Title IV of ERISA established the Pension Benefit Guaranty Corporation (PBGC), a governmental body that insures payment of plan benefits under certain circumstances.
Most defined benefit pension plans (those that provide a fixed monthly benefit at retirement) are required to participate in the program and pay premiums to the PBGC.
There are certain restrictions and limitations on the amount of benefits insured, and the amount is adjusted annually to reflect the increasing average wages of the U.S. workforce. The limit applies to all plans under which a participant is covered so it is not possible to spread coverage under several plans to increase the guaranteed benefit. To be fully insured, the benefit must have been vested before the plan terminated, and the benefit level must have been in effect for 60 months, or benefits are proportionately reduced. Further, the guarantee applies only to benefits earned while the plan is eligible for favorable tax treatment.
In an effort to protect against employers establishing plans without intending to continue them, ERISA introduced the concept of contingent employer liability in the event of plan termination for single-employer plans and for multi-employer plans in the event of employer withdrawal or insolvency. Additional complex requirements that apply to multi-employer plans also were established by Congress in 1980.
The PBGC has served to substantially change the environment in which plans operate. The PBGC now has substantial ability to involve itself in mergers, acquisitions, and sales when the sponsor of an under-funded plan is involved. For present sponsors, and for those thinking of establishing new defined benefit plans, Title IV should be carefully reviewed so that its implications are fully understood.
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