PBGC

Douglas J. Elliott of Brookings Economic Studies and the Center On Federal Financial Institutions (COFFI) has authored a guide to the Pension Benefit Guaranty Corporation (PBGC). The PBGC was established by the Employee Retirement Income Security Act (ERISA) of 1974, which was enacted in part, according to the paper, because of the bankruptcies of automakers Packard and Studebaker in the 1960s that left many employees with greatly reduced pensions. The current crisis in the auto industry raises the same concern. The PBGC basically guarantees pensions when a firm goes bankrupt. It is primarily funded by premiums from employers that offer defined benefit pension plans. The PBGC itself is in major financial stress, being $11 billion in debt as of Sept. 2008. A GM bankruptcy could add $20 billion to the deficit.

The guide covers:

• Background on retirement plans
• Pension funding rules
• Guarantees provided by the PBGC
• How the PBGC works
• The situation in the auto industry
• The PBGC's financial crisis
• Options to fix the crisis
• Glossary of terms

A Guide to the Pension Benefit Guaranty Corporation (pdf, 50pp/436kB), May 20, 2009