Legal Definitions - Pension Benefit Guaranty Corporation

The Pension Benefit Guaranty Corporation (PBGC) is a federal corporation that provides insurance to protect the retirement benefits of workers in private sector pension plans. It was created by the Employee Retirement Income Security Act of 1974 (ERISA) to ensure that workers receive the pension benefits they have earned.

When a covered pension plan fails to meet its obligations, the PBGC steps in to pay benefits to retirees and their beneficiaries. The PBGC is funded by insurance premiums paid by the pension plans it insures, as well as by the assets of failed pension plans that it takes over.

For example, if a company goes bankrupt and its pension plan is underfunded, the PBGC may take over the plan and pay benefits to the retirees. Without the PBGC, these retirees might not receive the full amount of their promised pension benefits.

Another example is if a company terminates its pension plan and does not have enough money to pay all of the promised benefits. The PBGC will pay the benefits that were promised, up to certain limits.