An ongoing plan is a type of defined benefit pension plan that continues to operate and has not been terminated. In simpler terms, it’s a retirement plan that a company or organization is still actively managing, where employees accrue benefits over time and the plan sponsor is responsible for funding and paying out these benefits when employees retire.
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Learn what an ongoing plan is, how it works, and why the plan sponsor is responsible for your pension benefits.
Understanding Ongoing Plans
A defined benefit plan promises a specific retirement benefit based on factors such as salary history, years of service, or a fixed formula. An ongoing plan is simply one that hasn’t been terminated. Unlike terminated plans, where the company may have closed the plan and transferred responsibilities to the Pension Benefit Guaranty Corporation (PBGC), ongoing plans remain under the control of the employer.
The plan sponsor, usually the employer, is legally required to:
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Maintain the plan’s funding
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Ensure contributions are made on time
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Pay promised retirement benefits to participants
Because the plan is still active, the PBGC generally does not have detailed information about individual participants or their accrued benefits in ongoing plans. This is different from terminated plans, where the PBGC steps in to guarantee certain benefits.
How Ongoing Plans Work in Real Life
Imagine you work for a company with a defined benefit pension plan. Each year, you earn a portion of your eventual retirement benefit based on your salary and years of service. The plan remains ongoing as long as the company continues to contribute and manage the plan according to its rules.
For example:
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Sarah works for a manufacturing company with a defined benefit plan.
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Each year, the company calculates her accrued benefit, which grows until she retires.
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Because the plan is ongoing, Sarah’s pension benefits are paid directly by the company when she reaches retirement age.
In this scenario, the PBGC does not have direct information about Sarah’s specific benefit amounts. The company’s records are the primary source of information, highlighting the importance of staying informed about your plan’s status and your personal benefits.
Benefits of an Ongoing Plan
Ongoing plans provide several advantages for employees:
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Guaranteed retirement benefits based on a formula, rather than investment performance
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Employer accountability, since the plan sponsor is responsible for making payments
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Potential for plan growth, depending on the company’s funding and plan rules
However, it’s important to remember that ongoing plans depend on the financial health of the employer. If the company encounters financial trouble, the security of benefits can be impacted unless protections like PBGC guarantees come into play, usually in the case of a plan termination.
Things to Keep in Mind
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Keep track of your statements and accrued benefits each year.
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Understand the plan’s funding status and any employer obligations.
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Remember that while ongoing plans are active, the PBGC is not tracking individual benefits unless the plan is terminated.
Final Thoughts
An ongoing plan is a standard defined benefit plan that remains active, with the employer responsible for funding and paying your retirement benefits. It offers security and predictability for employees but relies on the company to manage it properly. Staying informed about your plan’s status and understanding your accrued benefits can help ensure you’re prepared for retirement.
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