Which pension plans must be covered by Pension Benefit Guarantee Corporation (PBGC) insurance?

Which pension plans must be covered by Pension Benefit Guarantee Corporation (PBGC) insurance?

• A. Defined benefit plans only
• B. Cash balance plans and traditional defined benefit plans
• C. All pension plans
• D. Money purchase and target benefit plans

Answer: (B)

The Pension Benefit Guaranty Corporation (PBGC) provides insurance for certain types of pension plans, specifically those that fall under the defined benefit category. Both cash balance plans and traditional defined benefit plans are designed to provide a predetermined retirement benefit, which qualifies them for PBGC insurance coverage. Cash balance plans are a type of defined benefit plan where the employer promises to pay a specific amount upon retirement, which accumulates based on pay credits and interest credits. Traditional defined benefit plans, on the other hand, generally promise a set monthly benefit at retirement, based on factors such as salary history and years of service. Since these plans are vested and provide a defined benefit, they are eligible for protection under the PBGC. Other types of pension plans, such as money purchase plans and target benefit plans, do not fall under the PBGC's insurance umbrella, as they operate under different rules and structures. Money purchase plans are considered defined contribution plans, where the employer contributes a specified amount, and benefits depend on investment performance, not guaranteed outcomes. Target benefit plans are similar and also provide benefits that fluctuate based on contributions and investment returns, rather than a guaranteed benefit. Hence, PBGC insurance does not apply to these types of plans.

The Pension Benefit Guaranty Corporation (PBGC) provides insurance for certain types of pension plans, specifically those that fall under the defined benefit category. Both cash balance plans and traditional defined benefit plans are designed to provide a predetermined retirement benefit, which qualifies them for PBGC insurance coverage.

Cash balance plans are a type of defined benefit plan where the employer promises to pay a specific amount upon retirement, which accumulates based on pay credits and interest credits. Traditional defined benefit plans, on the other hand, generally promise a set monthly benefit at retirement, based on factors such as salary history and years of service. Since these plans are vested and provide a defined benefit, they are eligible for protection under the PBGC.

Other types of pension plans, such as money purchase plans and target benefit plans, do not fall under the PBGC's insurance umbrella, as they operate under different rules and structures. Money purchase plans are considered defined contribution plans, where the employer contributes a specified amount, and benefits depend on investment performance, not guaranteed outcomes. Target benefit plans are similar and also provide benefits that fluctuate based on contributions and investment returns, rather than a guaranteed benefit. Hence, PBGC insurance does not apply to these types of plans.