ERISA created the Pension Benefit Guaranty Corporation (PBGC) to ensure that retirees would receive “timely and uninterrupted payment” of the benefits promised them from defined-benefit plans, even if their employer went bankrupt. The PBGC performs a vital role in the private retirement system, but the failure of some large, highly underfunded pension plans sponsored by bankrupt companies has jeopardized the PBGC’s financial status. In response to growing PBGC liabilities, reforms enacted in 1994 and 2006 mandated that the financing gap of underfunded plans be closed more quickly, requiring larger contributions from these plans than those paid by better-funded plans. The reforms also raised insurance premiums for plans that were most at risk, strengthened the agency’s enforcement powers, required employers to disclose more details about underfunded plans, and placed new limits on benefit increases and accruals, lump-sum payouts, and PBGC benefit guarantees in certain underfunded plans.
Pension Benefit Guaranty Corporation: Policy
Securing pension benefits
AARP supports adequate funding rules to improve long-term pension plan funding and increase benefit security. Enforcement of these rules will ensure the continued viability of the PBGC and will prevent cutbacks and restrictions in PBGC benefit guarantees.
Employers should be required to keep plan participants informed adequately and in a timely manner about the state of plan funding.
AARP supports an annual disclosure requirement applicable to distressed pension plans (as defined in the ERISA) that are subject to ERISA funding standards and PBGC insurance. The required disclosures should state that if a plan terminates, there are circumstances which may cause participants to receive retirement benefits that are less than the accrued benefits for which participants are vested. Such disclosures, when required, should accompany periodic benefit statements furnished to individual participants, and in such years when periodic benefit statements are not so furnished the disclosures should accompany the plan’s annual report.
When an employer files for bankruptcy or otherwise seeks refuge from paying accrued pension rights, plan participants should receive their guaranteed benefits from the PBGC without delay or interruption.
The Department of Labor (DOL) should strictly enforce employers’ fiduciary duty to choose an annuity provider consistent with the safest provider duty as defined in applicable federal regulation to protect beneficiaries from benefit loss. There should be an effective insurer of last resort, including potentially the PBGC itself, to provide protection for beneficiaries if insurance companies providing annuities fail.
The DOL must stringently enforce fiduciary rules to ensure that pensions are handled prudently and in the best interest of plan participants and beneficiaries.