How Much You Get if Your Pension Plan Fails

If your pension plan fails, you will probably still get payments in retirement. Most private sector traditional pension plans are insured by the Pension Benefit Guaranty Corporation, which will pay out benefits up to certain annual limits if the plan ends.

A 65-year-old retiree in a single-employer plan that terminates or files for bankruptcy in 2016 could still receive as much as $60,136 annually, or about $5,011 per month. However, your age when you begin receiving payments from the PBGC sometimes impacts the amount you will receive. The maximum guaranteed benefit decreases if you claim payments before age 65. The PBGC will only pay out up to $2,255 per month if you start payments at age 55 and $1,252 for payments beginning at age 45.

If the pension you have earned is equal to or less than the insured benefit amount you will continue to receive your promised pension payments. If you have a pension that is larger than the PBGC guarantee amount, your monthly payments could be reduced. The PBGC says most people receive the full amount of their promised benefit.

For example, the PBGC became responsible for the pension plan of Standard Register Co., a marketing communications firm in Dayton, Ohio, in August 2015, when the company sold the majority of its assets during bankruptcy proceedings. The pension plan was only 47 percent funded, and had $289 million in assets to pay about $611 million in projected benefits. More than 8,500 current and future retirees will now receive their pension payments from the PBGC up to the cap of $60,136, if they claim payments beginning at age 65. Retirees will continue to receive pension payments without interruption, and future retirees can apply for benefits from the PBGC when they are eligible.

The PBGC insures bigger benefits if you start payments after age 65. The agency will pay out up to $8,319 per month if you start payments at age 70 and as much as $15,235 monthly for people who claim benefits at age 75.

Retirees can also elect to receive their payments as a joint and 50 percent survivor annuity, which means benefits will be paid to a spouse after the retired worker's death. However, the insured amount is lower if you choose this option. The PBGC insures joint annuities up to $4,510 per month for people who claim at age 65. This amount drops to $2,932 for retired workers who claim payments at age 60, but climbs to $7,487 for those who start benefits at age 70.

The maximum guarantee amount is adjusted each year to keep up with inflation and is linked to Social Security cost-of-living adjustments. Since there wasn't enough inflation measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers to trigger a Social Security cost-of-living adjustment in 2016 there also won't be an increase in the insured pension limits for plans that terminate next year.

The PBGC pays out benefits when an insured plan runs out of money, reorganizes in bankruptcy or files for liquidation. When a pension plan ends, additional benefit accruals stop, but you will still be paid the amount you have already earned up to the annual limits for your age. The agency does not guarantee health benefits, vacation pay, life insurance or severance payments.

The PBGC paid $5.7 billion to over 800,000 retirees whose pension plans failed in fiscal year 2015. The agency assumed responsibility for 65 new single-employer plans in 2015, and will pay out benefits to more than 25,000 additional people. The PBGC will eventually be responsible for paying benefits to 1.5 million people whose pension plans ended.

The PBGC doesn't receive taxpayer funding. Its revenue comes from insurance premiums paid by plan sponsors, investment income and assets the agency recovers from failed plans. However, the PBGC currently has a single-employer funding deficit of $24.1 billion.