The Pension Benefit Guaranty Corporation (PBGC) issued new rules this December that make it possible for participants to roll over 401(k) assets into their company’s pension plan — and those assets come with a government guarantee!
The PBGC guarantees private-sector pension plans — if a plan goes bankrupt, the PBGC will step in and make lifetime income payments to its pensioners — up to a limit of about $60,000 a year.
Now, if participants roll over 401(k) assets into their pension, those assets come under guarantee as well — however, those 401(k) assets are not subject to any limit; lifetime annuity payments based on the full amount are guaranteed. What does that mean? If a participant’s pension plan is frozen and it includes rolled over 401(k) assets, the participant would receive their pension payment up to the limit and then an additional monthly annuity payment based on their rolled over assets.
A few important notes about the new rule:
- Participants can roll 401(k) assets into a pension only if they have an existing company pension, and plan documents include a provision allowing rollovers from the 401(k) plan. Some companies may make it possible for participants to split assets between their 401(k) and pension plans.
- Pension assets rolled over from a 401(k) plan are not available to withdraw as a lump sum if the pension fails. The PBGC guarantees annuity payments only.
- Participants should check with their employers about withdrawal and distribution options of rolled over 401(k) assets in a pension plan. Are they available as a lump sum distribution, or only in annuity form?
- Participants can annuitize 401(k) assets separately from a pension plan, so they should consider carefully the benefit of rolling assets into a pension. Sometimes, companies are able to negotiate better terms than individuals can.
The PBGC’s rule is designed to encourage lifetime income options for participants. It applies only to 401(k) plans. For more information about the new rule visit:
The PBGC’s press release:
USA Today article about the rule:
The full rule: