Imagine you worked for ABC Company 20 years ago. While you were there, you earned a pension benefit, but you left decades ago for a different employer. Now, you’re getting ready to retire, and it’s time to collect the pension you earned at ABC, but the phone number you have on file no longer works. You go online to search for a current phone number and learn that ABC went out of business more than a decade ago. What do you do now?
In the United States, many pension plans (also called defined benefit plans) sponsored by private-sector employers are insured by a federal agency called the Pension Benefit Guaranty Corporation (PBGC). While some pension plans may offer lump sum options, they are primarily designed to provide monthly, lifetime income to retired participants (the technical term for benefit earners) until they die. These plans also offer lifetime survivor benefits to spouses of participants.
PBGC insures single-employer plans and multi-employer plans. Single-employer plans are usually sponsored by one company or a group of companies under common ownership. Multi-employer plans are collectively bargained defined benefit plans maintained by several employers in the same or related industries and a labor union. The plan is administered by a board of trustees composed of management and labor representatives.
PBGC does not insure defined contribution plans, such as 401(k) and other individual account plans like 403(b)s or employee stock ownership plans (ESOPs). These types of plans allow employees and employers to put money into an individual account that grows or shrinks depending on how the money in the account is invested, but there is no guaranteed income amount in retirement. Further, PBGC usually does not insure plans sponsored by federal, state, or local governments, or plans designated as church plans, which are plans sponsored by religiously affiliated employers.
Employers that sponsor retirement plans have the right to terminate them. There are a number of reasons why a plan sponsor might terminate its defined benefit plan. For instance, the sponsor might decide that maintaining the pension plan is too expensive or complicated to administer, or it may be undergoing a merger or other corporate restructuring. It’s also possible the employer could be in financial trouble, preventing it from complying with federal laws that require the employer to keep its pension plan appropriately funded.
Types of Plans
There are three types of plan termination for single-employer plans. Under a standard termination, the employer is responsible for making sure that anyone who is entitled to receive benefits under the plan is paid, whether by offering lump sum payments or by purchasing lifetime annuities for those individuals from third parties. When an employer cannot afford a standard termination because it cannot pay all the benefits that are owed, its pension plan undergoes a distress termination. PBGC can also initiate an involuntary termination.
In the case of a distress or involuntary termination, PBGC generally trustees the plan after a negotiation process with the employer. When PBGC trustees a plan, it becomes responsible for paying and administering the benefit. Payments, disclosures, and statements all come from PBGC. If a participant in a trusteed plan encounters any issues – from changing bank account information to disputing a benefit calculation to appealing a benefit denial – the participant must resolve those issues with PBGC. The participant’s first stop is the PBGC Customer Contact Center, which can be reached at (800) 400-7242.
The situation differs for financially distressed multi-employer plans. PBGC does not trustee these plans but instead provides financial assistance, and the plan’s board of trustees continues to administer the plan and pay benefits.
In many cases, PBGC seamlessly pays benefits to retirees who earned benefits from the pension plans it trustees. Sometimes, though, retired participants or beneficiaries run into administrative bureaucracy at PBGC, which can be time-consuming and frustrating to navigate. Recognizing the need for assistance to help cut through red tape, several federal agencies have established independent advocate or ombudsmen offices to help the public resolve issues.
At PBGC, that office is the Office of the Participant and Plan Sponsor Advocate (OPPSA). The advocate role was established by Congress in 2012, and PBGC’s board selected the first and current advocate in late 2013. Since then, the role expanded with the creation of an Office of the Advocate, which is independent from PBGC management, reporting directly to PBGC’s board of directors.
Modeled after the Internal Revenue Service’s (IRS) Taxpayer Advocate, which helps taxpayers solve problems with the IRS, PBGC’s advocate acts as a liaison between participants, plan sponsors, and PBGC, and assists participants and plan sponsors in resolving disputes with the agency. OPPSA does not assist participants with disputes with external parties such as their plan administrators, but rather its role is limited to helping to resolve disputes between participants or plan sponsors and PBGC. Additionally, OPPSA identifies areas where participants and plan sponsors have persistent problems in their dealings with PBGC and proposes administrative and legislative changes to mitigate them. These recommendations and other activities are memorialized in the advocate’s annual report to PBGC’s congressional committees of jurisdiction, the PBGC board, and PBGC’s director. Past cases and issues identified by OPPSA have helped to catalyze both regulatory and procedural changes at the agency.
Turning back to our example, whatever happened to that pension benefit from ABC Company? If ABC was having financial trouble and the plan underwent a distress termination, the plan would have been trusteed by PBGC. You can search PBGC’s list of trusteed plans here. If ABC’s pension plan underwent a standard termination, it’s possible the benefit was already paid out as a lump sum. It is not uncommon for current retirees to forget about payments that were made many years ago, particularly if the payment was comparatively small.
Alternatively, the plan sponsor may have purchased an annuity on the retiree’s behalf. PBGC often has records of these annuity purchases and can often provide information to help individuals track down their annuity providers. On rare occasions, participants for whom an annuity should have been purchased are accidentally left out by the plan sponsor. These individuals are called Potentially Omitted Participants, and PBGC will review such claims for benefits on an individual basis.
It's also possible ABC’s defined benefit plan was never terminated at all. ABC could have merged with another company that has a different name and contact information, and that company is now responsible for administering and paying out ABC’s pension benefits. OPPSA offers a pension tracing service that uses PBGC data to help individuals track down non-trusteed defined benefit plans that may owe them a benefit.
If you encounter an individual who needs help claiming a benefit trusteed by PBGC, it is best to refer that person to the PBGC Customer Contact Center at (800) 400-7242.
If someone you are assisting has already been in contact with PBGC and is struggling to obtain or understand information from PBGC, or wishes to dispute an agency decision, you can refer that person to OPPSA. You can also refer individuals to OPPSA for pension tracing assistance.
How to contact OPPSA:
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