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Making Your Money Last

Pension Protection

You won't be left high and dry by your cash-balance plan, thanks to Uncle Sam's pension guaranty.

Are cash-balance pension plans protected if the employer goes bankrupt?

Yes, they are insured by the Pension Benefit Guaranty Corp. Cash-balance pensions resemble 401(k)s in that you have an account that builds until you retire or leave the company. Usually, you're credited with a percentage of your pay each year and earn a fixed or variable interest rate. Unlike 401(k)s, though, you don't contribute your own money or direct the investments. The company is obligated to pay the benefit that you're due. If the employer terminates the plan for lack of money, the PBGC will assume trusteeship and pay benefits within certain limits. The maximum annual benefit in plans terminating in 2007 is $49,500. The PBGC cannot guarantee more than what your firm pays at normal retirement age (in other words, it won't support early-out inducements), and it won't guarantee benefit increases made within five years of the plan's termination. Recent court decisions and provisions in the pension-reform law enacted last year make it likely that more firms will adopt cash-balance plans.