The maximum insurance benefit for participants in traditional pension plans that terminate in 2011 will be $54,000 per year for those who retire at age 65, the government agency that insures private sector pensions announced last week. The maximum insured amount, which typically increases each year to keep up with inflation, remains unchanged since 2009. Benefit maximums are tied to Social Security payments, which also have not increased since 2009.
The maximum amount insured by the Pension Benefit Guaranty Corporation (PBGC) is lower for retirees who sign up before and 65 and increases for those who wait until older ages to claim their pension. A retiree whose pension is taken over by the PBGC is 2011 who claims his pension at age 45 is insured up to only $13,500 annually. But a retiree who waits to begin drawing payments until age 75 is insured up to $164,160 each year. The limits are lower for workers who elect to have survivor’s benefits paid to a spouse, ranging from $1,012.50 per month for those who first claim at age 45 to $12,312 monthly for those who sign up at age 75.
Pension benefits above these limits are not guaranteed by the federal government if the pension plan fails. Benefit increases made in the five years prior to plan termination or the date the sponsor files for bankruptcy are also not completely insured if the pension plan terminates. The 2011 maximum insurance limits apply to all pension plans that end or enter bankruptcy proceedings in 2011, even if a participant does not begin collecting benefits until a future year.
The PBGC insures only traditional pensions, not 401(k)s or promised retiree health benefits. If you are already receiving a pension when your former employer’s plan fails, you will continue receiving payments from the PBGC up to the insured limits. If you have not yet retired, you must fill out paperwork with the PBGC a few months before you wish to begin payments. You cannot earn additional benefits after your plan terminates.