Pension Benefit Guaranty Corporation - PBGC
See: Pension.
The PBGC is a notionally independent agency of the federal government. Its goal is to protect the retirement incomes of nearly 40 million American workers in nearly 24,000 private-sector defined benefit pension plans. And that mission statement comes right from their website.
The agency was set up in 1974 as part of ERISA...
Employee
Retirement
Income
Security
Act
...to protect defined benefit plans.
That one word there - BENEFIT - is a huge deal... because its non-identical twin sister is a defined CONTRIBUTION plan. The big diff?
In a defined contribution pension plan, employees contribute some percentage of their income to their retirement pension, and the employer matches it and, well, that’s it. The money gets invested in the stock market and goes up and down and up and down. But over time, up. And then the employee retires decades later, owning whatever the market or their investments that they risked said that they own.
Period. End of story.
But in a defined BENEFIT plan, the employer essentially GUARANTEES a minimum amount of invested return. That is, the big boss guarantees a rate of, say, 9% a year to the employee retiring in the form of a minimum monthly draw from their pension that the employee can take out.
If the market goes through a bad spell, well, then it’s up to the company to make up the difference to that employee. The people who framed ERISA knew of the likely issue that the guaranteed investment return could end up bankrupting states and/or the country…so PBGC was formed.
And it helps a lot of people. Like…1.5 million who ultimately rely on PBGC for their pensions. And if you’re one of those people, you can expect to get something like $65k annually. Or about $5,300 monthly… assuming you retire at 65.
Retire early, and those checks arriving in your mailbox won’t be quite so heavy. Retire late and the numbers go up.
And maybe the best part is that U.S. taxpayers don’t need to get all up in arms, since the dough used to manage PBGC doesn’t come from John Q. Taxpayer, but rather from the private world’s employers.
So, in 40 or 50 years, PBGC may be your best friend. Until then, though,your invisible rabbit pal will be with you through thick and thin…