There are two main types of pensions: defined benefit plans and defined contribution plans.
Participants in defined-contribution retirement plans such as the 401(k), by virtue of the fact they own the underlying investments, are entitled to the funds when they switch jobs, even if their employers fail or otherwise cease operations.
Defined Benefit plans provide participants with a specified monthly benefit. The employer assumes responsibility for ensuring sufficient funds are available to issue monthly checks to those entitled.
The Employee Retirement Income Security Act of 1974 is the federal statute regulating retirement plans. ERISA guidelines include how long an employee must work before being allowed to participate, how long before they are vested, and whether spouses have a right to benefits.
Benefits are determined by a formula based on annual earnings, length of service, and age at retirement. Eligibility rules are contained in a Summary Plan Description (SPD) given workers when they join.
Pension plan administrators often are unable to locate lost employees or missing beneficiaries who have moved or changed name over the years. And the company could have reorganized under a new name, been acquired or dissolved, and the plan transferred or terminated.
If a company goes out of business or otherwise has an underfunded pension plan you – or your surviving spouse – should not assume benefits are lost. The plan may have been replaced by an insurance company annuity, transferred to a bank or mutual fund administrator, or turned over to a government trustee.
Pension Benefit Guaranty Corporation [PBGC], the federal agency which insures private pension plans, currently guarantees payment of benefits earned by 44 million American workers up to a current maximum of $67,295 per year for retirees at age 65.