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Limits on Shutdown Benefits

The Pension Protection Act of 2006 limits the federal pension insurance protection for shutdown benefits when pension plans terminate.

Some defined benefit pension plans offer shutdown benefits payable in the event that companies close plants or shut down their operations entirely. Shutdown benefits are particularly important for workers whose plants close before they have reached retirement age, when they are too old to begin a new career. Shutdown benefits can bridge the income gap between the time the workers are laid off and the time normal retirement benefits commence.

The PPA eliminated a portion of the insurance protection provided by the federal pension insurance program, the Pension Benefit Guaranty Corporation (PBGC). The PBGC had insured pension plans’ shut down benefits by phasing in the protection over a five year period starting from the date of the shutdown. The protection was phased in 20 percent per year. This means that if a pension plan terminated within a year after a plant shutdown, then no benefits would be paid. However, if the plan survived more than five years before the plan terminated, the shutdown benefits would be insured.

Read Section 403 of the Pension Protection Act of 2006 Public Law 109-280