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Definition of Pension Benefit Guaranty Corporation (PBGC)

Pension Benefit Guaranty Corporation (PBGC) Image 1

Pension Benefit Guaranty Corporation (PBGC)

A federal agency that insures the vested benefits of
pension plan participants (established in 1974 by the ERISA legislation).



Related Terms:

Accumulated Benefit Obligation (ABO)

An approximate measure of the liability of a plan in the event of a
termination at the date the calculation is performed. Related: projected benefit obligation.


Articles of incorporation

Legal document establishing a corporation and its structure and purpose.


Contingent pension liability

Under ERISA, the firm is liable to the plan participants for up to 39% of the net
worth of the firm.


Controlled foreign corporation (CFC)

A foreign corporation whose voting stock is more than 50% owned
by U.S. stockholders, each of whom owns at least 10% of the voting power.


Corporation

A legal "person" that is separate and distinct from its owners. A corporation is allowed to own
assets, incur liabilities, and sell securities, among other things.


Cost-benefit ratio

The net present value of an investment divided by the investment's initial cost. Also called
the profitability index.


Defined benefit plan

A pension plan in which the sponsor agrees to make specified dollar payments to
qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor.
Related: defined contribution plan


Pension Benefit Guaranty Corporation (PBGC) Image 2

Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.


Edge corporations

Specialized banking institutions, authorized and chartered by the Federal Reserve Board
in the U.S., which are allowed to engage in transactions that have a foreign or international character. They
are not subject to any restrictions on interstate banking. Foreign banks operating in the U.S. are permitted to
organize and own and Edge corporation.


Equivalent annual benefit

The equivalent annual annuity for the net present value of an investment project.


Federal Deposit Insurance Corporation (FDIC)

A federal institution that insures bank deposits.


Flat benefit formula

Method used to determine a participant's benefits in a defined benefit plan by
multiplying months of service by a flat monthly benefit.


Foreign Sales Corporation (FSC)

A special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.


Freddie Mac (Federal Home Loan Mortgage Corporation)

A Congressionally chartered corporation that
purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and
securitizes these mortgages for sale into the capital markets.


Incremental costs and benefits

Costs and benefits that would occur if a particular course of action were
taken compared to those that would occur if that course of action were not taken.


Mortgage-Backed Securities Clearing Corporation

A wholly owned subsidiary of the Midwest Stock
Exchange that operates a clearing service for the comparison, netting, and margining of agency-guaranteed
MBSs transacted for forward delivery.


Pension Benefit Guaranty Corporation (PBGC) Image 3

Multinational corporation

A firm that operates in more than one country.


Net benefit to leverage factor

A linear approximation of a factor, T*, that enables one to operationalize the
total impact of leverage on firm value in the capital market imperfections view of capital structure.


Overfunded pension plan

A pension plan that has a positive surplus (i.e., assets exceed liabilities).


Pension plan

A fund that is established for the payment of retirement benefits.


Pension sponsors

Organizations that have established a pension plan.


Possessions corporation

A type of corporation permitted under the U.S. tax code whereby a branch operation
in a U.S. possessions can obtain tax benefits as though it were operating as a foreign subsidiary.


Private Export Funding Corporation (PEFCO)

Company that mobilizes private capital for financing the
export of big-ticket items by U.S. firms by purchasing at fixed interest rates the medium- to long-term debt
obligations of importers of U.S. products.


Underfunded pension plan

A pension plan that has a negative surplus (i.e., liabilities exceed assets).


Unit benefit formula

Method used to determine a participant's benefits in a defined benefit plan by
multiplying years of service by the percentage of salary.


benefits-provided ranking

a listing of service departments in an order that begins with the one providing the most service
to all other corporate areas; the ranking ends with the
service department providing service primarily to revenueproducing
areas


cafeteria plan a “menu” of fringe benefit options that include

cash or nontaxable benefits


Pension Benefit Guaranty Corporation (PBGC) Image 4

cost-benefit analysis the analytical process of comparing the

relative costs and benefits that result from a specific course
of action (such as providing information or investing in a
project)


tax benefit (of depreciation)

the amount of depreciation deductible for tax purposes multiplied by the tax rate;
the reduction in taxes caused by the deductibility of depreciation


Corporation

A legal entity, organized under state laws, whose investors purchase
shares of stock as evidence of ownership in it. A corporation is a legal entity, which
eliminates much of the liability for the corporation’s actions from its investors.


Pension plan

A formal agreement between an entity and its employees, whereby the
entity agrees to provide some benefits to the employees upon their retirement.


corporation

Business owned by stockholders who are not personally
liable for the business’s liabilities.


Cost-Benefit Analysis

The calculation and comparison of the costs and benefits of a policy or project.


Benefit Ratio Method

The proportion of unemployment benefits paid to a company’s
former employees during the measurement period, divided by the total
payroll during the period. This calculation is used by states to determine the unemployment
contribution rate to charge employers.


Benefit Wage Ratio Method

The proportion of total taxable wages for laid off
employees during the measurement period divided by the total payroll during
the period. This calculation is used by states to determine the unemployment
contribution rate to charge employers.


Defined Benefit Plan

A pension plan that pays out a predetermined dollar
amount to participants, based on a set of rules that typically combine the number
of years of employment and wages paid over the time period when each
employee worked for the company.


Target Benefit Plan

A defined benefit plan under which the employer makes
annual contributions into the plan based on the actuarial assumption at that time
regarding the amount of funding needed to achieve a targeted benefit level.


Workers' Compensation Benefits

Employer-paid insurance that provides their employees with wage compensation if they are injured on the job.


Preferred Stock Stock that has a claim on assets and dividends of a corporation that are prior

to that of common stock. Preferred stock typically does not carry the right to vote.


Canadian Deposit Insurance Corporation

Better known as CDIC, this is an organization which insures qualifying deposits and GICs at savings institutions, mainly banks and trust companys, which belong to the CDIC for amounts up to $60,000 and for terms of up to five years. Many types of deposits are not insured, such as mortgage-backed deposits, annuities of duration of more than five years, and mutual funds.


Living Benefit

Some insurance companies include this benefit option at no cost to their policy holders. The insurer considers on a case to case basis, the need for insurance funds before death. If the insured can demonstrate a shortened life of less than two years and with some insurers one year, the insurer will consider releasing up to 50% or a maximum of $100,000 of the life insurance coverage held by the insured. Not all insurers offer this benefit for free. The need has resulted in specific stand alone living benefit/critical illness policies coming into existence. Look under "Different types of Life Insurance" for further information. You might have heard of "Viatical Settlements", the practice of seriously ill people selling the rights to their life insurance policies to third parties. This practice is common in the United States but has not caught on in Canada.


Registered Pension Plan

Commonly referred to as an RPP this is a tax sheltered employee group plan approved by Federal and Provincial governments allowing employees to have deductions made directly from their wages by their employer with a resulting reduction of income taxes at source. These plans are easy to implement but difficult to dissolve should the group have a change of heart. Employer contributions are usually a percentage of the employee's salary, typically from 3% to 5%, with a maximum of the lessor of 20% or $3,500 per annum. The employee has the same right of contribution. Vesting is generally set at 2 years, which means that the employee has right of ownership of both his/her and his/her employers contributions to the plan after 2 years. It also means that all contributions are locked in after 2 years and cannot be cashed in for use by the employee in a low income year. Should the employee change jobs, these funds can only be transferred to the RPP of a new employer or the funds can be transferred to an individual RRSP (or any number of RRSPs) but in either scenario, the funds are locked in and cannot be accessed until at least age 60. The only choices available to access locked in RPP funds after age 60 are the conversion to a Life Income Fund or a Unisex Annuity.
To further define an RPP, Registered pension Plans take two forms; Defined benefit or Defined Contribution (also known as money purchase plans). The Defined benefit plan establishes the amount of money in advance that is to be paid out at retirement based usually on number of years of employee service and various formulae involving percentages of average employee earnings. The Defined benefit plan is subject to constant government scrutiny to make certain that sufficient contributions are being made to provide for the predetermined pension payout. On the other hand, the Defined Contribution plan is considerably easier to manage. The employer simply determines the percentage to be contributed within the prescribed limits. Whatever amount has grown in the employee's reserve by retirement determines how much the pension payout will be by virtue of the amount of LIF or Annuity payout it will purchase.
The most simple group RRSP plan is a group billed RRSP. This means that each employee has his own RRSP plan and the employer deducts the contributions directly from the employee's wages and sends them directly to the RRSP plan administrator. Regular RRSP rules apply in that maximum contribution in the current year is the lessor of 18% or $13,500. Generally, to encourage this kind of plan, the employer also agrees to make a regular contribution to the employee's plans, knowing full well that any contributions made immediately belong to the employee. Should the employee change jobs, he/she can take their plan with them and continue making contributions or cash it in and pay tax in the year in which the money is taken into income.


Incorporation

Process by which a company receives its Articles of Incorporation allowing it to operate as a corporation.


Accidental Death Benefit (ADB)

Coverage against accidental death usually payable in addition to base amount of coverage.


Automatic Benefits Payment

Automatic payment of moneys derived from a benefit.


Benefit

An instruction that pays a cash amount upon the occurrence of a specific event.


Benefit Value

The amount of cash payable on a benefit.


Canada Pension Plan (CPP)

A plan that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec).


Death Benefit

Amount paid on death of an insured.


Pension Fund

Assets used to pay the pensions of retirees. An investment institution established to manage the assets used to pay the pensions of retirees.


Quebec Pension Plan

A plan that primarily provides retirement and long-term disability income benefits for residents of Quebec.


 

 

 

 

 

 

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