A single-employer plan is protected by federal rules, but not all benefits are guaranteed. Learn how the PBGC protects pensions and the key limits that apply.
The Pension Benefit Guaranty Corporation (PBGC) plays an important role in safeguarding retirement income for workers with defined benefit pensions. In a single-employer plan, the PBGC provides a financial backstop, but only for certain benefits—and only up to specific legal limits. Understanding these limits helps employees and retirees know what they can realistically expect if their company pension plan fails.
What Is a Single-Employer Plan?
A single-employer plan is a traditional pension plan sponsored by one employer, rather than multiple companies or a union group. These plans promise a specific monthly benefit at retirement, typically based on salary, age, and years of service.
If the employer can no longer maintain the plan—often due to bankruptcy or severe financial distress—the PBGC steps in and pays guaranteed benefits directly to participants.
What Benefits Does PBGC Guarantee?
PBGC protection is not unlimited. The agency only guarantees benefits earned on or before the earlier of:
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The plan’s termination date, or
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The employer’s bankruptcy filing date.
This means benefits earned after these dates are not guaranteed, even if they appear in the plan formula.
Key PBGC Limits That Apply to Single-Employer Plans
When PBGC takes over a pension, it applies several legal caps to determine how much of the promised benefit it can pay. These rules ensure fairness and keep the guarantee program financially stable.
Here are the major limits you should know:
1. Maximum Guaranteed Benefit
This is the highest dollar amount PBGC will pay, even if the pension formula promises more.
It changes each year and depends on the participant’s age at retirement.
For example:
If the maximum guarantee is $85,000 per year for a 65-year-old in a given year, and the plan promised $100,000 annually, PBGC can only pay up to the $85,000 limit.
2. Accrued-at-Normal Limit
The PBGC will only guarantee the benefit you accrued by the plan’s normal retirement age, based on service earned as of the termination or bankruptcy date.
If your plan provided generous early retirement supplements or temporary benefits, those may not be fully guaranteed because they are often tied to early retirement rather than normal retirement age.
3. Phase-In Limit
This rule protects the PBGC from suddenly having to guarantee large benefit increases.
It limits how much of any plan amendment (such as a benefit boost) PBGC will guarantee.
The guarantee generally phases in over five years.
For example:
If your employer increased pension benefits just one year before filing bankruptcy, PBGC might only guarantee 20% of that increase.
Why These Limits Matter
When a company fails, retirees often expect PBGC to pay the full pension amount. However, the guarantee is not a dollar-for-dollar replacement—it is a safety net with clear boundaries.
Knowing these limits helps participants:
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Understand what portion of their pension is protected
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Plan for potential income differences
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Avoid surprises if their employer experiences financial trouble
Simple Example of How PBGC Limits Work
Imagine a worker whose plan promises a $4,000 monthly pension. After the employer files for bankruptcy:
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The maximum guarantee limit for their age is $3,500/month
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The accrued-at-normal amount is $3,800 (meaning some early retirement features aren’t guaranteed)
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The plan was recently amended to increase benefits by $400, but only 40% is guaranteed under phase-in rules (so $160 is guaranteed)
Final PBGC benefit: the lowest applicable amount, which in this case is $3,500 per month.
Final Summary
A single-employer plan provides valuable retirement income, but PBGC protection has limits. The PBGC only guarantees benefits earned before the plan’s termination or bankruptcy date, and the final payout is capped by rules like the maximum guaranteed benefit, the accrued-at-normal limit, and the phase-in limit. Understanding how these rules work ensures you know what pension amount you can rely on—even if your employer’s plan fails.
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