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Meltdown 101: How Layoffs Affect Retirement Plans

Meltdown 101: How Layoffs Affect Retirement Plans

CANDICE CHOI, AP Personal Finance Writer

Q: What happens to my pension if my company goes under?

A: Pensions offered by private employers are typically secured by a federal agency called the Pension Benefit Guaranty Corp.

The PBGC ensures pension payments, but you may not get the full amount your employer promised. Each year, the agency issues a cap on benefits it pays out to retirees — next year’s annual cap is $54,000.

Gary Pastorius, an agency spokesman, said about 35 percent of retirees get reduced benefits because of the cap. Payments may also be scaled back if an employer’s plan sets retirement age earlier than 65.

The PBGC only distributes lump sums for $5,000 or less, Pastorius said. For greater amounts, you’ll get annual payments once you’ve reached retirement age.

“Professional service” companies such as law firms or medical practices with 25 or fewer workers usually aren’t covered by the PBGC.

Under federal regulations, these businesses are still required to maintain certain funding levels for pensions. But if the company goes under, retirees may not get their full benefits or as much as they would if the pensions were covered by the PBGC, said Craig Copeland, a researcher at EBRI.