Insurance and Consumer Backstops for Retirement Savings
Published March 9, 2018
We entrust our long-term retirement security with companies and organizations who we hope will be around when we retire. What happens in the rare instances when they fail? This guide provides an explanation of forms of government-aided insurance and consumer backstops that protect your retirement nest-egg.
- Government-aided insurance and consumer backstops protect your retirement assets, giving consumers confidence to keep their money with financial institutions
- Each guaranteeing organization has its own rules and policies with regards to the level of protection
- Annuities are insured by state-run insurance commissions based on where you live
Federal Deposit Insurance Corporation (FDIC)
The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency that insures account deposits made into U.S. banks. The most common FDIC-insured accounts are checking and savings accounts, although certain IRA and employee benefit plan accounts are also insured by the FDIC.
The FDIC was formed in 1933, after bank runs in the Great Depression led to additional bank closures and a decline in consumer confidence in banking. Since then, the FDIC has maintained consumer confidence in bank deposits by insuring up to $250,000 per person for accounts.
Click here to learn more about FDIC coverage.
Pension Benefit Guaranty Corporation (PBGC)
The Pension Benefit Guaranty Corporation (PBGC) serves as the federal regulator and backstop for private sector single-employer and multiemployer pension plans. In the event that a pension plan fails, the PBGC pays out pension benefits to retirees in single-employer plans and provides financial assistance to failing multiemployer pension plans. The size of the PBGC guarantee is limited by statute, with the size of the benefit determined by a formula that incorporates an employees length of service and vested benefit level. PBGC benefits are capped at just over $60,000 per year per participant in single-employer plans and just under $13,000 per year per participant in multiemployer plans.
Click here to learn more about the PBGC.
State Guaranty Funds
Annuity protections function differently than pension and depository insurance, as annuities are supervised by state-run insurance commissions, with the jurisdiction determined by where you live. These state commissions have similar structures, though they contain some differences in terms of the cost to insurers and how much protection annuity owners receive. In the event that an annuity provider runs into financial difficulty, they are placed into rehabilitation by the state guaranty fund, who can, if needed, liquidate the firm’s assets to satisfy obligations to policyholders. If these assets are insufficient to meet obligations, then the state guaranty fund backstops policyholders. These backstops have certain limits, with the most common limits between $250,000 – $300,000. Go here for more information on State Guaranty Associations
Though these backstops exist, the limited nature of the insurance and lengthy process for the collection of benefits can create financial harm for customers. This is why you should carefully consider the credit-worthiness of the insurance provider before purchasing an annuity. Blueprint Income’s annuity quote tool only provides quotes from reputable firms who have a credit rating of A and above.
Click here for more information on state guarantees for annuities.
Takeaways
State and federal governments administer insurance and consumer backstops for retirement savings. While protections can vary depending on the type of investment or benefit received by consumers, they all serve to protect consumers in the event that private sector actors become insolvent or financially illiquid. You should invest for retirement with the confidence that the money you set aside for retirement will be there when you retire.
| Organization | Coverage | Jurisdiction | Limit |
| Federal Deposit Insurance Corporation (FDIC) | Checking accounts
Negotiable Order of Withdrawal (NOW accounts Savings accounts Money market deposit accounts (MMDA) Time deposits such as certificates of deposit (CD) Cashier’s check, money orders, and other official items issued by a bank |
Federal | $250,000 |
| Pension Benefit Guaranty Corporation (PBGC) | Single-employer pension plans
Multiple employer pension plans |
Federal | Up to $60,000 single-employer plans
Just under $13,000 per year in multiemployer plans |
| State Guaranty Funds | State life and health insurance fund (annuities are included) | State | State specific, normally $250,000-$300,000 |
Disclaimer: This article is provided for informational purposes only and not for the purpose of sales, solicitation or inducement to purchase any annuity product. Blueprint Income is not responsible for the accuracy of this information. If you wish to confirm the information contained herein, prior to making an annuity purchase, please call your state insurance department.
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