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December 07, 2004
Government Sets Maximum Pension Benefit for 2005

The Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures pensions, announced that the maximum insurance benefit for participants in underfunded pension plans terminating in 2005 is $45,614 per year for those who retire at age 65, up from $44,386.32 in 2004.

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The amount is higher for those who retire later and lower for those who retire earlier or elect survivor benefits. If a pension plan terminates in 2005 but a participant does not begin collecting benefits until a future year, the 2005 maximum insurance limits still apply.

The formula for the maximum insurance benefit is set by law. Two additional legal limits on PBGC's insurance coverage can also affect participants' benefits. The first prohibits the PBGC from guaranteeing benefits that exceed the amount payable at the plan's normal retirement age. The second limits PBGC's guarantee of benefit increases made within the five years prior to plan termination.

More than 90 percent of the participants in plans taken over by the PBGC face no reduction in benefits due to the legal limits on coverage, according to a 1999 PBGC analysis. The largest reductions occur in cases where participants earn pensions that 1) significantly exceed the maximum insurance benefit, or 2) provide generous early retirement subsidies.

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