The Pension Benefit Guaranty Corporation is a U.S. federal agency that provides insurance for pension plans from private companies, per the agency website. The agency ensures that workers who retire under a traditional defined-benefit pension plan receive benefits that are owed to them. Defined-benefit pensions usually pay a set monthly amount during retirement. The PBGC does not insure defined-contribution plans like 401(k) and IRA plans.
The PBGC gets revenue from taxes paid by pension plans and other sources, says the agency. If a pension plan insured by PBGC fails and has insufficient funds to pay the benefits it owes, the PBGC insurance program takes over administration of the plan as a trustee and pays out benefits to retirees, up to certain limits. Different procedures apply depending on whether the plan is a single-employer or multiple-employer fund.
There were no legal protections for pensions until 1974, when the PBGC was created by the Employee Retirement Income Security Act, according to the agency website. One of the catalysts for its creation was the sudden termination of the Studebaker company's pension plan in 1963, which left thousands of workers without the benefits they had been promised. Companies that went out of business could cancel pension plans without any worker recourse until the ERISA legislation was passed.