The Pension Benefit Guaranty Corporation (PBGC) announced that the maximum insurance benefit for participants in underfunded pension plans terminating in 2007 is $49,500 per year for those who retire at age 65. That’s benefit is up by about 4 percent from $47,659 for participants from 2006.
The amount is higher for those who retire later than age 65, and lower for those who retire earlier or elect survivor benefits. Also, if a pension plan terminates in 2007 but a participant does not begin collecting benefits until a future year, the 2007 maximum insurance limits still apply.
In general, more than 90 percent of the participants in plans taken over by the agency face no reduction in benefits due to the legal limits on coverage, according to PBGC. It notes that the largest reductions occur in cases where participants earn pensions that significantly exceed the maximum insurance benefit or provide generous early retirement subsidies. A good example are airline pilots, who typically earn high salaries and frequently anticipate pensions that are at least double the PBGC cap.
Under the PBGC’s single-employer insurance program, retirees sometimes receive more than the maximum guaranteed benefit. However, three conditions must apply for that to happen: The participant must have earned a benefit that exceeded the maximum guaranteed amount; retired or was eligible to retire three years prior to plan termination; and had a plan with sufficient assets to pay benefits above the guaranteed amount.
In addition, if participants retire later than 65, they can receive a higher benefit. For example, the maximum amount for benefits beginning at age 70 has been lifted to $82,170, while the maximum for individuals who begin receiving benefits at 75 is now $150,480.