Trends in Retirement Plans

Pension Benefit Guarantee Corporation

Over 33 million Americans with defined benefit plans are covered by Pension Benefit Guarantee Corporation (PBGC) plan insurance. The PBGC is a federal agency.

In the event that an employer is unable to fund the defined benefit plan due to financial problems, PBGC:

• assumes control of the plan
• AND
• pays benefits to retired workers and to other workers upon retirement

Defined benefit plans are the only type of plan covered by PBGC.

No guarantee

PBGC only guarantees basic benefits. PBGC does not guarantee the following benefits:

• vacation pay
• health care
• severance pay
• other non-basic benefits

Although there is a limit to what the PBGC will pay, most people do get their retirement benefit in full.

Advantages of Defined Benefit Plans

Defined benefit plans offer advantages to employers and employees alike.

Employer benefits can include:

• increased employee loyalty and employee retention
• plan flexibility
• the possibility of increased investment returns as a result of collective plan asset investment

Employee benefits can include:

• knowledge of retirement benefit amount before retirement
• an opportunity to earn a solid retirement benefit even when the employee was not enrolled in a retirement plan earlier in their career
• receipt of a monthly retirement benefit for life
• plan stability even if the employer goes out of business

Disadvantages of Defined Benefit Plans

Possible problems can include the following:

• Since employees today are less apt to remain at a job long enough to meet eligibility requirements, they may end up without benefits (or with a small benefit amount).
• The price of constant actuarial calculations can be tough on small- to medium-sized companies.