The PBGC has just announced the maximum benefit coverage for both a single-employer plan and a multi-employer plan. The difference in coverage among the two plan types is huge! Here is the PBGC’s release:
PBGC Maximum Insurance Benefit Level for 2016
FOR IMMEDIATE RELEASE
October 28, 2015
WASHINGTON – The Pension Benefit Guaranty Corporation announced today that the annual maximum guaranteed benefit for a 65-year-old retiree in a single-employer plan remains at $60,136 for 2016. The guarantee for multiemployer plans also remains unchanged.
Single-Employer Plan Guarantee
The PBGC maximum guarantee for people covered by single-employer plans is linked to a cost-of-living adjustment, or COLA, in Social Security law. Next year, SSA’s cost-of-living-adjustment will be zero. Accordingly, the maximum guarantee for the agency’s single-employer program will not change from the current 2015 levels.
The single-employer guarantee formula provides lower amounts for people who begin getting benefits from PBGC before age 65, reflecting the fact that they will receive more monthly pension checks over their expected lifetime. Amounts are higher for benefits starting at ages above 65.
Also, benefits are reduced for retirees who select to have payments sent to a beneficiary following their death. A table showing the 2016 single-employer guarantee amounts payable at ages other than 65 is available on PBGC’s website. Because the age 65 amount isn’t changing, the 2016 table is identical to 2015.
In most cases, the single-employer guarantee is larger than the pension earned by people in such plans. According to a 2006 study, almost 85 percent of retirees receiving PBGC benefits at that time received the full amount of their earned benefit. (For more information see the entry “Making Sense of the Maximum Insurance Benefit” in PBGC blog, Retirement Matters.)
The published maximum insurance benefit represents the cap on what PBGC guarantees, not on what PBGC pays. In some cases, PBGC pays benefits above the guaranteed amount. This depends on the retiree’s age and how much money was in the plan when it terminated.
For more information about how the single-employer guarantee works, see PBGC’s fact sheet Pension Guarantees.
Multiemployer Plan Guarantee Limit
The PBGC maximum guarantee for participants in multiemployer plans is also based on a formula prescribed by federal law. Unlike the single-employer formula, the multiemployer guarantee is not indexed (i.e., it remains the same from year to year) and does not vary based on the retiree’s age or payment form.
Instead, it varies based on the retiree’s length of service. In addition, the multiemployer guarantee structure has two tiers, providing 100 percent coverage up to a certain level, and 75 percent coverage above that level. For a retiree with 30 years of service, the current annual limit is 100 percent of the first $3,960 and 75 percent of the next $11,760 for a total guarantee of $12,870. This limit has been in place since 2001.
PBGC protects the pension benefits of more than 40 million of America’s workers and retirees in nearly 26,000 private-sector pension plans. The agency is directly responsible for paying the benefits of more than 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars and never has. Its operations are financed by insurance premiums and with assets and recoveries from failed plans.