Benefits Lost When Plans Terminate
T-HRD-92-58: Published: Sep 24, 1992. Publicly Released: Sep 24, 1992.
- Full Report:
GAO discussed how pension plan termination affects plan participants. GAO noted that: (1) despite federal insurance protections, participants in underfunded plans that terminate risk losing promised benefits; (2) although the Pension Benefit Guaranty Corporation (PBGC) guarantees certain basic pension benefits, it does not guarantee all benefits that plans promise; (3) PBGC will pay benefits that it does not guarantee if it recovers assets from sponsors of terminated plans; (4) PBGC does not have information on the total number of participants who have lost or will lose benefits or the total value of those benefits; (5) analysis of 31 terminated plans shows that participants lost or will lose $38.8 million in benefits promised by the plans; (6) reasons for the losses include phased-in coverage of guaranteed benefits, maximum guarantee levels, and supplemental benefit restrictions; (7) when plans terminate without a successor plan, participants and their beneficiaries lose the ability to qualify for benefits; (8) working participants lose potential retirement benefits because benefit accruals stop when plans terminate; (9) inflation can erode the purchasing power of pension benefits that are frozen when plans terminate; and (10) participants in fully funded plans who are already receiving benefits generally continue to receive them when plans terminate, but PBGC may reduce the level of payments for benefits which it does not guarantee.