What Happens to Your Pension When Your Employer Goes Bankrupt

If a bankrupt employer’s single-employer pension plan ends without enough money, the Pension Benefit Guaranty Corporation (PBGC) takes it over and pays benefits up to a legal maximum. For a plan that fails in 2026, that cap is $7,789.77 a month at age 65 for a straight-life annuity. Your summary plan description says whether PBGC insures your plan.

PBGC is a federal agency that insures most private-sector defined benefit pensions. The figures below come from its guarantee tables and participant FAQs, checked as of November 2026.

Does a company bankruptcy end the pension plan?

Not by itself. A company can stay in Chapter 11 for months or years while its pension plan keeps paying benefits. The plan ends only through one of three kinds of termination described by PBGC:

• Standard termination: the plan has enough money to pay all benefits, so the employer buys annuities or pays lump sums, and PBGC’s guarantee ends.
• Distress termination: an employer in financial distress applies, and must prove to PBGC or to a bankruptcy court that it cannot stay in business unless the plan ends. PBGC normally becomes trustee.
• Involuntary termination: PBGC itself ends the plan to protect participants or the insurance program, for example when the plan cannot pay benefits.

In a standard or distress termination, the plan administrator must send a Notice of Intent to Terminate at least 60 days before the proposed termination date. Once PBGC takes over, you stop earning new benefits under the plan.

What is the maximum PBGC guarantee in 2026?

For single-employer plans, the maximum depends on the year the plan fails and your age when benefits start. PBGC says the relevant table is the one for the year the plan fails, or, if the employer was in bankruptcy, the year it entered bankruptcy. These are the figures from PBGC’s maximum monthly guarantee tables, as of November 2026.

Joint-and-survivor amounts assume both spouses are the same age; other ages give different figures. The caps are lower for younger ages because payments are expected to run longer, and lower for survivor annuities because they cover two lives. A pension below the cap for your age is not reduced by it, but the exclusions below can still cut parts of a benefit.

Which pension benefits does PBGC not guarantee?

PBGC guarantees basic pension benefits earned before the plan ends, not every promise in the plan. According to its single-employer FAQs:

• Health and welfare benefits, severance pay, vacation pay, life insurance and lump-sum death benefits are not covered.
• PBGC does not pay cost-of-living increases on the benefits it pays.
• Benefit increases adopted within five years before termination are phased in: PBGC guarantees the greater of 20% of the increase or $20 a month for each full year the increase was in effect.
• Extra benefits triggered by events such as a plant shutdown, if the event happened less than five years before termination, are not fully guaranteed.
• Supplemental and temporary benefits may not be fully guaranteed, and PBGC generally does not pay more than the plan’s normal-retirement-age straight-life benefit.
• Owners of more than 50% of the business face stricter limits.

Unpaid severance, vacation and wages become claims in the employer’s bankruptcy instead. Our guide to what employees are owed in a bankruptcy explains how those claims are ranked.

How are multiemployer (union) pensions different?

Multiemployer plans, run jointly by a union and several employers, have a separate and much lower guarantee. PBGC guarantees 100% of the first $11 of the monthly benefit rate and 75% of the next $33, for each year of credited service. That caps the guarantee at $35.75 a month times years of service, which PBGC summarizes as $12,870 a year for someone with 30 years. The multiemployer guarantee is not adjusted for inflation.

The mechanics differ too. In a multiemployer plan, insolvency rather than termination triggers the guarantee, and PBGC does not pay participants directly: it lends the plan money, so the plan keeps paying benefits at the guaranteed level. A separate Special Financial Assistance program created in 2021 by the American Rescue Plan Act pays eligible troubled plans without a repayment requirement.

Is your 401(k) at risk the same way?

No. PBGC does not insure 401(k) or other defined contribution plans, but those plans hold your money in individual accounts in a trust separate from the company, so the employer’s creditors cannot take it. The risk in a 401(k) is investment loss, or contributions withheld from pay that never reached the plan. For what happens to a 401(k) in a deal, see your 401(k) when your employer is acquired.

How do you check your plan and contact PBGC?

1. Find your summary plan description; it states whether PBGC insures the plan. PBGC also publishes lists of plans that pay its premiums.
2. Read the Annual Funding Notice the plan administrator must send, which shows how well funded the plan is and PBGC’s limits.
3. If PBGC has taken over your plan, create an account in My Pension Benefit Account (MyPBA) on pbgc.gov or call PBGC at 1-800-400-7242.
4. If you are not yet retired, contact PBGC about four months before you want benefits to start, as its FAQs advise.

If the plan is still run by your employer, PBGC has no information about your individual benefit; questions go to the employer or plan administrator.

Bottom line

Pull your latest pension benefit statement and compare it with the table row for the age you plan to start benefits; if your monthly amount is below the cap and was not raised in the last five years, PBGC’s guarantee likely covers most of it. Keep the plan’s Annual Funding Notices, because they record the plan’s condition before any termination. For decisions such as taking a lump sum, a fee-only financial planner or tax professional can help.

FAQ

Will PBGC pay my full pension?

If your benefit is within the maximum for your age and plan termination year, and it is a basic pension benefit, PBGC generally pays it in full. Benefits over the cap, recent increases and non-pension benefits can be cut.

Can I take a lump sum from PBGC?

Only for small benefits. For a plan terminating in 2024 or later, PBGC allows a lump sum when the benefit’s value is no more than $7,000; otherwise it pays a monthly annuity. A lump sum paid directly to an IRA is not taxed until you withdraw it.

Does PBGC cover government or church pensions?

Usually not. PBGC generally does not insure plans of federal, state or local governments, church groups, or professional service employers such as doctors and lawyers with fewer than 26 active participants.