The Pension Benefit Guaranty Corporation (PBGC) released its final ruling for the 2006 pension benefit guarantee on Nov. 30, announcing that the maximum guaranteed monthly benefit for workers retiring at age 65 in 2006 in an underfunded single-employer pension plan, will be $3,971.59 per month. A reduced maximum guarantee applies to early retirees or retirees electing survivors’ benefits, the agency said.
The PBGC–strapped for cash as a result of a spate of bankruptcies in a range of industries–is at the center of political debate. Lawmakers want to beef it up and take the burden off taxpayers, which also means that companies will need to put more money behind pension promises, and look to do away with old-style defined benefit pension plans in favor of defined contribution plans like 401(k)s. At the same time, a round of freezing or closing of long-standing pension plans might not bode well for Republican politicians looking ahead to 2006 elections.
In a separate move, the PBGC also issued final regulations for the mortality assumptions used to value benefits for purposes of Section 4044 of the Employee Retirement Income Security Act (ERISA). Effective January 1, 2006, the mortality assumption for healthy lives must be based on the GAM-94 Basic Table. The mortality for disabled lives has also been updated.
Finally, PBGC amended its regulation on Allocation of Assets in Single-Employer Plans by substituting a new table that applies to plans terminated in 2006. The table, updated annually by the PBGC, is used to determine expected retirement ages for plan participants. It is needed in order to compute the value of early retirement benefits and the total value of benefits under the plan.
All final rules will be effective January 1, 2006.