.9 M 26,100 West Virginia 183,000 151 Minnesota 680,000 478 46 62.2 M 8,900 Wisconsin 832,000 642 Mississippi 232,000 115 11 14.0 M 4,000 Wyoming 48,000 25 Missouri 716,000 404 69 82.2 M 12,700 Source: Figures a
40 

B. Insolvency of Multiemployer Plans 

In the case of multiemployer plans, the PBGC insures plan insolvency, rather than plan 

termination. Accordingly, a multiemployer plan need not be terminated to qualify for PBGC 

financial assistance, but must be found to be insolvent. A plan is insolvent when its available 

resources are not sufficient to pay the plan benefits for the plan year in question, or when the 

sponsor of a plan in reorganization reasonably determines, taking into account the plan’s recent 

and anticipated financial experience, that the plan’s available resources will not be sufficient to 

pay benefits that come due in the next plan year. If it appears that available resources will not 

support the payment of benefits at the guaranteed level, the PBGC will provide the additional 

resources needed as a loan. The PBGC may provide loans to the plan for multiple years. If the 

plan recovers from insolvency, it must begin repaying loans on reasonable terms in accordance 

with regulations. 

Under ERISA, an employer that withdraws from a multiemployer plan in a complete or 

partial withdrawal is liable to the plan in the amount determined to be the withdrawal liability.66 

In general, “complete withdrawal” means the employer has permanently ceased operations under 

the plan or has permanently ceased to have an obligation to contribute.67 A “partial withdrawal” 

generally occurs if, on the last day of a plan year, there is a 70-percent contribution decline for 

such plan year or there is a partial cessation of the employer’s contribution obligation.68 When 

an employer withdraws from a multiemployer plan, the plan sponsor is required to determine the 

amount of the employer’s withdrawal liability, notify the employer of the amount of the 

withdrawal liability, and collect the amount of the withdrawal liability from the employer.69 The 

employer’s withdrawal liability generally is based on the extent of the plan’s unfunded vested 

benefits for the plan years preceding the withdrawal.70 

The PBGC guarantees benefits under a multiemployer plan of the same type as those 

guaranteed under a single-employer plan, but a different guarantee ceiling applies. The limit for 

multiemployer plans is the sum of 100 percent of the first $11 of monthly benefits and 75 percent 

of the next $33 of monthly benefits for each year of service (i.e., a limit of $35.75 for each year 

of service).71

 

66 ERISA sec. 4201. 

67 ERISA sec. 4203. 

68 ERISA sec. 4205. 

69 ERISA sec. 4202. 

70 ERISA secs. 4209 and 4211. 

71 ERISA sec. 4022A(c).