The term PBGC stands for the Pension Benefit Guaranty Corporation.
If a defined benefit plan is terminated, the U.S. Federal Government
guarantees payment of certain benefits through a federally chartered
corporation, known as the Pension Benefit Guaranty Corporation (PBGC).
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The PBGC was part of landmark pension legislation in the early 1970s known as
the Employee Retirement Income Security Act, or
ERISA for short (or,
as President Reagan later called it, “Every Ridiculous Idea Since Adam ).
For the most part, the PBGC has remained a relative constant since its inception
It was created to protect and insure your pension benefits.
If the company you work for goes kaput, the PBGC will step in to pay
your pension benefit.
Contrary to some very bad reporting by some very bad
journalists, your 401k is NOT protected by the PBGC.
PBGC insurance only
covers defined benefit plans—those that promise to pay you a specific monthly
benefit at retirement.
If your employer offers just a 401k, as many do,
the PBGC is not involved.
Said differently, those folks at Enron who were
foolish enough to put all their 401k money in Enron stock instead of
diversifying have learned a very expensive and deeply religious investing lesson
the hard way.
If you choose greed over diversification, you might feel
great in the short run.
But you’ll feel both lousy and broke in the long
It’s your choice . . . choose well.
Where does the PBGC get the money to pay for benefits, you ask?
answer—mainly from insurance premiums charged to your employer.
course, begs another question:
What if my cash-strapped employer fails to
pay the PBGC premiums?
Rest assured that, for the most part, you’re
Keep in mind that the PBGC will not increase your pension yearly for
What you get as of the date your plan ended is what you’ll get
ten years later.
At the risk of sounding redundant, the difference between
a cautious retirement and a comfortable retirement is up to you.
Sources and Disclosures
Source: Pension Benefit Guaranty Corporation (PBGC)
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