Multiemployer Benefit Guarantees

• Overview of Multiemployer Benefit Guarantees
• Limits of Guarantees

Overview of Multiemployer Benefit Guarantees

(ERISA Secs. 4022A and 4022B )

When a multiemployer pension plan fails, PBGC guarantees benefits up to the legal limit.

PBGC's guarantee for multiemployer plan benefits depends on:

• the type of benefit,
• the dollar amount of the benefit,
• the date on which the benefit provision was added, and
• a participant's years of service in the plan.

"Basic" benefits include:

• Pension benefits payable at normal retirement age,
• Some early retirement benefits,
• Disability benefits for persons who were disabled before the plan terminated, and
• Some survivor benefits.

Limits of Guarantees

There are three limits that apply to multiemployer pension benefits:

1)   Accrued-at-normal retirement age

(ERISA Sec. 4022A(c))

PBGC guarantees only up to the monthly amount that the participant's multiemployer plan would have paid the participant as a single-life annuity starting at normal retirement age. (A single-life annuity pays benefits, typically monthly, based on the age and other characteristics of only one person. Examples include annuities that will pay only one person (a straight-life annuity), and annuities that in some cases pay a surviving beneficiary after the person dies (a certain-and-continuous annuity).) PBGC cannot guarantee the portion of any combined early retirement benefit and temporary supplemental benefit that is above this amount.

2)   Phase-in of guarantee (60-month rule)

(ERISA Sec. 4022A(b))

PBGC does not guarantee a participant's pension benefit or benefit increase until it has been part of the plan for 60 full months.

If the multiemployer plan was insolvent or terminated by mass withdrawal in any month, that month does not count toward the 60-month requirement.

3)   Guarantee

(ERISA Sec. 4022A(c))

Generally, PBGC's guarantee is based on a pension for each year of service a person earns under his or her pension plan. We sometimes summarize the maximum guarantee as $12,870 per year (with 30 years of service). We use 30 years as a way of estimating the amount of time people may spend in a career covered by the pension plan. But it is just an estimate, the maximum guarantee would actually be less for people who worked fewer than 30 years and more for those who worked longer. As a monthly benefit amount, we guarantee a payment equal to:

• 100% of the first $11 of the monthly benefit rate, plus 75% of the next $33 of the monthly benefit rate,
• times the participant's years of credited service.

The guaranteed monthly benefit, therefore, is limited to $35.75 per month (($11 x 100%) + ($33 x 75%) = $35.75) times a participant's year of credited service. The guaranteed benefit is not adjusted for inflation or cost-of-living increases.

For more examples using a different format, see the Multiemployer Insurance Program FAQs.