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.
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.