Certified Plan Sponsor Professional (CPSP) Practice Exam

The PBGC was established under which major legislative act?

1. The Affordable Care Act

2. The Pension Benefit Guarantee Act of 1974

3. The Employee Retirement Income Security Act of 1974

4. The Social Security Act

The correct answer is: The Employee Retirement Income Security Act of 1974

The correct answer is the Employee Retirement Income Security Act of 1974 (ERISA). This landmark legislation was enacted to protect the interests of employee benefit plan participants and their beneficiaries. One of its key components was the establishment of the Pension Benefit Guaranty Corporation (PBGC), which was created to insure pension benefits for participants in defined benefit plans. The PBGC steps in to pay pension benefits when a pension plan is terminated and cannot meet its obligations, thus providing a critical safety net for employees. The other choices do not involve the PBGC or its establishment. The Affordable Care Act primarily focuses on healthcare reform, while the Social Security Act addresses social insurance and welfare but does not pertain to pension benefits or the PBGC. While the Pension Benefit Guarantee Act of 1974 is initially misleading due to its name, it is actually not the act under which the PBGC was established; rather, it fell under the broader framework of ERISA. Thus, ERISA is the essential piece of legislation that created the PBGC and brought comprehensive regulations and protections to employee benefit plans.