PBGC guarantees 401(k) rollovers to pensions

You can now roll your 401(k) assets into your company's pension plan and the Pension Benefit Guaranty Corp. will guarantee the portion you roll over.

Pensions guarantee qualifying workers a set monthly income for life, depending on their salary and years of service. If a private-sector pension plan goes bankrupt, the PBGC guarantees payments, up to $60,165 a year.

Under the new rules, you'll be able to add your 401(k) assets to your pension, which would increase the amount of your pension paycheck. The amount you add to your pension from your 401(k) wouldn't be subject to the $60,165 limit.

If you rolled over your 401(k) into your pension and the pension failed, you would get your pension payment up to the $60,125 insurance limit. But you'd also get an additional monthly amount in the form of an annuity from the PBGC representing your 401(k) rollover.

If your company froze your pension plan and it failed, you'd get the amount of your lump sum pension plus your additional contribution from your 401(k) as an annuity payment from the PBGC.

"We think that lifetime income is important, and that if you have a larger retirement paycheck, we think that's a good thing," says PBGC spokesman Marc Hopkins.

In order to roll your 401(k) into your pension, your company must have a traditional pension plan, and your employer must allow you to do it. You may be able to split your 401(k) assets between your pension and a self-directed retirement account. That's up to your employer.

"This is good news for employees," says from Robyn Credico, head of defined contribution consulting at Towers Watson. "Allowing 401(k) participants to roll their money into a defined benefit plan is the most efficient form of annuity that employers can offer from a cost and administrative perspective. The additional guarantee is also of great value."

Just how willing employees will be to add their 401(k) proceeds to their pension is an open question. "While this is a helpful clarification that will remove some barriers to lifetime income, when companies offer lump sum pension payouts, generally people take them," says Ann Combs, head of government relations at Vanguard.

Investors in 401(k) programs can always annuitize all or part of their assets when they retire. A company may be able to negotiate better terms than individuals could get, however.

Although companies have been cutting back on traditional pensions in favor of 401(k) plans, 118 Fortune 500 companies still offer pensions to new employees, according to Towers Watson. That's down from 299 just 15 years ago. Nevertheless, nearly half of Fortune 500 companies that no longer provide pension plans to new hires still have active employees who are accruing pension benefits.

PBGC pays the benefits of about 1.5 million people in failed pension plans. It takes no taxpayer money. Operations are financed by insurance premiums, investment income and with assets and recoveries from failed plans.