ABA Family Legal Guide

The Rights of Older Americans

Pensions

Traditional Pension Plans

I am worried about my pension plan going broke. Do I have any protection against such a disaster?

You might have some protection. Employee Retirement Income Security Act (ERISA) established the Pension Benefit Guaranty Corporation (PBGC). If your company has a defined benefit plan, it must pay insurance premiums to the PBGC. If the plan goes broke, the PBGC will pay vested benefits up to a certain limit, but it may not pay all you are owed. If the pension plan is still functioning but in danger of going broke, the PBGC will step in and take control. It will use the plan's remaining money and the insurance premiums paid by other plans to keep your benefits flowing.

Certain pension benefits are not covered, particularly for highly paid people and for those who retire before being eligible for Social Security.

If your plan is of the defined contribution type, the PBGC will not get involved. If that plan goes broke, you may be out of luck. You should keep an eye on how the administrators are handling the fund's money, because ERISA requires that plan trustees act in the best interests of participants. The secretary of labor or plan participants can sue trustees if they act improperly.