An Overview of the Pension Benefit Guaranty Corporation (PBGC)

This retirement lifeguard has the funding to continue saving pension plans

Reviewed by Marguerita Cheng

The Pension Benefit Guaranty Corporation (PBGC) is a safety net for private-sector defined-benefit pension plans. This federal corporation was established by the Employee Retirement Income Security Act (ERISA) of 1974 to provide participants in plans covered by the PBGC with guaranteed “basic” benefits in the event that their employer-sponsored defined-benefit plans became insolvent.

Key Takeaways

• The Pension Benefit Guaranty Corporation (PBGC) insures many private-sector defined-benefit pension plans, but it does not cover defined-contribution plans such as 401(k)s.
• The PBGC is largely funded by premiums paid by defined-benefit plan sponsors.
• The PBGC covers both single-employer plans and multiemployer plans.
• To help financially at-risk multiemployer plans, the American Rescue Plan Act of 2021 has made special funding available through the PBGC.

How the Pension Benefit Guaranty Corporation (PBGC) Works

The PBGC’s job is to step in if an insured pension plan is not able to fulfill its obligations. It will then cover pension benefits at normal retirement age, most early retirement benefits, annuities for survivors of plan participants, and disability payments for those receiving such payments before the covered plan was terminated. The PBGC does not cover defined-contribution plans, such as 401(k)s or 403(b)s.

PBGC benefits are limited to certain maximums and may not pay as much as someone would have received had their pension plan remained in effect. In 2025, eligible participants can receive a maximum pension of $7,431.82 per month if they are 65 years old and elect to receive their pension as a straight-life annuity.

Early retirement reduces the insured benefit, while retirement after age 65 increases it. For example, the 2025 maximum benefit for someone who retires at age 45 is $1,857.96 per month, while for someone who retires at age 75, it is $22,592.73 a month. Again, this assumes that they take their benefit as a straight life annuity rather than a joint and survivor annuity, which would result in a lower amount.

The PBGC does not cover certain death and supplemental benefits. Also, if a defined-benefit plan is terminated within five years of being amended, benefit increases that resulted from the amendment may be only partially covered.

PBGC pension plans fall into two categories: single-employer, and multiemployer. The tax code defines a multiemployer plan as one in which more than one employer is required to contribute and that is maintained according to a collective bargaining agreement between one or more employee organizations or employers. It must also satisfy other Labor Department requirements. A single-employer plan is maintained by one employer, either through a collective bargaining agreement or unilaterally.

The PBGC only covers these private-sector plans, not government or military pensions. As of 2025, the PBGC insured defined-benefit pension plans covering approximately 31 million people.

How the PBGC Is Funded

While the PBGC is a federal agency, it is not funded with tax dollars. Instead, it is funded by premiums collected from defined-benefit plan sponsors, assets from defined-benefit plans for which it serves as trustee, recoveries in bankruptcy from former plan sponsors, and earnings from its invested assets. The flat-rate, per-participant annual premium for single-employer plans in 2025 is $106. For multiemployer plans, it is $39.

The PBGC’s funding has not always been sufficient, however. At the close of the 2005 fiscal year, for example, the PBGC was more than $23 billion in debt and on the verge of needing a taxpayer-funded bailout. To avoid that, Congress passed the Pension Protection Act (PPA) of 2006, which required pension providers to fully fund their defined-benefit plans.

The massive American Rescue Plan Act of 2021, passed in March 2021, included provisions to help the PBGC shore up multiemployer plans. Plans in serious financial difficulty can apply for special assistance through the PBGC. That financial assistance will be in a single, lump-sum payment calculated to cover the plan’s obligations through the year 2051. Unlike most other PBGC funding, the money will come from the government’s general tax revenues, rather than from insurance premiums.

When the PBGC Takes Over a Pension Plan

The termination of a defined-benefit plan is generally initiated by the employer, either as a standard termination or a distress termination. Under a standard termination, the employer must demonstrate to the PBGC that there are sufficient assets in the plan to pay all benefits owed to participants. A distress termination occurs when a plan is being terminated but lacks sufficient assets to pay its benefits.

In a distress termination, which often occurs in conjunction with bankruptcy, the PBGC will step in to take over the administration of the plan. The PBGC also may take over a plan if it determines that the plan will be unable to meet its obligations. There’s also an involuntary termination when PBGC steps in “to protect a pension plan or the pension insurance system.” In this case, the agency initiates the process and, as in a distress termination, assumes responsibility for paying benefits to retirees, “up to legal limits.”

During its 2024 fiscal year, the PBGC paid benefits of about $69.5 billion to about 1,215,000 plan participants.

Important

If your pension plan is terminated, then you should be notified by either your employer or the PBGC.

Notification Process for Plan Terminations

In the event of a distress termination or PBGC-mandated takeover, plan participants generally receive notification from the PBGC when it assumes trusteeship of the plan. The PBGC also publishes notices in newspapers to announce the takeover, but national media outlets generally cover the story only when major pension plans fail.

With a standard termination, the plan must provide participants with a written “notice of intent to terminate” at least 60 days before the termination date. The plan may make a lump-sum payment to participants or buy an annuity for them from an insurance company to provide future benefits. The PBGC oversees standard terminations by reviewing the plan to determine whether it has enough money to meet its obligations. If so, then the PBGC will approve the termination.

How to Check on Your Plan

If you are covered by a defined-benefit plan from a current or former employer, then its summary plan description (SPD) should tell you whether or not it has a pension guarantee from the PBGC. The employer or plan administrator also is required to provide you with a pension funding notice every year, to show how your plan is doing financially. Also, you can request a copy of the Form 550 annual report that your plan must submit to the government each year.

What Is the Pension Benefit Guaranty Corporation (PBGC)?

The Pension Benefit Guaranty Corporation is a federally established agency that protects the retirement benefits of millions of American workers with private-sector defined benefit pension plans.

How Does the PBGC Protect Pension Benefits?

The PBGC provides financial backing for pension plans that are unable to meet their obligations. When an employer declares bankruptcy or can no longer maintain a defined benefit pension plan, the PBGC assumes responsibility for payments, ensuring that retirees receive their pensions up to a guaranteed limit.

Which Pension Plans Are Covered by the PBGC?

The PBGC covers most private-sector defined benefit pension plans, including single-employer and multiemployer plans. Single-employer plans are traditional pension plans sponsored by individual companies, while multiemployer plans are collectively bargained plans covering workers from multiple employers within the same industry.

How Is the PBGC Funded?

The PBGC is funded through several sources, primarily insurance premiums paid by pension plan sponsors. It also generates income through investments, recoveries from terminated plans, and interest income.

The Bottom Line

The Pension Benefit Guaranty Corporation helps protect workers’ pensions when their employers can’t afford to pay them. It gets its funding from insurance premiums, investments, and recovered assets—not from taxpayers. While the PBGC guarantees some pension payments, it may not cover the full amount originally promised.