The Pension Benefit Guaranty Corporation is a little-known but highly-used federal organization that legal experts say can impact an end-of-marriage agreement, even after all the divorce dust has settled. PBGC is a government backup for canceled, qualified pension plans.
If a business files for bankruptcy, the first bill a company terminates is often a pension plan. PBGC’s job is to provide a sort of insurance for those affected by a pension plan. Federal officials say PBGC is losing money, which can mean across-the-board changes in divorce settlements that contain pension agreements.
The security PBGC once provided for recipients of pension plans is in a precarious position. The government entity says it is running a $26 billion deficit. With the recent bankruptcy of American Airlines, which claims it cannot pay $10 billion of its pension obligations, PBGC is worried the agency’s debt will go far higher.
Funding of PBGC is not through taxpayers. Pension plans support the federal corporation, but when companies fold en masse, as they did during the recession, retirement plans dry up and disappear. Fewer pension plans equals fewer premiums added to PBGC coffers.
PBGC steps in as an administrator when a company gives up its pension plan. That job includes making sure recipients receive the right benefits. Among those who receive benefits through court-ordered QDROs are ex-spouses and children of employees.
PBGC does not guarantee that full benefits are paid if a company sinks its pension plan, but it does replace the loss to a point. PBGC does not provide guarantees for 401(k) plans or non-qualified retirement plans.
An estimated 44 million employed and retired people are linked to PBGC’s coverage of qualified pension plans. The figure excludes dependents and ex-spouses also counting on the government’s backup protection.
Legal experts recommend including provisions in a divorce agreement that address what should happen in case of a reduction or termination of qualified retirement plan benefits.
Source: The Huffington Post, “What Does American Airlines’ Bankruptcy Have To Do With My Divorce?” Emily W. McBurney, Dec. 15, 2011