PBGC Coverage FAQs

Here are some FAQs to review which plans are covered by the PBGC and the owner-only exemption.  The next article in our series will address the professional employer exemption.

Are 401(k) plans subject to PBGC coverage?

No, 401(k) plans are defined contribution plans. Defined contribution plans are not subject to PBGC coverage.

Are money purchase plans subject to PBGC coverage?

No, money purchase plans are defined contribution plans.  Defined contribution plans are not subject to PBGC coverage.

Are cash balance plans and pension equity plans subject to PBGC coverage?

Yes, cash balance plans and pension equity plans are defined benefit plans. All defined benefit plans are subject to PBGC unless they qualify for an exemption.

Are floor-offset plans subject to PBGC coverage?

Defined benefit plans that are part of a floor-offset arrangement are subject to PBGC coverage, unless they qualify for a coverage exemption.  Defined contribution plans (such as 401(k) plans and profit sharing plans) that are part of a floor-offset arrangement are not subject to PBGC coverage because the PBGC only covers defined benefit plans.

Is a defined benefit plan covering the 100% owner of a corporation and his spouse subject to PBGC coverage?

No, this plan is not covered by the PBGC.  The plan qualifies for the owner-only exemption.

Does a cash balance plan covering the 100% owner of a corporation and his adult child qualify for the owner-only PBGC coverage exemption?

No, this plan does not qualify for the owner-only exemption. Ownership is not attributed to the adult child, so he is not considered a substantial owner. Therefore, PBGC coverage is triggered unless, the plan qualifies for a different exemption.

Does a cash balance plan covering the 100% owner of a corporation and his minor grandchild qualify for the owner-only PBGC coverage exemption?

No, this plan does not qualify for the owner-only exemption.  Ownership is not attributed to the minor grandchild, so he is not considered a substantial owner. The plan will be covered by the PBGC coverage unless the plan qualifies for a different exemption.

A cash balance plan covers the owner and one rank-and-file employee.  The rank-and-file employee terminates employment and is paid his entire benefit.  Is the plan now eligible for the owner only exemption?

Yes, the plan is eligible for the owner-only exemption, but the plan remains PBGC covered until the PBGC is notified and acknowledges that the plan is no longer PBGC covered.  There is no form to notify the PBGC.  Instead, the PBGC can be notified via a letter explaining the circumstances.

Read more articles in this series:

Introduction to the PBGC
Plans Covered by the PBGC
Owner Only Exemption from PBGC Coverage