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CCH® PENSION AND BENEFITS — 12/28/07

Most PBGC retirees get full earned benefit, study shows

The vast majority (84%) of retirees who receive benefits from the PBGC’s pension insurance program are paid the full benefit amount they earned under their retirement plan. This is one of the many findings of the 2006 edition of the Pension Insurance Data Book, an annually updated statistical reference that tracks the experience of the PBGC’s insurance programs and the defined benefit pension plans they protect.

Participants in airline and steel plans hit

Of more than 525,000 PBGC participants studied, 16% saw their retirement benefits reduced. The average reduction was 28%. The findings update a 1999 study that showed about 94% of participants received 100% of guaranteed benefits earned under pension plans up to the date they were acquired by the PBGC.

According to the PBGC study, participants in airline and steel plans were more likely to have their benefits reduced by legal limitations. The PBGC’s maximum insurance limitation caused the greatest reduction in benefits for affected participants. In addition, many airline and steel plans were affected by limits on supplemental payments and recent benefit increases. The maximum insurance limitation puts a cap on the benefits the PBGC may guarantee. It is adjusted each calendar year and applies to participants in underfunded plans that terminate during that year. For instance, for pension plans that end in 2008, the maximum benefit guarantee is $51,750 for a 65-year-old.

Increase in frozen plans reported

The latest edition of the Data Book also reports that about 14% of the single-employer defined benefit plans insured by the PBGC were “hard-frozen” at the end of the 2005 plan year, a 50% increase in the number of hard frozen plans reported at the end of the 2003 plan year.

When a plan has been hard frozen, employees will receive the benefits they have earned, but no new benefits will be earned after the date that the plan has been frozen. Under this scenario, an employee who has spent 20 years at a company and intends to stay for another five years until retirement will not receive additional pension benefits for future work.

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