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).Also See:
401k Plan | 401k Plan Services | 401k Plan Investment Options | 401k Plan Setup
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 in 1974.
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 run.
It’s your choice . . . choose well.
Where does the PBGC get the money to pay for benefits, you ask?
The answer—mainly from insurance premiums charged to your employer.
That of 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 covered.
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) www.pbgc.gov
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