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Vested Benefits Largely Intact in PBGC-Covered Single-Employer Plans

Government Affairs

The vast majority of participants in defined benefit plans covered by the Pension Benefit Guaranty Corporation’s (PBGC) single-employer program receive all vested benefits, the PBGC says in a recently released report.

PBGC’s Single-Employer Guarantee Outcomes,” issued in May 2019, reviews participant outcomes in 500 plans covering 1,142,700 participants and trusteed by the PBGC between 1988 and 2012. The PBGC reports that 84% of participants in single-employer programs the agency covers received 100% of the vested benefits they earned.

That means that 16% of those participants — approximately 187,000 — had benefits reduced by one or more limitations. The average reduction in the value of participants’ benefits was 24%. The PBGC says that three limitations accounted for almost all of the participant benefit reductions:

  1. Accrued-at-Normal Limitation
  2. Maximum Insurance Limitation
  3. Phase-In Limitation

For participants with a reduction in vested benefits, the PBGC said, these three major limitations reduced the value of benefits by an average of 23%.

The PBGC limitation that affected the most participants is the Phase-In Limitation; it accounted for the reductions in benefits for more than 10% percent of vested participants.

The Maximum Insurance Limitation, which applies to individuals with the largest benefits or those who retired early and were still relatively young when the plan was terminated, was the limitation that caused the largest losses in benefit value for participants affected by a benefit limitation. This limitation accounted for over three-quarters of the reduced benefit value experienced by participants who lost more than one-quarter of their benefit value, and 95% of the losses suffered by participants whose benefit value was reduced by more than half.

And while 16% is not a large portion of the participant population, the PBGC indicates that by another measure, reductions in vested benefits were still more rare than even that suggests: 89% of the reductions in the value of plan benefits were concentrated in just 10 plans.

The 2019 study looks at slightly more than twice as many participants as one the PBGC issued in 2008. The PBGC says that the findings of this study “are broadly comparable” with its predecessor.