United States Government Accountability Office

GAO Report to Congressional Requesters

PRIVATE PENSIONS

Opportunities Exist to 

Further Improve the 

Transparency of 

PBGC’s Financial 

Disclosures 

March 2006 

On May 1, 2006, page 6, in line 1 of the second 

paragraph, the “standards promulgated by” was revised 

to read “FASB standards, as permitted by.”

 

GAO-06-429 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 2006

PRIVATE PENSIONS

Opportunities Exist to Further Improve 

the Transparency of PBGC's Financial 

Disclosures 

Highlights of GAO-06-429, a report to 

congressional requesters 

PBGC takes steps to monitor and ensure the accuracy of its single-employer

probable claims forecasts. PBGC reported it monitors its probable claims on 

an ongoing basis by contacting plan sponsors to obtain certain plan financial 

information, reviewing filings submitted by probable plans to conduct a risk 

analysis, and performing valuations to determine the present value of net 

probable claims and expected date of probable plan termination. To ensure 

the accuracy of its probable claims, PBGC reported that it uses an 

automated system and available plan financial data to calculate the assets 

and liabilities for probable plans. 

PBGC and public companies have different practices for disclosing certain 

information about liability settlements, including probable losses, that arise 

from the differences between PBGC’s responsibilities and disclosure 

policies, and the Security and Exchange Commission’s (SEC) requirements 

for public companies. While PBGC and public companies follow the same

accounting standards for recording probable losses in their annual financial 

statements, they each follow different policies and requirements when 

reporting information about probable losses throughout the fiscal year. 

When reporting information on liability settlements, public companies are 

required to follow the standards set forth by SEC requirements, while PBGC, 

which is not subject to SEC requirements, follows its own set of policies and 

procedures. GAO found that PBGC's disclosure practices regarding probable 

losses are more comparable to those of the Federal Deposit Insurance 

Corporation (FDIC).

PBGC has made efforts to improve the transparency of the information it 

discloses about its financial condition, but pension experts, financial 

analysts, and others believe that additional improvements are still needed. 

PBGC has recently taken steps to include more information about its 

methodology for determining probable claims in its annual reports and make 

more detailed information on its financial condition available on its Web site. 

However, pension experts, analysts, and industry association representatives 

still have concerns about transparency. Many stated that the press releases 

PBGC issues that announce newly terminated plans do not provide the 

public with enough information to determine the financial impact of such 

plans on PBGC’s published deficit. In addition, these parties expressed 

concern about the lack of transparency regarding the methodology PBGC 

uses to determine its interest rate its uses to calculate its liabilities. 

Specifically, these parties told us the fact that PBCG does not widely 

disclose the interest rate methodology contributes to ambiguity about 

PBGC’s assumptions and means that these parties are unable to fully assess

PBGC's financial condition. 

 

 

www.gao.gov/cgi-bin/getrpt?GAO-06-429.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Barbara 

Bovbjerg at (202) 512-7215 or 

bovbjergb@gao.gov. 

The Pension Benefit Guaranty 

Corporation's (PBGC) singleemployer insurance program 

insures the pension benefits of 

over 34 million participants in 

almost 29,000 private sector

defined benefit pension plans. The 

increase in PBGC’s probable

claims has raised questions about 

PBGC’s monitoring and financial 

disclosure practices, including

whether the information that

PBGC discloses is sufficient for 

interested parties to understand 

the effect on PBGC’s financial

condition. GAO examined (1) the 

steps that PBGC takes to monitor 

and ensure the accuracy of its 

probable claims, (2) how PBGC’s 

financial liability reporting

compares with those of publicly

traded companies, and (3) the

steps PBGC has taken to improve 

the transparency of its financial 

reporting and whether additional 

improvement is needed. 

What GAO Recommends

To improve the transparency of

the information PBGC discloses 

about its financial condition, GAO 

recommends that PBGC 

(1) disclose in its press releases

whether a newly terminated plan 

was already included in its 

published deficit, and (2) make its

interest rate methodology more 

widely available to the public. 

PBGC agreed with our 

recommendations. Also, PBGC, 

FDIC, and SEC provided technical 

comments on the draft. We

incorporated each agency’s

comments as appropriate. 
Contents 

Letter 1

Results in Brief 3

Background 5

PBGC Has a Process in Place to Monitor and Ensure the Accuracy 

of Its Single-Employer Probable Claims Forecasts 9 

PBGC and Public Companies Follow Different Reporting 

Requirements when Reporting Liability Settlements, Including

Probable Losses 14 

PBGC’S Financial Disclosures Have Improved, but Transparency in

Some Areas Remains an Issue 17 

Conclusions 22

Recommendations 22

Agency Comments 23 

Appendix I Comments from the Pension Benefit Guaranty

Corporation 24 

Appendix II Comments from the Securities and Exchange 

Commission 26 

Appendix III Other Concerns Regarding the Information PBGC 

Discloses about Its Financial Condition 28 

Appendix IV GAO Staff Acknowledgments 30 

Table 

Table 1: List of Probable Classification Criteria 10 

Figure 

Figure 1: Summary of Probable Net Claims Activity, Fiscal Years 

1987-2004 14

Page i GAO-06-429 Private Pensions
Abbreviations 

ACLI American Council of Life Insurers 

CWG Contingency Working Group 

ERISA Employee Retirement Income Security Act 

FASAB Federal Accounting Standards Advisory Board 

FASB Financial Accounting Standards Board 

FDIC Federal Deposit Insurance Corporation 

GAAP Generally Accepted Accounting Principles 

IPVFB Integrated Present Value of Future Benefits 

IRS Internal Revenue Service 

OMB Office of Management and Budget 

PBGC Pension Benefit Guaranty Corporation 

SEC Securities and Exchange Commission 

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Page ii GAO-06-429 Private Pensions
United States Government Accountability Office

Washington, DC 20548 

 

March 27, 2006 

The Honorable John Lewis 

Ranking Minority Member 

Subcommittee on Oversight 

Committee on Ways and Means 

House of Representatives 

The Honorable Earl Pomeroy 

House of Representatives 

The Pension Benefit Guaranty Corporation’s (PBGC) single-employer 

insurance program is a federal program that insures certain benefits of the 

more than 34 million workers and retirees covered by almost 29,000 

private sector defined benefit pension plans. In recent years, because of 

the collapse of several large underfunded pension plans, the program’s 

financial condition has deteriorated from a $9.7 billion cumulative surplus 

at the end of fiscal year 2000, to a $22.8 billion cumulative deficit as of the 

end of fiscal year 2005. PBGC’s liabilities include liabilities incurred from 

plans that have already terminated and, as required under Generally 

Accepted Accounting Principles (GAAP), estimated losses incurred from 

“probable” terminations, also referred to as “probable claims.” A plan is 

classified as a probable claim if PBGC determines that it is likely to 

terminate in the future. Forty-six percent ($10.4 billion) of PBGC’s 

cumulative deficit as of the end of fiscal year 2005 represents PBGC’s 

estimated liability for its probable claims. PBGC cites the deteriorating 

financial position of a number of PBGC-insured plans and the companies

that sponsor them as a primary reason for the increase in the amount 

booked as probable claims. GAO has previously reported on this and other 

structural problems facing PBGC’s single-employer program.1

 In 2003, we

 1

See GAO, Pension Benefit Guaranty Corporation: Single-Employer Pension Insurance 

Program Faces Significant Long-Term Risks, GAO-04-90 (Washington, D.C.: Oct. 29, 

2003); Private Pensions: Recent Experiences of Large Defined Benefit Plans Illustrate 

Weaknesses in Funding Rules, GAO-05-294 (Washington, D.C.: May 31, 2005); Private 

Pensions: Revision of Defined Benefit Pension Plan Funding Rules Is an Essential

Component of Comprehensive Pension Reform, GAO-05-794T (Washington, D.C.: June 7,

2005); Private Pensions: The Pension Benefit Guaranty Corporation and Long-Term 

Budgetary Challenges, GAO-05-772T (Washington, D.C.: June 9, 2005); and Private 

Pensions: Questions Concerning the Pension Benefit Guaranty Corporation’s Practices

Regarding Single-Employer Probable Claims, GAO-05-991R (Washington, D.C.: September

9, 2005). 

Page 1 GAO-06-429 Private Pensions
placed PBGC’s single-employer insurance program on our high-risk list of 

agencies and programs that need broad-based transformations to address 

major challenges, because of our concerns about the program’s long-term 

viability. 

PBGC’s financial condition is determined by comparing the values of its 

assets and its liabilities. PBGC’s assets consist primarily of accumulated 

premiums paid by covered plans (invested in Treasury securities) and plan 

assets assumed by PBGC when it takes over a plan. PBGC’s liabilities 

consist primarily of future benefit payment obligations for plans it takes 

over and for plans that it believes will probably terminate in the near 

future.2

The increase in PBGC’s probable claims in recent years has raised 

questions about PBGC’s monitoring and financial disclosure practices, 

including whether the information that PBGC discloses is sufficient for 

interested parties to understand the net effect of such claims and 

ultimately terminations. In September 2005, we provided detailed 

information about PBGC’s process for determining single-employer 

probable claims and some information about PBGC’s practices for 

disclosing information about these claims.3

 To address further questions 

about the transparency of PBGC’s probable claims process and its 

disclosure practices, we are reporting on (1) the steps that PBGC takes to 

monitor and ensure the accuracy of its probable claims forecasts, (2) how 

PBGC’s financial liability reporting compares with that of publicly traded 

companies, and (3) the steps PBGC has taken to improve the transparency

of its financial reporting on its probable claims and financial condition and 

whether additional improvement is needed. 

To determine the steps PBGC takes to monitor and ensure the accuracy of

its probable claims forecasts, we reviewed PBGC documents and 

interviewed PBGC officials about the methods they use, including the 

information sources used to monitor claims. We also reviewed the 

agency’s process and internal controls for ensuring the accuracy of claims 

and analyzed PBGC’s historical data about its probable claims, but we did 

 2

Under Statement of Financial Accounting Standard Number 5, loss contingencies are 

classified as probable if the future event or events are likely to occur. 

3

GAO, Private Pensions: Questions Concerning the Pension Benefit Guaranty

Corporation’s Practices Regarding Single-Employer Probable Claims, GAO-05-991R 

(Washington, D.C. September 2005) 

Page 2 GAO-06-429 Private Pensions
not test its controls to ensure that they are effective. To determine and 

compare PBGC and public company practices for making financial 

disclosures, we reviewed applicable Generally Accepted Accounting 

Principles, Financial Accounting Standards Board (FASB) standards, 

Financial Accounting Standards Advisory Board (FASAB) standards, 

Securities and Exchange Commission (SEC) disclosure requirements, and 

the financial disclosures that PBGC and public companies issue. To 

determine the steps PBGC has taken to improve the transparency of its 

financial disclosures and whether additional improvement is needed, we 

identified PBGC initiatives aimed at improving disclosure and interviewed 

industry association representatives, financial analysts, and pension 

experts to determine what further improvements could be made. We 

conducted our work from September 2005 through February 2006 in 

accordance with generally accepted government auditing standards. 

PBGC reports that it takes steps to monitor and ensure the accuracy of its 

single-employer probable claims forecasts. PBGC monitors its probable 

claims on an ongoing basis by contacting plan sponsors to obtain certain

plan financial information, reviewing filings submitted by probable plans 

to conduct a risk analysis, and performing valuations to determine, among 

other things, the present value of net probable claims and expected date of

probable plan termination. PBGC also regularly reviews and updates its 

list of probable claims that it monitors. To help ensure the accuracy of its 

probable claim estimates, PBGC uses an automated system and available 

plan financial information to calculate the quarterly and fiscal year-end 

financial statement assets and liabilities for probable claims. PBGC 

officials believe their probable claims estimates are fairly accurate 

because the estimates are generally close to the final net liability amounts 

for those probable plans it ultimately took over. 

Results in Brief 

PBGC and public companies have different practices for disclosing certain

information about liability settlements, including probable losses, that 

arise from the differences between PBGC’s responsibilities and disclosure 

policies, and SEC’s requirements for public companies.4

 While PBGC and 

public companies follow the same accounting standards for recording 

probable losses in their annual financial statements, they each follow 

 4

 For the purposes of this report, the term “liability settlements” is being used to discuss the 

information that PBGC, the Federal Deposit Insurance Corporations (FDIC), and public 

companies disclose about probable claims that occur between annual financial statements. 

Page 3 GAO-06-429 Private Pensions
different policies and requirements when reporting information about 

probable losses throughout the fiscal year. When reporting information on 

liability settlements, public companies are required to follow the standards 

set forth by SEC requirements, while PBGC, which is not subject to SEC 

requirements, follows its own set of policies and procedures. For example, 

SEC requires companies to disclose major events throughout the year, 

such as liability settlements, that shareholders should know about, which 

can include any probable losses that are considered to be material, in 

Form 8-K. In contrast, PBGC’s policy prohibits the reporting of 

information on plans classified as probable claims in order to protect the 

economic health of the plan sponsor. We found that PBGC’s disclosure 

practices regarding information about probable losses are more 

comparable to those of other government corporations, like the Federal

Deposit Insurance Corporation (FDIC). According to officials from both 

agencies, PBGC and FDIC follow the same accounting standards and face

similar risks when disclosing information on liability settlements, 

including probable losses. For example, both agencies state they do not 

disclose probable loss amounts in their financial liability disclosures 

because doing so might compromise their position in litigation and 

negatively affect the financial condition of entities under their jurisdiction. 

Although PBGC has taken measures to improve the transparency of the 

information it reports related to its financial condition, pension experts, 

financial analysts, and others said that additional improvements are 

needed. PBGC recently began to include more information about its 

methodology for determining probable claims in its annual reports and has 

made more detailed information on its financial condition available on its 

Web site. However, pension experts, analysts, and industry association 

representatives said that they have specific concerns about the 

transparency of information PBGC reports about its financial condition. 

For example, they told us that the press releases PBGC issues to announce 

new plan terminations do not provide the public with enough information 

to determine the terminations’ financial effect on PBGC’s published 

deficit. Pension experts and others said that such omissions may give the 

false impression that the announced liability in the press release is a new 

financial liability to PBGC and that PBGC is adding the entire amount of 

the announced liability to its current financial deficit. However, if the 

terminated plan was among PBGC’s probable claims included in its yearend financial statement, much of the plan’s liability would already be

included in PBGC’s deficit figures. Pension experts and others also 

expressed concern about the lack of transparency regarding PBGC’s 

interest rate assumptions, such as information about the methodology 

PBGC uses to calculate its interest rate. Specifically, the fact that PBGC 

Page 4 GAO-06-429 Private Pensions
does not widely disclose the methods it uses to determine its interest rate 

assumptions raises ambiguity about its assumptions and means that others 

are unable to fully assess PBGC’s financial condition. Finally, most parties 

agreed that the information PBGC reports about its financial condition is 

likely to become increasingly important if changes are made to pension 

accounting rules, because such changes could have an effect on defined 

benefit plans insured by PBGC. 

Because of the questions raised about PBGC’s financial disclosure 

practices, we make recommendations to PBGC to disclose, in its press 

releases, whether a newly terminated plan was classified as a probable 

claim and already included in its reported deficit in its annual financial

statement; and to make its interest rate methodology more widely 

available to the public on its Web site. PBGC agreed with our 

recommendations. PBGC stated that in its future media releases it would 

note whether or not reserves have previously been made relating to the 

termination of the subject company’s defined benefit plans and post 

additional details regarding its interest methodology on its Web site. 

PBGC’s single-employer insurance program is a federal program that 

protects the retirement incomes of more than 34 million workers and 

retirees covered by almost 29,000 private sector defined benefit pension 

plans. Defined benefit pension plans promise to pay a specified monthly 

benefit at retirement, commonly based on salary and years on the job. 

PBGC receives no funds from general tax revenues. Operations are 

financed by insurance premiums set by Congress and paid by sponsors of 

defined benefit plans, investment income, assets from pension plans taken 

over by PBGC, and recoveries from the companies formerly responsible 

for the plans it took over. In addition, PBGC uses Form 5500 

information—the primary source of information for both the federal 

government and the private sector regarding the operation, funding, 

assets, and investments of private pension plans--to monitor singleemployer defined benefit pension plan activities, focusing on assets, 

liabilities, number of participants, and funding levels. Form 5500 

information is also used to forecast PBGC's potential liabilities. 

Background 

The Employee Retirement Income Security Act of 1974 (ERISA) 

established PBGC to insure the pension benefits of participants, subject to

Page 5 GAO-06-429 Private Pensions
certain limits, in the event that an employer cannot pay its promised 

benefits.5

 ERISA also required PBGC to encourage the continuation and 

maintenance of voluntary private pension plans and to maintain premiums 

set by the corporation at the lowest level consistent with carrying out its 

obligations.6 PBGC may pay only a portion of a participant’s accrued 

benefit because of limits on the PBGC benefit guarantee; PBGC generally

does not guarantee benefits above a certain amount, currently 

$47,659 annually per participant at age 65. Additionally, benefit increases 

arising from plan amendments in the 5 years immediately preceding plan 

termination are not fully guaranteed, although PBGC will pay a portion of 

these increases. Finally, sponsors of PBGC-insured defined benefit plans 

pay annual premiums to PBGC for their coverage.

7

PBGC prepares its financial statements in accordance with FASB 

standards, as permitted by the Federal Accounting Standards Advisory 

Board.8

 For procedures on how to record and report contingencies, 

FASB’s Statement of Financial Accounting Standards No. 5, Accounting 

for Contingencies (FAS No. 5), specifically requires that a liability for loss 

contingency be recorded if two conditions are met: (1) information 

available prior to issuance indicates that it is probable that a liability has 

been incurred at the date of the financial statements, and (2) the amount 

of the loss can be reasonably estimated. For fiscal year 2005, PBGC 

received its 13th consecutive clean or unqualified audit opinion from its 

independent auditors. 

As a wholly-owned government corporation, PBGC is subject to the 

financial and internal control reporting requirements of Chapter 91 of Title 

31 of the U.S. Code (commonly known as the Government Corporation 

Control Act). The Office of Management and Budget (OMB) issues 

 5

Some defined benefit plans are not covered by PBGC insurance; for example, plans

sponsored by professional service employers, such as physicians and lawyers, with 25 or

fewer employees. 

6

29 U.S.C. §1302(a). 

7

Premiums have two components: a per participant charge paid by all sponsors and a 

“variable-rate” premium that some underfunded plans pay based on the level of unfunded 

benefits. 

8

The Federal Accounting Standards Advisory Board (FASAB) considers and promulgates

accounting concepts and standards for the federal government. FASAB is sponsored by the

Comptroller General of the United States, the Director of the Office of Management and 

Budget (OMB), and the Secretary of the Treasury of the United States. 

Page 6 GAO-06-429 Private Pensions
guidance to the heads of federal agencies and government corporations 

that sets out the annual process for them to make a statement as to the 

adequacy of their entity’s internal controls. In light of new requirements 

for publicly-traded companies relating specifically to internal controls 

over financial reporting and management’s related responsibilities, 

contained in the Sarbanes-Oxley Act of 2002,9

 OMB recently revised its 

guidance to adopt enhanced requirements for internal controls over 

financial reporting by major federal agencies. Specifically, OMB added an

entirely new appendix to its existing guidance requiring that these 

agencies establish a formal process for assessing their internal controls 

over financial reporting. This new requirement, however, applies only to 

the 24 CFO Act agencies,

10 and thus these specific requirements do not 

apply to PBGC. 

To estimate the present value of its future liabilities, PBGC develops 

interest rate factors, similar to interest rates, to use for these calculations, 

based on surveys of insurance companies conducted by the American 

Council of Life Insurers (ACLI) for PBGC and the Internal Revenue Service 

(IRS).11 The survey asks insurers to provide the net annuity price for 

annuity contracts for plan terminations. PBGC develops interest rate 

factors, similar to interest rates, from the survey results that together with 

PBGC’s other actuarial assumptions produce prices in line with those of 

the private sector insurers surveyed, which are adjusted to the end of the 

year using an average of the Moody’s Corporate Bond Indices for Aa and 

A-rated corporate bonds for the last 5 trading days of the month. The 

adjusted interest rate factors are published in mid-December for use in 

January. The interest rate factors are then further adjusted each 

subsequent month of the year on the basis of the average of the Moody’s 

bond indices. All other things being equal, when interest rates are lower, 

more money is needed today to finance future benefits because this money 

will earn less income when invested. Therefore, lower interest rate 

assumptions result in higher liability amounts, while higher interest rate 

assumptions result in lower liability amounts. 

 9

Pub. L. No. 107-204, §§ 302, 404, 116 Stat. 745, 777, 789 (July 30, 2002). 

1031 U.S.C. § 901. 

11ACLI conducts four surveys annually. PBGC interest rate factors used for its financial 

statements are based on an average of the surveys conducted in June and September. 

Page 7 GAO-06-429 Private Pensions
In 1997, we reported that the cash-based federal budget, which focuses on

annual cash flows, does not adequately reflect the cost or the economic 

impact of PBGC’s single-employer pension insurance program and other 

federal insurance programs.12 Generally, cost is only recognized in the 

budget when claims are paid rather than when the commitment is made. 

Benefit payments of terminated plans assumed by PBGC may not be made 

for years, even decades, because plan participants generally are not 

eligible to receive pension benefits until they reach age 65. Once eligible, 

these benefits are paid over a period of years or even decades. As a result, 

there can be years in which PBGC's current cash collections are estimated 

to exceed current cash payments, regardless of the expected long-term 

cost to the government. We concluded that the use of accrual concepts in 

the budget for PBGC and other insurance programs has the potential to 

better inform budget choices. 

SEC, the principal federal regulator of the U.S. securities markets, requires 

public companies to disclose meaningful financial and other information 

to the public. SEC’s mission is to protect investors, maintain fair orderly 

and efficient markets, and facilitate capital formation. Public companies 

are required to submit reports to SEC on Form 8-K, the “current report” 

companies must file with SEC to announce certain major events that 

shareholders should know about, including any expected losses that are 

considered to be material. In addition, public companies must submit 

annual reports on Form 10-K and quarterly reports on Form 10-Q.13 These 

disclosures are designed to keep the public informed about any 

information that could be considered important for investors. This 

provides a common pool of knowledge for all investors to use to judge for 

themselves whether to buy, sell, or hold a particular security.

FDIC is a government corporation. In addition to its roles as primary 

federal regulator of state-chartered banks that are not members of the 

Federal Reserve System and back-up regulator for all insured depository 

institutions, FDIC said it promotes public confidence and stability in the 

U.S. financial system by insuring deposits in banks and thrift institutions; 

 12 GAO, Budget Issues: Budgeting for Federal Insurance Programs, GAO/AIMD-97-16 

(Washington D.C.: Sept. 30, 1997). 

13The annual report on Form 10-K provides a comprehensive overview of the company’s

business and financial condition and includes audited financial statements. The Form 10-Q 

includes unaudited financial statements and provides a continuing view of the company’s 

financial position during the year. The report must be filed for each of the first three fiscal 

quarters of the company’s fiscal year. 

Page 8 GAO-06-429 Private Pensions
by examining and supervising financial institutions; by identifying, 

monitoring, and addressing risks to the deposit insurance funds; and by 

limiting the effect on the economy and the financial system when a bank 

or thrift institution fails. Similar to PBGC, FDIC receives no congressional 

appropriations; it is funded by premiums that banks and thrift institutions 

pay for deposit insurance coverage and from earnings on investments in 

U.S. Treasury securities.

PBGC reports that it monitors its probable claims on an ongoing basis by 

contacting plan sponsors to obtain certain plan financial information, 

reviewing filings submitted by probable plans to conduct a risk analysis, 

and performing valuations to determine, among other things, the present 

value of net probable claims and expected date of probable plan 

termination. PBGC also regularly updates and reviews its list of probable 

claims that it monitors. PBGC also takes certain steps to ensure the 

accuracy of its probable claims, such as using an automated system for 

estimating probable claims and the most currently available data when 

calculating its estimates. We found that PBGC’s probable claims estimates 

are reasonable because they are generally close to the final claim amounts 

that are determined for these plans that PBGC ultimately takes over. 

PBGC assesses underfunded plans to determine which plans should be 

classified as probable claims and monitored on an ongoing basis. To be 

classified as a probable claim, a plan must meet at least one of the seven

criteria PBGC uses, five of which it characterizes as objective, and two as 

subjective. According to PBGC officials, objective criteria are used when

substantial evidence exists to indicate that the plan sponsor is in 

liquidation or insolvency proceedings or will meet the requirements for a 

distress or involuntary termination. Subjective criteria involve 

management judgment.14 Table 1 shows the different applications of the 

objective and subjective criteria used to classify plans as probable claims. 

PBGC Has a Process 

in Place to Monitor 

and Ensure the 

Accuracy of Its SingleEmployer Probable

Claims Forecasts 

PBGC Has Procedures in 

Place to Monitor SingleEmployer Probable Claims 

on a Year-round Basis 

 14According to PBGC, subjective criteria must typically be used when most plans meet the

criteria for recognition under FAS No. 5 of GAAP while in or close to reorganization under

Chapter 11 bankruptcy. 

Page 9 GAO-06-429 Private Pensions
Table 1: List of Probable Classification Criteria 

Criterion type Description 

Objective The plan’s contributing sponsor(s) is in liquidation under Title 11 of the 

United States Code or comparable state insolvency proceeding. 

Objective PBGC has received a distress termination filing, and substantial 

evidence exists that the requirements for a distress termination are 

likely to be met. 

Objective PBGC has been informed that a distress termination will be filed, and 

substantial evidence exists that the requirements for a distress 

termination are likely to be met. 

Objective PBGC has advised the plan administrator that a distress termination 

should be filed, and substantial evidence exists that the requirements 

for a distress termination are likely to be met. 

Objective PBGC is considering or is expected to consider the plan for an 

involuntary termination, and substantial evidence exist that the 

requirements for an involuntary termination are likely to be met. 

Subjective The plan was classified as reasonably possible and it was determined 

that the plan is a very high risk plan that should be classified as 

probable. 

Subjective Plans can be classified as probable if any other set of circumstances 

exist that in PBGC’s judgment constitute a probable termination. 

Source: GAO analysis of PBGC data. 

Once probable plans are identified, PBGC uses certain information to 

more closely monitor such plans and the future claims they represent. To

accomplish this, PBGC primarily relies on information it receives from 

plan sponsors, information from Section 4010 filings, reportable event and 

distress termination filings, and other sources. 15

• Information from plan sponsors: PBGC officials said they contact plan

sponsors in order to monitor the case and obtain any required information 

not submitted by the plan sponsor, such as the plan’s most recent Form 

5500 filing and actuarial valuation report. PBGC officials said they also 

make an assessment of the potential for termination. This is part of a 

process that encompasses (1) querying the plan sponsor about the 

intentions with regard to its pension plans, (2) obtaining estimates of due 

 15At least one of the following criteria must be met in order for PBGC to approve a distress

termination filing: (1) liquidation in bankruptcy (Chapter 7) or insolvency proceedings; 

(2) reorganization in bankruptcy (Chapter 11); (3) a company will be unable to continue to 

stay in business unless its plan is terminated; and (4) unreasonable, burdensome pension

costs caused solely by a decline in workforce. 

Page 10 GAO-06-429 Private Pensions
and unpaid employer contributions and unfunded benefits, and 

(3) performing a risk analysis. 

• Section 4010 filings: These filings provide PBGC with actuarial and 

other information on some underfunded plans and financial information 

for companies that meet certain criteria. PBGC said that these filings are 

an important component of PBGC’s monitoring activities. Section 4010 of

ERISA requires the reporting of plan actuarial and company financial 

information by employers with plans that have aggregate unfunded vested

benefits in excess of $50 million, missed required contributions in excess 

of $1 million, or outstanding minimum funding waivers in excess of $1 

million. The information required to be filed includes (1) plan identifying 

information, (2) information regarding the fair market value of plan assets 

and the value of benefit liabilities on a PBGC termination liability basis, 

and (3) financial information, such as financial statements. 

• Reportable event and distress termination filings: The major types of

reportable event filings that PBGC uses to monitor underfunded plans 

include the inability of a plan to pay participants the benefits due them in 

the form prescribed by the plan, bankruptcy or insolvency proceedings, 

liquidation proceedings or the dissolving of the plan sponsor, and failing to

meet the minimum funding standards. According to PBGC officials, PBGC 

is notified of reportable events affecting approximately 

300 plans per year. On average, 200 of these plans either undergo standard 

terminations or continue without termination, resulting in PBGC not 

taking over the plan.16 The remaining 100 plans eventually become distress 

terminations or involuntary terminations.17

• Other sources: PBGC uses Form 5500 information to monitor plan 

funding. PBGC also monitors news sources (e.g., Bloomberg, Livedgar, 

and NewsEdge) to identify transactions that could adversely affect plan

funding status and ultimately PBGC. In addition, PBGC contracts with Dun 

and Bradstreet’s First Alert Service, which reports on bankruptcy filings 

within several days of the filing. 

 16The termination of a fully funded defined benefit plan is called a standard termination.

According to PBGC officials, in a standard termination the plan sponsor either purchases

annuities for the plan’s participants or the plan pays them lump sum distributions to satisfy 

its financial obligations. 

17PBGC may initiate involuntary terminations for several reasons, including if PBGC’s loss 

from that plan may be expected to increase unreasonably if the plan is not terminated. 29 

U.S.C. §1342(a). 

Page 11 GAO-06-429 Private Pensions
As part of its monitoring process, all probable claims are reviewed by 

PBGC’s Contingency Working Group (CWG), which is composed of 

representatives from various departments and divisions within PBGC. The 

CWG is responsible for approving probable plan classifications and 

probable loss amounts. PBGC updates its probable claims three times per 

year, and performs valuations for financial reporting purposes on all plans 

on the probable claims list. For each financial reporting date (March 31, 

June 30, and September 30), PBGC actuaries prepare a preliminary list of 

probable claims that also contains the estimated date of plan termination 

and the present value of the each plan’s net claim. For each period, the 

Contingency Working Group reviews and approves the finalized list of 

probable claims. 

PBGC reports that it takes certain steps to help ensure the accuracy of its 

probable claims. One of PBGC’s key controls to help ensure accuracy is an

automated system for estimating probable claims. The Integrated Present 

Value of Future Benefits (IPVFB) system estimates the probable losses 

and does so according to GAAP and FAS No. 5 standards. To calculate the 

fiscal year end financial statement assets and liabilities for probable plans, 

plan information such as Form 5500 filings, asset statements, annuity 

purchases, contributions, and estimated dates of plan termination are 

entered into the IPVFB system as of the estimated date of plan termination 

and fiscal year end. This system adjusts the liabilities from the plan’s 

assumptions, such as mortality, interest, and expected retirement age, to

standard assumptions used by PBGC, and then produces a report that 

provides PBGC staff with information on how the assets and liabilities are 

brought forward from the Actuarial Valuation Report date to the date of

the financial statements. PBGC officials reported that the agency’s process 

for estimating its probable claims is reviewed by its financial auditors as 

part of its annual audit of its financial statements. As noted earlier, the 

auditors have issued unqualified audit opinions for the last 13 years. 

PBGC officials also told us they help ensure high levels of accuracy by

using the most current data available as the starting point in their 

valuation process, but there’s room for improving the timeliness of the 

data. For example, PBGC has 4010 data for the largest plans that it 

designates as probable claims, but even those data are 3 1⁄2 months old 

when received, and they are received only once per year. On occasion, 

PBGC is able to obtain more current actuarial valuation reports, but it is 

not able to do this regularly for all plans on the probables list. 

PBGC Takes Steps to 

Ensure the Accuracy of Its 

Probable Claims 

Page 12 GAO-06-429 Private Pensions
PBGC officials also said since single-employer probable claims are 

estimates, factors that are not fully determinable can cause the actual 

claims PBGC receives to differ from its probable estimates. According to 

these officials, when they calculate their probable estimates, they usually

do not have complete data on the provisions of the plan, the 

characteristics of plan participants, the exact date of plan termination, the 

precise value of plan assets and liabilities at that termination date, or the 

level of recoveries from the plan’s sponsor, all of which may change over 

time. Additionally, potential changes in PBGC’s valuations, knowledge of

specific plan provisions, and participant characteristics combine in ways 

that can cause the actual claims from these plans to deviate from the 

estimates, regardless of the timeliness of the data used in preparing the 

estimates. When a probable claim becomes an actual claim, PBGC officials 

said they adjust the probable claim estimate to that of the actual claim 

amount as of the date of plan termination. If a plan is removed from the 

probables list for a reason other than termination, the previously 

estimated claim is removed from the probable claims total and 

reclassified, often as a reasonably possible claim.18

PBGC data showed its total probable claims estimates ($21.8 billion) for 

all plans that eventually terminated were within one percentage point of 

the actual claim amount ($21.9 billion). Ninety-five percent of the 

$22.9 billion in resolved probable claims was in plans that terminated with 

PBGC.19 In addition, historically the vast majority of probable claims 

(76%) subsequently become actual claims, as shown in figure 1. 

 18Plans are classified as reasonably possible if they have over $50 million in aggregate 

underfunding, the plan sponsor's bonds are below investment grade, the sponsor has

applied for a minimum funding wavier with the Internal Revenue Service or has missed a 

minimum funding contribution, or the sponsor is in reorganization under Chapter 11. 

19The $22.9 billion amount represents both $21.8 billion for probable claims that became 

actual claims and $1.1 billion for claims that were removed from the probable category. 

Page 13 GAO-06-429 Private Pensions
Figure 1: Summary of Probable Net Claims Activity, Fiscal Years 1987-2004 

Moreover, of the $16.9 billion of probable net claims that were reported in

the financial statements as of the end of fiscal year 2004, more than 

$10 billion was in plans that terminated during fiscal year 2005. 

PBGC and public companies have different practices for disclosing 

information about liability settlements, including probable losses. 

Although PBGC and public companies follow the same accounting 

standards for recording probable losses in their annual financial 

statements, they each follow different policies and requirements when 

reporting information about probable losses throughout the fiscal year.

When reporting information on liability settlements, PBGC follows its own 

set of policies and procedures, while public companies are required to 

follow the standards set forth by SEC requirements. PBGC’s disclosure 

practices regarding financial liabilities are similar to those of other 

government corporations, namely FDIC, which operates similar programs 

and faces similar risks. 

4%

20%

76%

Source: PBGC data.

Claims removed from probable category •

• Unresolved probable claims

•

Probable claims that became actual claims

PBGC and Public 

Companies Follow 

Different Reporting 

Requirements when 

Reporting Liability 

Settlements, Including 

Probable Losses 

Page 14 GAO-06-429 Private Pensions
PBGC and publicly traded companies have different practices for 

disclosing information on liability settlements, including probable losses. 

Both PBGC and public companies follow the same accounting standards 

for recording probable losses in their annual financial statements. For 

example, PBGC announces an estimated liability from probable claims in 

its annual report, and public companies report similar information about 

probable losses in their annual reports. However, when reporting 

information about probable losses throughout the fiscal year, PBGC and 

public companies have different practices, which result from the different 

policies and requirements of each entity. 

PBGC’s reporting in its annual report, or elsewhere, is meant to avoid the 

disclosure of any information on specific plans classified as probable in 

order to prevent harm to the economic health of the plan sponsor. When a 

plan is classified as a probable claim and has not yet terminated, PBGC’s 

policy precludes the disclosure of any information indicating that a 

specific plan has been classified as a probable claim. In its annual report, 

PBGC reports its probable claim estimates as an aggregated total value of

net claims in order to conceal exactly which plans are included in the 

figure. PBGC also identifies its probable claim estimates by industry in its 

financial statements. PBGC officials said their policy of not disclosing any 

information on plans so classified is meant to avoid causing more 

economic distress to the plan sponsor, because such plans usually have 

plan sponsors that are already economically weak. According to these 

officials, this policy exists so that disclosure does not unnecessarily 

(1) compromise a company’s ability to continue as a going concern and 

(2) influence a sponsor’s decision whether to maintain or terminate its 

pension plans. For example, if investors knew that PBGC had classified a 

particular plan as a probable claim, this could encourage additional 

negative speculation about the financial health of the plan sponsor and 

trigger activity that might further the financial instability of the company. 

When PBGC takes over a plan, it typically issues a press release 

announcing the liability PBGC expects to incur, without indicating if the 

terminated plan had already been booked as a probable claim and 

consequently included in its previously announced deficit in its year-end 

financial report. According to PBGC officials, PBGC does not release the

amount of its previously booked probable claims in its press releases for 

fear of compromising PBGC’s position in litigation and of negatively 

affecting a company’s financial condition. These officials said that 

releasing its previously booked probable claim amounts would enable 

someone to make a comparison between PBGC’s booked liability for a 

particular plan and the amount of underfunding for that plan. Publicizing 

Differences in PBGC and 

Public Company Liability 

Settlement Reporting 

Result from Differences 

between PBGC Disclosure 

Policies and SEC 

Requirements 

Page 15 GAO-06-429 Private Pensions
this information could affect PBGC’s ability to recover the full amount of a 

plan’s claims in litigation because companies are likely to resist a 

settlement with PBGC for more than the amount of PBGC’s previously 

booked losses. In addition, announcing the previously booked liability also 

has a negative impact on a company’s ability to obtain additional financing 

and may worsen its financial condition. 

In contrast, public companies must follow SEC requirements for 

disclosing information on financial liability settlements, including 

probable claims. Federal securities laws enforced by SEC require that 

public companies disclose information on liabilities booked as a probable 

loss. Public companies must submit current reports to SEC on Form 8-K 

for a number of specified events, including any material event that might 

affect the investment decisions of shareholders. For example, when a 

public company books a material liability as “probable,” the company is 

required to file a Form 8-K with SEC. Often companies issue such 

information in a press release, which they may attach to the 8-K. 

Although SEC requires public companies, under certain conditions, to 

disclose information about a probable loss, there is much variability in 

how these companies choose to disclose this information. According to 

SEC officials, some companies choose to provide as much information as 

possible concerning their probable losses, while other companies choose 

to release less information. For example, some companies release the 

specific amount of a probable loss in an 8-K, and after the liability has 

changed from a probable claim to a certainty, these companies choose to

redisclose the previously booked quantity to fully demonstrate the total

financial impact of the liability on the company. Other companies choose 

to be more general in their disclosure of probable liabilities by disclosing 

information about these quantities in general terms, such as announcing a 

range instead of a specific number. 

Pension experts, financial analysts, SEC officials, and others said that the 

different reporting practices and policies of PBGC and public companies 

are a consequence of the different risks and responsibilities faced by each 

entity. They agreed that there would likely be further economic distress 

for plan sponsors if PBGC divulged which plans are classified as probable 

before those plans terminate. These experts also noted that while PBGC 

has an obligation to not disclose information on its probable claims, public 

companies have a responsibility to report as much information as possible, 

including probable claims, in order to keep investors informed and able to 

make knowledgeable decisions. Finally, they said that the unique risks of 

Page 16 GAO-06-429 Private Pensions
PBGC as a government corporation make its disclosure responsibilities 

distinctively different from those of public companies. 

We found that PBGC’s reporting practices are more comparable to those 

of government corporations like FDIC than they are to those of public 

companies. Both corporations operate similar types of programs, and both 

agencies have a responsibility to ensure the stability of the programs they 

operate. Unlike public companies, PBGC and FDIC are not subject to SEC 

requirements. In our discussions with PBGC and FDIC officials, we found 

that both agencies have adopted similar disclosure policies when reporting

probable losses. 

According to officials from PBGC and FDIC, both agencies follow the 

same accounting standards and face similar risks when disclosing 

information about probable losses. For example, officials from both 

agencies said they do not disclose case-specific, detailed information on 

probable claims in order to protect the entities under their jurisdictions 

from further economic distress. Just as PBGC avoids exacerbating the 

economic situation faced by plan sponsors whose plans are booked as 

probable, FDIC avoids any financial statement disclosure action that might 

cause further economic distress for the institutions it insures. In addition, 

PBGC follows a policy of not disclosing probable claim amounts in its 

press releases announcing the termination of a plan. FDIC officials said 

that the agency issues a press release on the day of institution failure that

may or may not, depending on the nature and timing of the failure, include 

an estimated cost to the Insurance Fund. The unique responsibilities of 

each entity heavily influence the nature and content of the disclosures. 

Over the years, PBGC has made efforts to improve the transparency of its 

disclosures, including revising its annual report to include more detailed

information about its methodology for determining probable claims, and it 

has published more detailed information about its financial condition on 

its Web site. Despite PBGC’s efforts to improve the transparency of its 

disclosures, pension experts and others told us that they would like to see 

more information disclosed when PBGC announces the termination of a 

new plan in its press releases and that they have some uncertainty about 

PBGC’s methodology for calculating its interest rate. In addition, pension 

experts, financial analysts, and industry association representatives told us 

that PBGC’s disclosures are likely to become increasingly important in 

light of upcoming changes in the pension accounting rules for plan 

sponsors. 

PBGC’s Liability 

Settlement Reporting 

Practices Are More 

Comparable to Those of 

FDIC 

PBGC’S Financial 

Disclosures Have 

Improved, but 

Transparency in Some 

Areas Remains an 

Issue 

Page 17 GAO-06-429 Private Pensions
PBGC officials told us they regularly review the agency’s policies for 

disclosing information related to its financial condition and revise their 

disclosure documents as needed. According to PBGC officials, when 

making decisions to revise its disclosures, PBGC takes into consideration, 

among other things, current changes in the private pension environment 

that affect the agency’s financial condition and information that would 

help the public better understand PBGC’s current financial condition. 

Over the last several years PBGC took the following actions to improve the 

transparency of its disclosures: 

PBGC Has Taken Steps to 

Improve the Transparency 

of Its Financial Disclosures 

• it published a fact sheet on its Web site that provides answers to questions 

that have been raised about PBGC financial condition, including its deficit, 

the true cost of its insurance program, and pension underfunding; 

• it revised its annual report to include more detailed information about its 

methodology for determining probable claims; 

• it revised its Pension Insurance Data Book 2003 , which has detailed 

statistics for the agency’s insurance programs, to include information 

related to PBGC’s claims experiences in order to provide more historical 

data on the number and size of claims by the year the plans terminated, 

the funding levels of the plans at termination, and the size of the plans at 

termination; 

• it released extensive data about PBGC’s financial condition, as well as 

explanatory and white papers about how to understand PBGC’s financial

condition, reports, and methods available on its Web site (www.pbgc.gov); 

and 

• it revised the agency’s Web site to make it more user-friendly. 

PBGC officials also said they conduct a range of educational outreach 

activities with their various stakeholders, including plan participants, 

experts, policy makers, and the press. For example, PBGC discusses its 

financial condition at various meetings with plan participants held each 

year. PBGC officials also regularly give speeches at gatherings of 

actuaries, lawyers, financial officers, benefit specialists, and other 

members of the plan sponsor community. PBGC also issues press releases 

regarding its current financial condition, in connection with the annual

financial statements. 

Page 18 GAO-06-429 Private Pensions
Some pension experts and others have expressed concern that some 

aspects of PBGC’s disclosures are still unclear. For example, PBGC does 

not include sufficient information to determine the financial impact of new 

terminations on PBGC’s financial position when it issues a press release. 

When announcing the termination of a new plan in its press releases, 

PBGC does not announce whether or not the terminated plan was 

previously booked as a probable and already included in its reported 

deficit and reported in its annual financial statement. For example, when a 

large plan is terminated, PBGC puts out a press release announcing the

following information about the terminated plan:

Pension Experts, Financial 

Analysts, and Others Have 

Concerns about the 

Transparency of PBGC’s

Disclosures 

• the type of termination and reason for termination; 

• plan information, including the amount of assets, amount of liability, level

of funding, and the number of employees covered by the plan;

• the current estimate of PBGC’s liability; and 

• a review of pension rules and guarantee limits. 

When announcing a plan’s termination, PBGC does not disclose whether 

the plan was previously booked as a probable claim, and experts and 

others said this practice leads some to believe that PBGC is assuming a 

wholly new liability, in addition to the large deficit already reported by 

PBGC in its annual report. According to PBGC officials, in the case of 

most large terminations, PBGC has already recorded a major part of the 

announced liability in its reported deficit as a probable claim. Thus, when 

PBGC issues a press release, it may appear that PBGC is assuming a 

considerable liability with the termination of a large underfunded pension 

plan when in fact most of the announced liability has been previously 

recorded in PBGC’s annual financial statement and is already reflected in

its previously reported deficit. Pension experts and financial analysts said

that PBGC’s press releases include PBGC’s best estimate of the financial 

liability facing PBGC without any mention of how much of this liability has 

already been recorded as a probable claim in its annual financial 

statement. Experts and others told us that when PBGC puts out a press 

release announcing the termination of a new plan, they regularly receive 

telephone calls from the media and others asking if this announced 

liability is a new liability added to PBGC’s deficit. By revealing whether the 

newly terminated plan was previously recorded as a probable claim, PBGC 

would give policy makers and others better information to understand the 

impact on PBGC’s financial condition. 

Page 19 GAO-06-429 Private Pensions
Pension experts and financial analysts were also concerned that they 

remain uncertain about PBGC’s methodology for calculating the interest 

rate it uses to discount its long-term liabilities and would like to see more 

information disclosed about this process. The interest rate used by PBGC 

to calculate its liabilities has a significant effect on the reported financial 

condition of PBGC. For instance, if PBGC reduced its interest rate, the 

value of its liabilities would increase, and conversely, if PBGC increased 

its interest rate, the value of PBGC’s liabilities would decrease. Pension 

experts said that because PBGC’s interest rate choice has a large impact 

on its reported financial position, they are troubled that the assumptions 

surrounding the interest rate decision are not transparent. Pension experts 

and financial analysts said that they are uncertain of the exact calculations 

used by PBGC to calculate its rate, and they believe that PBGC could do 

more to clarify its interest rate assumptions and the effect of this rate on 

its reported financial position. 

According to PBGC officials, information about their interest rate 

calculations is available upon request but is not provided in its annual 

financial disclosure documents. Although PBGC discloses its interest rate 

factors and some of its actuarial assumptions in its annual financial 

statement, it does not disclose its entire interest rate methodology. PBGC 

officials also told us that in 2003, during bankruptcy proceedings for US 

Airways, the court reviewed PBGC’s interest rate. During these 

proceedings, PBGC submitted a detailed presentation on how the rate is 

calculated, which is now part of the public record. The court upheld 

PBGC’s use of its interest rate. PBGC officials told us they distribute 

documentation of their methodology when it is requested. However, while 

the assumptions and calculations PBGC uses to calculate its interest rate 

are public information, such information is not readily accessible to 

experts, plan sponsors, plan participants, or lawmakers because they may 

not know that this information is available upon request. 

Pension experts and others also had additional concerns about PBGC’s 

methodology and practices that PBGC has addressed. Specifically, they 

were concerned that PBGC’s practices and disclosures overstate PBGC’s 

economic distress by (1) including estimated probable claim liabilities in 

its deficit, (2) not publishing a projected date of PBGC’s insolvency,20 and 

 20This is the date when PBGC’s available resources will not be sufficient to pay the monthly

benefits currently coming due. 

Page 20 GAO-06-429 Private Pensions
(3) using a low interest rate. For more information on these concerns and

PBGC’s responses to these concerns, see appendix III. 

Concerns about the transparency of information on the financial condition 

of the PBGC are not new. As we previously reported, the cash-basis of the 

federal budget contributes to a lack of transparency about PBGC and 

other federal insurance programs that may delay recognition of emerging 

financial problems.21 Furthermore, current budget reporting may not 

provide policy makers with information or incentives to address potential 

funding shortfalls before claim payments come due. Generally costs are 

recorded in the budget too late for policy makers to control them or even 

ensure that adequate resources will be available to cover them. The 

delayed budget recognition of these costs can reduce the number of viable 

options available to policy makers and may ultimately increase the cost to 

the government. 

 

Finally, many of the pension experts, financial analysts, and industry 

association representatives we consulted observed that PBGC’s 

disclosures are likely to become increasingly important if changes to the 

pension accounting rules currently under discussion are made, as these 

could have an effect on defined benefit plans covered by PBGC. The 

primary accounting rule change that is being discussed is likely to move 

the disclosure of the funding status of pension plans from the footnotes to 

the balance sheet of the employer’s financial statement. According to 

FASB, this change is intended to make an employer’s pension obligations 

more visible on the balance sheet and income statement in order to 

increase the transparency of the plan sponsor’s financial position. 

Financial analysts and others told us that there are many potential effects 

to this expected change that do not directly influence PBGC but are likely 

to indirectly affect PBGC’s financial condition. For example, pension 

experts and analysts said that the new FASB changes could have a positive 

effect on PBGC’s future financial condition by promoting greater 

contributions and higher funding levels from plan sponsors, thus reducing 

PBGC’s exposure to financially troubled plans. 

 21U.S. General Accounting Office, Budget Issues: Budgeting for Federal Insurance 

Programs, GAO/AIMD-97-16 (Washington D.C.: Sept. 30, 1997) and U.S. Government

Accountability Office, Private Pensions: The Pension Benefit Guaranty Corporation and

Long-Term Budgetary Challenges, GAO-05-772T (Washington D.C.: June 9, 2005). 

Page 21 GAO-06-429 Private Pensions
The information that PBGC reports on its probable claims and financial 

liabilities is the main source of information that policy makers and 

interested parties have to evaluate the financial condition of PBGC. The 

more transparent PBGC is about the impact of new terminations on 

PBGC’s financial positions and the methodology it uses to determine its 

interest rate, the less ambiguity there will be about PBGC’s financial 

condition and the more beneficial PBGC’s financial reporting will be for 

policy makers and others. Public understanding of PBGC’s financial 

condition will become even more important in the near future if the 

proposed changes to pension accounting rules are made, potentially 

affecting PBGC’s financial condition. 

The risks faced by PBGC when disclosing information about probable 

claims are not the same as those faced by public companies. PBGC must 

be careful not to release information that can negatively affect the 

sponsors of the plans it insures or its ability to recover assets from the 

sponsors of the plans that it takes over. Public companies’ disclosures are 

aimed at providing necessary information to investors. Improving the 

transparency of the financial information released by PBGC will require 

finding a solution that does not hinder the agency’s ability to make 

recoveries from plan sponsors for the losses it incurs. 

We recognize that PBGC believes that there are reasons for withholding 

certain information about its probable claims. As we reported, PBGC does 

not disclose the names and liability amounts for newly terminated plans 

that were classified as probable claims because of its concerns of 

compromising PBGC’s position during litigation and negatively affecting 

the economic health of plan sponsors. However, PBGC could better 

describe the impact of new claims on its reported net financial position 

when announcing new plan terminations in its press releases. Therefore, 

we recommend that PBGC consider disclosing, in its press releases, 

whether a newly terminated plan was classified as a probable and already

included in its reported deficit in its annual financial statement. 

To improve the transparency of the interest rate assumptions PBGC uses 

to calculate its liabilities, we recommend that PBGC makes it interest rate 

methodology more widely available to the public. In doing so, PBGC 

should considering making this information available on its Web site. 

Conclusions 

Recommendations 

Page 22 GAO-06-429 Private Pensions
We provided a draft of this report to PBGC, FDIC, the Department of 

Labor (Labor), SEC, and the Department of the Treasury (Treasury). 

PBGC provided written comments, which appear in appendix I. PBGC’s 

comments agreed with the findings and conclusions of our report. SEC 

provided written comments which appear in appendix II. SEC’s comments 

generally agreed with our findings related to SEC’s Form 8-K and material 

liabilities. The agency’s comments also provided additional information 

that is related to Form 8-K requirements and financial statement disclosure 

of loss contingencies. PBGC and FDIC also provided technical comments 

on the draft. We did not receive any comments from Labor and Treasury. 

We incorporated each agency’s comments as appropriate. 

As arranged with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from the 

issue date. At that time, we will send copies of this report to the Secretary 

of Labor, the Secretary of the Treasury, and the Executive Director of the 

Pension Benefit Guaranty Corporation; appropriate congressional 

committees; and other interested parties. We will also make copies 

available to others on request. In addition, the report will be available at 

no charge on GAO’s Web site at http://www.gao.gov. 

If you have any questions concerning this report, please contact me at 

(202) 512-7215. Other contacts and acknowledgments are listed in 

appendix IV.

Barbara D. Bovbjerg 

Director, Education, Workforce 

 and Income Security Issues 

Agency Comments 

Page 23 GAO-06-429 Private Pensions
Appendix I: Comments from the Pension Appendix I: Comments from the Pension Benefit Guaranty Corporation 

Benefit Guaranty Corporation 

Page 24 GAO-06-429 Private Pensions
Appendix I: Comments from the Pension

Benefit Guaranty Corporation 

Page 25 GAO-06-429 Private Pensions
Appendix II: Comments from the Securities Appendix II: Comments from the Securities and Exchange Commission

and Exchange Commission 

Page 26 GAO-06-429 Private Pensions
Appendix II: Comments from the Securities

and Exchange Commission

Page 27 GAO-06-429 Private Pensions
Appendix III: Other Conc

Information PB

Finan

erns Regarding the 

GC Discloses about Its 

cial Condition 

Page 28 GAO-06-429 

Appendix III: Other Concerns Regarding the 

Information PBGC Discloses about Its 

Financial Condition 

Pension experts and others had additional concerns about the Pension 

Benefit Guaranty Corporation’s (PBGC) methodology and practices that

have been addressed by PBGC. Pension experts and industry association 

representatives told us they are also concerned that PBGC’s practices and 

disclosures overstate its economic distress by (1) including estimated 

probable claim liabilities in its deficit, (2) not publishing a projected date 

of insolvency, and (3) using a low interest rate. Each of these concerns has 

already been addressed by PBGC. 

PBGC includes estimated net losses incurred from probable terminations 

in its liabilities when calculating its deficit. Some experts are concerned 

that PBGC’s deficit is largely composed of liabilities from probable claims 

that might never terminate. In addition, these parties told us that by only 

booking the net claim, instead of booking the assets and liabilities 

separately, PBGC is making its own funded ratio look worse. PBGC 

officials agreed that this practice may make their funded ratio lower but 

said it has no impact on the size of its deficit. However, PBGC officials 

said that according to FAS 5, PBGC is required to include the expected net 

claims from probable claims in its financial statement if the loss is 

probable and the amount of the loss can be reasonably estimated. 

Furthermore, the accounting standards do not permit PBGC to separately

book plan assets and liabilities of probable claims until PBGC takes over 

the plan. 

Pension experts and industry association representatives also told us that

PBGC publicizes its large financial deficit without publishing an estimated

date of insolvency. While some experts we spoke to understand that PBGC 

has enough assets to pay its promised obligations for a number of years,

they are concerned that by not announcing a date of insolvency, PBGC 

leaves the impression that participants are at imminent risk of not 

receiving their benefits. PBGC officials told us that a projected date of 

insolvency for the single-employer program is not calculated because 

there are many uncertain variables that will affect PBGC’s future cash 

flows, and it is not possible to reasonably project a date of insolvency with

any accuracy. The uncertainty of when PBGC will trustee new plans, how 

those claims will affect PBGC’s future cash flows, and of PBGC’s revenue 

from investment returns make it impossible to make reasonable 

predictions of the date of PBGC’s insolvency. However, PBGC officials 

reported that the agency’s analysis has shown that there is less than a 10 

percent chance that its single-employer program will not have sufficient 

assets to pay guaranteed benefits through 2020. 

Estimated Probable Claim 

Liabilities in Its Deficit 

Projected Date of 

Insolvency 

Private Pensions
Appendix III: Other Concerns Regarding the 

Information PBGC Discloses about Its 

Financial Condition 

Interest Rate Level Some pension experts, industry association representatives, and financial 

analysts disagree with PBGC’s choice of interest rate used when 

calculating the value of its liabilities and argue that this interest rate is 

unrealistically low, thereby overstating the value of its reported deficit.

These experts said that PBGC should be using a higher interest rate that is 

more in line with current corporate economic conditions. According to 

PBGC officials, the agency’s interest factors are based on the rate at which 

a private insurance company would charge plan sponsors to take on a 

plan’s promised benefits. The survey ensures that PBGC’s termination 

values reflect the current market price of terminating a plan. PBGC 

officials also noted that its auditors have issued unqualified opinions on its 

financial statements, which include its liabilities for probable losses and 

the interest factors used to calculate these liabilities. In addition, the 

American Academy of Actuaries conducted a study that found its 

procedures accurately reflected annuity prices. 

Page 29 GAO-06-429 Private Pensions
Appendix IV: GAO Staff Acknowledgments 

Page 30 GAO-06-429 

Appendix IV: GAO Staff Acknowledgments 

Tamara Cross, Assistant Director; Raun Lazier, Analyst-in-Charge; Diana

Blumenfeld; Joseph Applebaum; Richard Burkard; Robert Dacey; Kimberly

McGatlin; Jonathan McMurray; James McTigue Jr.; and Roger J. Thomas 

made important contributions to this report. 

Private Pensions

Staff 

Acknowledgments 

(130508) 
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