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Ask the Experts

When a Pension Plan Goes Bust

WORK retirement & planning

— Joe Raedle/Getty Images

Q. What will happen to my pension if the company where I work goes out of business? I’m getting close to my retirement age and I’m worried about the company’s future.

A. If your company closes its doors and the pension plan was not fully funded, the Pension Benefit Guaranty Corporation (PBGC) will likely step in to pay your benefits. The federal agency covers most private sector defined-benefit plans. (To find out if your plan is covered, check your summary plan description or SPD, or go to the PBGC website.) However, you are not guaranteed 100 percent of your benefit due to limits set by Congress.

For people who retire at age 65, the maximum annual benefit for a pension plan that is not fully funded and terminates in 2010 is $54,000, the same as last year. The amount is higher for people who retire at a later age and lower for those who retire earlier or elect to take survivor benefits.

If your company closes but its pension plan was fully funded, the plan administrator would purchase an annuity from an insurance company, which would pay you steady lifetime benefits when you retire, or, if your plan allows, issue a lump-sum payment that covers your entire benefit. The pension amount to which you were entitled would not change.

Some legislators have accused the PBGC of lax management, saying that pensions are potentially at risk. In the meantime, it continues to function as described above.

For questions, call the PBGC at 1-800-736-2444. If you live in the Washington, D.C., area, call 202-326-4242.

Carole Fleck is a senior editor at the AARP Bulletin.

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