Pension Plan Failures and the PBGC

When a defined benefit plan (DB plan) is terminated, the rights created by a QDRO are assumed in part as obligations of the Pension Benefit Guaranty Corporation (PBGC), which becomes trustee of the plan.

PBGC is a federal agency that insures pension benefits in most private-sector DB pension plans. Not all plans are insured by PBGC and not all plans that fail become trusteed by PBGC. For example, defined contribution plans, such as 401(k) plans, are generally not covered by PBGCs insurance. Moreover, most defined benefit plans that terminate have sufficient assets to pay all benefits. PBGC does not trustee these plans.

When an insured plan terminates without enough money to pay all guaranteed benefits, PBGC becomes trustee and pays the plan benefits subject to certain limits. For instance, PBGC does not pay certain death and supplemental benefits. In addition, benefit amounts and the forms of benefit PBGC pays are limited.  PBGC has special rules that apply these limitations to QDROs. PBGC’s booklet, Qualified Domestic Relations Orders & PBGC is available at, and describes the terms and conditions of the coverage.

Pension plans abandoned by just ten companies make up 63 percent of all claims paid out by the PBGC. Just two industries, air transportation (33 percent) and metals (27 percent), make up the majority of pension failures, according to PBGC. In 2009, PBGC paid nearly $4.5 billion worth of ongoing payments to approximately 750,000 retirees and lump-sum payments to 12,000 pension participants. Another 565,000 individuals are eligible for future PBGC benefit payments.

When the PBGC assumed responsibility for six underfunded pension plans promised to 69,042 Delphi Corp. workers and retirees in July 2009, it became the second biggest pension failure since the PBGC was formed in 1974. The $6.1 billion worth of benefits promised to current and former workers at the automotive parts manufacturer is second only to the $7.4 billion United Airlines pledged to 123,957 employees before the PBGC took over the plan in 2005. Delphi knocked Kaiser Aluminum, which had $0.6 billion in total claims owed to 17,727 pension participants in 2008, off of the top 10 list. Motor vehicle equipment manufacturers are now responsible for 15 percent of all PBGC claims. Here’s a look at the 10 biggest pension failures ever turned over to the PBGC. Other pension failures include United Airlines (2005), Bethlehem Steel (2003), US Airways (2003), LTV Steel (2002, 2003, 2004), Delta Air Lines (2006), National Steel (2003), Pan American Air (1991, 1992), Trans World Airlines (2001) and Weirton Steel (2004).

For information about a specific domestic relations order or QDRO affecting a plan trusteed by PBGC, write to: PBGC QDRO Coordinator
, P.O. Box 151750
, Alexandria, VA 22315-1750

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