GAO 

United States Government Accountability Office

Report to the Chairman, Committee on 

Education and Labor, House of 

Representatives 

PRIVATE PENSIONS

Sponsors of 10 

Underfunded Plans 

Paid Executives 

Approximately $350 

Million in 

Compensation Shortly 

Before Termination 

October 2009 

GAO-10-77 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

October 2009

PRIVATE PENSIONS

Sponsors of 10 Underfunded Plans Paid Executives

Approximately $350 Million in Compensation Shortly 

Highlights of GAO-10-77, a report to the Before Termination 

Chairman, Committee on Education and 

Labor, House of Representatives 

When sponsors terminate 

underfunded plans during 

bankruptcy, it can deplete 

resources of the Pension Benefit 

Guaranty Corporation (PBGC), 

which protects the pensions of 

almost 44 million American 

workers and retirees who 

participate in over 29,000 defined 

benefit pension plans. In 2009, 

PBGC reported an estimated deficit 

of over $30 billion. GAO was asked 

to determine what pay and other 

compensation executives received 

in the years preceding their 

company’s termination of an 

underfunded defined benefit 

pension plan. 

To identify case study examples 

GAO analyzed a listing of the 1,246 

underfunded plans that were 

terminated from 1999 to 2008 and 

selected public companies with 

large unfunded liabilities, large 

unfunded liabilities per participant, 

and a large number of plan 

participants. GAO reviewed 

documents provided by companies 

and executives, and interviewed 

PBGC and company officials. GAO 

also reviewed Securities and 

Exchange Commission (SEC) 

filings and PBGC documents 

disclosing plan underfunding at the 

time of termination and missed 

contributions. Executive 

compensation figures may be 

understated because some 

company executives could not be 

located, did not respond to 

document requests, declined 

interviews, and did not give GAO 

access to their tax records. 

GAO found that 40 executives for 10 companies received approximately $350 

million in pay and other compensation in the years leading up to the 

termination of their companies’ underfunded pension plans. GAO identified 

salaries, bonuses, and benefits provided to small groups of high-ranking 

executives at these companies during the 5 years leading up to the termination 

of their pension plans. For example, beyond the tens of millions in base 

salaries received, GAO found that executives also received millions of dollars 

in stock awards, income tax reimbursements, retention bonuses, severance 

packages, and supplemental executive-only retirement plans. 

Case Study Plan Details and Executive Compensation 

Industry Pension detailsaCompensation details

Airline 

122,556 participants 

$7.8 billion underfunded 

Company missed nearly $1 billion in 

required pension contributions while 

awarding its top 3 executives over $50 

million in salary, bonuses, stock, and 

supplemental retirement benefits. 

Airline 

61,296 participants 

$2.8 billion underfunded 

Over a period of 8 years, company went 

through 2 bankruptcies and 4 CEOs, who 

collectively received over $120 million in 

salaries, bonuses, severance packages, 

and supplemental retirement benefits. 

Electronics 

10,593 participants 

$318 million underfunded 

Company’s top 3 executives received 

nearly $8 million in salary and bonuses, 

along with over $8 million in other benefits, 

such as tax reimbursements and car 

allowances for themselves and family 

members. 

Insurance 

7,718 participants 

$121 million underfunded 

Company paid its 2 top executives nearly 

$20 million each in salary and bonuses, 

while providing millions in additional 

benefits, such as personal use of 

corporate aircraft for family vacations to 

Europe, millions of dollars in life insurance, 

and millions of stock options. 

Source: GAO analysis of information provided by PBGC, SEC, executives, and corporations. 

a

Underfunded amounts and funding percentage were provided by PBGC and represent the unfunded 

guaranteed benefits payable, as calculated on a termination basis. 

In some cases, plan participants had their benefits reduced due to the 

underfunding of the plan when it was terminated. For example, a retired pilot 

saw his monthly pension payment reduced by two-thirds. The reduction in 

benefits occurred because federal law caps the benefits PBGC can guarantee 

when it takes over an underfunded pension plan. In addition, PBGC has no 

oversight power with regard to executive compensation prior to a company’s 

bankruptcy. During bankruptcy, executive compensation must be approved 

by the bankruptcy court, and after this approval PBGC has extremely limited 

ability to recover those payments to executives. GAO did not find any illegal 

activity with respect to executive compensation on the part of either the 10 

companies or the 40 executives under review. View GAO-10-77 or key components.

For more information, contact Gregory D. 

Kutz at (202) 512-6722 or kutzg@gao.gov. 
Page i GAO-10-77 Private Pensions 

Contents 

Letter 1

Background 3 

Executives at 10 Companies Received Approximately $350 Million 

in Compensation 6 

PBGC Has Limited Recovery Ability Regarding Executive 

Compensation 16 

Agency Comments and Our Evaluation 17 

Appendix I Scope and Methodology 18 

Appendix II Comments from the Pension Benefit Guaranty 

Corporation 20 

Appendix III GAO Contact and Staff Acknowledgments 21 

 

 

Tables 

Table 1: Case Studies Show Executive Compensation 7 

Table 2: Case Study 1 – Components of Executive Compensation 

Provided to Three Executives Over 5 Years 9 

Table 3: Case Study 2 – Components of Executive Compensation 

Provided to Four Executives Over 8 Years 11 

Table 4: Case Study 3 – Components of Executive Compensation 

Provided to Three Executives Over 5 Years 12 

Table 5: Case Study 4 – Components of Executive Compensation 

Provided to Five Executives Over 5 Years 14 

Figure 

Figure 1: Sikorsky S-76B Helicopter 15 
Abbreviations 

BAPCPA Bankruptcy Abuse Prevention and Consumer Protection 

Act of 2005 

CEO Chief Executive Officer 

CFO Chief Financial Officer 

CIGIE Council of the Inspectors General on Integrity and 

Efficiency 

COO Chief Operating Officer 

ERISA Employee Retirement Income Security Act of 1974 

FSA funding standard account 

IRS Internal Revenue Service 

PBGC Pension Benefit Guaranty Corporation 

PPA Pension Protection Act 

SEC Securities and Exchange Commission 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

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necessary if you wish to reproduce this material separately. 

Page ii GAO-10-77 Private Pensions 
Page 1 GAO-10-77 Private Pensions 

 

United States Government Accountability Office

Washington, DC 20548 

 

October 21, 2009 

The Honorable George Miller 

Chairman 

Committee on Education and Labor 

House of Representatives 

Dear Mr. Chairman: 

The Pension Benefit Guaranty Corporation’s (PBGC) mission is to protect 

the pensions of almost 44 million American workers and retirees who 

participate in more than 29,000 defined benefit pension plans.1

 These plans 

are sponsored by a wide range of employers, including large companies 

with over 100,000 covered participants, and small ones which may have as 

few as a dozen participants. PBGC is responsible for the current and 

future pensions of about 1.3 million people even though their sponsor 

companies may no longer be in business. 

In 2003, GAO placed PBGC on its high-risk list due, in part, to the 

significant underfunding of large plans in struggling industries.2

 In May 

2009, PBGC’s Acting Director testified before the Senate Special 

Committee on Aging that through the first two quarters of 2009, PBGC’s 

estimated deficit had tripled to reach $33.5 billion, due largely to an 

increase in completed and probable plan terminations and a decrease in 

interest rates. Given the recent decline in global financial markets and 

increase in corporate bankruptcies, PBGC’s deficit will likely continue to 

increase, with implications for PBGC’s financial position. In this context, 

we were asked to determine what pay and other benefits selected 

executives received in the years preceding their company’s termination of 

an underfunded defined benefit pension plan. 

To determine pay and other benefits received by selected executives, we 

first obtained data from PBGC to identify companies whose underfunded 

1

A defined benefit pension plan is a type of plan where a sponsor provides a guaranteed 

benefit to an employee (generally expressed as a monthly benefit) based on a formula that 

generally combines salary and years of service to the company. This report is concerned 

only with single-employer defined benefit pension plans. 

2

GAO, High-Risk Series: An Update, GAO-09-271 (Washington, D.C.: January, 2009). 
plans had been terminated in the past 10 years.3

 We focused on identifying 

companies that (1) were publicly traded prior to the termination of their 

pension plan(s), (2) had significant unfunded pension liabilities on a 

termination basis ($100 million or more), (3) had a high unfunded liability 

per plan participant ratio ($10,000 or more per participant), and (4) had 

more than 5,000 plan participants. Of the 1,246 underfunded plans 

terminated from 1999 to 2008, we selected 10 companies from 

approximately 30 companies that sponsored plans which met our criteria. 

We then requested and reviewed documents provided by selected 

companies related to the compensation of their executives. We reviewed 

Securities and Exchange Commission (SEC) filings and PBGC documents 

disclosing missed contributions and plan underfunding at the time of 

termination. We also interviewed PBGC and company officials, and plan 

participants. In addition, we requested documentation from all selected 

executives under review, including tax returns. We attempted to interview 

all selected executives, but some could not be reached or declined our 

interview requests. 

Findings related to executive pay and benefits were limited by the 

availability of public documents and information voluntarily provided by 

companies, executives, and other entities (e.g., professional sports teams, 

golf clubs). Because some companies and executives did not provide 

information, declined to be interviewed, and/or did not consent to granting 

GAO access to copies of their tax returns from the Internal Revenue 

Service (IRS), we were not able to document all details concerning pay 

and benefits received beyond the details available in public documents or 

otherwise voluntarily provided. Thus, the executive compensation 

information in this report represents what we were able to determine and 

may be understated. All values listed for restricted stock awards were 

determined by reviewing SEC filings which list the value of stock awards 

as of the date of the award, and therefore may not represent their ultimate 

exercised value.4

 We did not attempt to determine the market value of 

stock options at the time of their award, nor their exercised value. We 

limited our review to the time period beginning 5 years prior to a 

 

3

For the purposes of this report, executive compensation is defined as any item of value 

given in consideration for services rendered in the form of employment that is taxable 

either immediately or on a future date. 

4

Restricted stocks are securities acquired in unregistered, private sales from the issuer or 

from an affiliate of the issuer. Before selling any restricted securities in the marketplace, 

they must be held for a certain period of time, generally 6 months. 

Page 2 GAO-10-77 Private Pensions 
company’s first pension plan termination and ending with the company’s 

final pension plan termination. Since some companies terminated multiple 

pension plans over a period of time, for those companies our review may 

cover more than 5 years. Due to the high turnover of executives at these 

companies, information regarding the total compensation of the 

executives discussed in this report may not have been available for the 

entire time period under review. The 10 case studies presented in this 

report were selected based on the criteria listed above and do not 

necessarily represent the magnitude or makeup of compensation provided 

to all executives. For a complete discussion of our scope and 

methodology, please see appendix I. 

We conducted our audit and investigative work from January 2009 through 

September 2009. We conducted our audit work in accordance with U.S. 

generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings based on our audit 

objectives. We believe that the evidence obtained provides a reasonable 

basis for our findings based on our objectives. We performed our 

investigative work in accordance with standards prescribed by the Council 

of the Inspectors General on Integrity and Efficiency (CIGIE). 

In written comments on a draft of this report, PBGC agreed with our 

assessment that the Employee Retirement Income Security Act of 1974 

(ERISA) does not provide it with any oversight power regarding payments 

to company executives prior to a company’s bankruptcy.5

 Further, PBGC 

agreed that it has limited power over executive compensation during 

bankruptcy, as such payments are under the purview of the bankruptcy 

court. See the Agency Comments and Our Evaluation section of this report 

for a more detailed discussion of PBGC’s comments. We have reprinted 

PBGC’s written comments in appendix II. 

PBGC was established by ERISA to pay participants in private defined 

benefit plans in the event that the sponsor could not.6

 PBGC is financed 

through insurance premiums paid by sponsors and by investment returns 

Background 

 

5

Pub. L. 93-406, 88 Stat. 829 (codified as amended in sections of 29 U.S.C.). 

6

Some defined benefit plans are not covered by PBGC insurance. Such plans include, for 

example, those sponsored by professional service employers, such as physicians and 

lawyers, with 25 or fewer active participants. 

Page 3 GAO-10-77 Private Pensions 
on held assets. Sponsors are responsible for making legally required 

contributions to pension trust funds that are intended to be sufficient to 

fund the promised benefits over time. Plan assets are then invested on 

behalf of participating employees.7

 The precise calculations for 

determining annual minimum funding requirements are set forth in ERISA, 

and compliance is monitored by the IRS. These requirements are designed 

to provide reasonable assurance that a plan’s assets will be sufficient to 

fund the accrued benefits owed to participants when they retire. 

In 2005, we found that, of the 100 largest defined benefit pension plans 

(including many underfunded plans), on average 62.5 percent had received 

no cash contributions each year from 1995 to 2002.8

 These plans were able 

to meet minimum funding requirements through the use of accounting 

credits. Compliance with the minimum funding requirements is recorded 

through the plan’s funding standard account (FSA). The FSA tracks events 

that affect the financial health of a plan during that plan year: credits, 

which reflect improvements to the plan’s assets, such as contributions, 

amortized experience gains, and interest; and charges, which reflect an 

increase in the plan’s financial requirements, such as the plan’s normal 

cost and amortized charges such as the initial actuarial liability, 

experience losses, and increases in a plan’s benefit formula. If FSA credits 

exceed charges in a given plan year, the plan’s FSA registers a net 

increase. Compliance with the minimum funding standard requires that 

the FSA balance at the end of the year is non-negative. An existing credit 

balance accrues interest and may be drawn upon to help satisfy minimum 

funding requirements for future plan years, and may offset the need for 

future cash contributions.9

 In 2006, Congress enacted the Pension 

Protection Act (PPA) to address some identified deficiencies in funding 

requirements.10 Because these changes in funding requirements are 

applicable to plan years beginning after 2007, we are unable to comment 

on what impact, if any, the act would have had on our case studies. 

 

7

Contributions may be made in cash or through the use of accounting credits associated 

with events such as returns on assets in excess of those assumed for funding purposes. 

8

GAO, Private Pensions: Recent Experiences of Large Defined Benefit Plans Illustrate 

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

9

Plan sponsors may request and receive waivers from IRS of certain annual funding 

requirements. These waivers allow a sponsor demonstrating hardship to postpone a 

required minimum contribution over a set future period. 

10Pub. L. 109-280, 120 Stat. 780 (codified as amended in scattered sections of 29 and 26 

U.S.C.). 

Page 4 GAO-10-77 Private Pensions 
For defined benefit plans, the accrued benefit is the amount that the plan 

participants would receive as a life annuity beginning at the normal 

retirement age, as defined by the plan. It is determined by a plan’s benefit 

formula and is recalculated annually as participants complete an 

additional year of service. ERISA requires sponsors to provide information 

to the federal government regarding plan benefits, summary financial 

information, and funding information. Sponsors must estimate their 

liabilities each year to determine whether their plans are fully funded or 

underfunded, with the assumption that the sponsor will continue to 

maintain the plan in its current form for the foreseeable future.11

If a sponsor needs to terminate a plan, it must conduct a valuation of plan 

assets and liabilities to determine whether it is fully funded.12 The 

valuation assumes that no further benefits will accrue and no further 

contributions will be made. If this valuation finds the plan to be 

underfunded, the sponsor must meet certain criteria set by ERISA in order 

to file a claim with PBGC.13 If the sponsor meets these criteria, PBGC 

becomes trustee of the plan and will assume responsibility for paying 

guaranteed benefits to plan participants. However, payments to an 

individual beneficiary are subject to a maximum annual dollar limit, as set 

in accordance with ERISA. For 2009, this limit is $54,000.14

 

11An underfunded plan does not necessarily indicate that the sponsor is unable to pay 

current benefits. Underfunding means that the plan does not currently have enough assets 

to pay all accrued benefits, the majority of which will be paid in the future, under the given 

actuarial assumptions about asset rate of return, retirement age, mortality, and other 

factors that affect the amount and timing of benefits. 

12If a plan is fully funded at termination, the sponsor may pursue a standard termination, in 

which the plan assets are immediately distributed to plan participants as lump sums or 

annuities. 

13The termination of an underfunded plan, termed a distress termination, is allowed if the 

plan sponsor requests the termination and the sponsor satisfies other criteria (such as 

ongoing bankruptcy proceedings). Alternatively, PBGC may initiate an “involuntary” 

termination. Under such a termination, PBGC will institute proceedings to terminate a plan 

because the plan has not met the minimum funding standard, the plan will be unable to pay 

benefits when due, a reportable event has occurred, or the possible long-run loss to PBGC 

with respect to the plan may be expected to increase unreasonably if the plan is not 

terminated. See 29 U.S.C. 1342(a). 

14Some participants in PBGC-trusteed plans receive benefits that exceed the PBGC 

guarantee level. This can occur if the plan has sufficient assets to fund benefits above the 

guarantee or if PBGC recovers, or is deemed to recover, additional funds from the plan 

sponsor through bankruptcy proceedings. In addition, PBGC’s maximum limits assume a 

retirement age of 65. Individuals retiring prior to age 65 are subject to a reduced annual 

limit, and individuals retiring after age 65 have an increased limit. 

Page 5 GAO-10-77 Private Pensions 
Executives at 10 companies received approximately $350 million in pay 

and other benefits in the years leading up to the termination of their 

companies’ underfunded pension plans. We identified the salaries, 

bonuses, and benefits provided to small groups of high-ranking executives 

at these companies. Executives at some companies received salaries in 

excess of $10 million dollars in the years leading up to bankruptcy. We 

also found that some executives at these companies received millions of 

dollars combined in other financial benefits such as income tax 

reimbursements,15 retention bonuses, severance packages, split-dollar life 

insurance,16 and supplemental retirement plans.17 Along with financial 

compensation received, some executives were provided other benefits 

such as apartments, personal trips on company airplanes and helicopters, 

club memberships, legal fee reimbursement, and automobiles. We did not 

attempt to determine whether these benefits were customary. Further, for 

each of the 10 selected companies, at least one executive we reviewed sat 

on the company’s Board of Directors. We did not find any illegal activity 

related to executive compensation on the part of either the 10 companies 

or the 40 executives under review. 

Executives at 10 

Companies Received 

Approximately $350 

Million in 

Compensation 

Table 1 shows details of our 10 case study companies where we reviewed 

salaries, bonuses, and benefits paid to executives.18 Some companies 

sponsored multiple plans which were terminated; for these companies the 

details of their pension plans are presented in aggregate. Further detail on 

4 of these cases follows the table. 

 

15Income tax reimbursements are provided to executives in order to ensure that other 

taxable benefits have a net-zero effect on the executive’s annual income taxes. 

16Split-dollar insurance is a method of paying for insurance by splitting the premiums and 

proceeds between the employer and the employee. Employees may benefit through taxfree withdrawals or tax-free policy loans. 

17Supplemental retirement plans include defined contribution plans, individual trust 

payments, and certain types of deferred compensation. These benefits are commonly 

provided to executives in recognition of the fact that their benefits under a tax-qualified 

defined benefit plan are limited by tax considerations. 

18The compensation described in each of these case studies was paid prior to the effective 

date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). 

Pub. L. 109-8 Stat. 23 (codified as amended in various sections of 11 U.S.C.). BAPCPA 

imposes restrictions on payments to executives of companies in bankruptcy. 

Page 6 GAO-10-77 Private Pensions 
Table 1: Case Studies Show Executive Compensation 

Case 

no. 

Industry/ 

Termination 

date(s) 

Pension detailsa, b

Total compensation 

received by executives Benefits received by executivesc

1 Airline – 

Dec. 2004; 

Mar. 2005; 

June 2005 

• 122,556 participantsd

• $7.8 billion underfundedd

• 40% funded at terminationd

• $978.8 million in missed or 

waived pension contributionsd

• $55.5 million to 3 

executives (includes 

$14.8 million in salary 

and cash bonuses) 

• Over $30 million in stock. 

• Personal retirement benefits of 

more than $7.5 million. 

• Unlimited free travel, with 

reimbursement of related income 

taxes. 

2 Airline – 

Mar. 2003; 

Jan. 2005 

• 61,296 participantsd

• $2.8 billion underfundedd

• 37% funded at terminationd

• $206.8 million in missed or 

waived pension contributionsd

• $120.4 million to 4 

executives (includes 

$9.9 million in salary 

and cash bonuses) 

• Stock worth over $40 million, along 

with nearly $30 million in 

reimbursement of related income 

taxes. 

• Nearly $150,000 in automobile 

expenses. 

3 Electronics – 

July 2002 

• 10,593 participants 

• $318 million underfunded 

• 67% funded at termination 

• No missed or waived pension 

contributions 

• $16.1 million to 3 

executives (includes 

$7.7 million in salary 

and cash bonuses) 

• Nearly 1 million stock options. 

• Usage of company car. 

• Over $8 million in other benefits, 

such as rent and travel 

reimbursements. 

4 Insurance – 

Feb. 2002; 

Jan. 2004 

• 7,718 participants 

• $121 million underfunded 

• 54% funded at termination 

• $29.2 million in missed or 

waived pension contributions 

• $69.7 million to 5 

executives (includes 

$59.3 million in salary 

and cash bonuses) 

• Over $10 million in other benefits, 

including over $3.5 million in splitdollar life insurance. 

• Use of company plane and 

helicopter for personal travel 

valued at over $200,000 to 

locations including Greece, China, 

Spain, Hawaii, and Puerto Rico. 

5 Manufacturing – 

Sep. 2002 

• 7,941 participants 

• $128 million underfunded 

• 47% funded at termination 

• No missed or waived pension 

contributions 

• $23.7 million to 5 

executives (includes 

$12.0 million in salary 

and cash bonuses) 

• The company’s new senior 

management team received nearly 

$4 million in bonuses upon the 

company’s emergence from 

bankruptcy in 1998. 

6 Steel – 

June 2002 

• 9,322 participants 

• $193 million underfunded 

• 28% funded at termination 

• $28.8 million in missed or 

waived pension contributions 

• $8.7 million to 2 

executives (includes 7.6 

million in salary and 

cash bonuses) 

• Retiring Chief Executive Officer 

(CEO) received severance 

package of 2 years salary and 

benefits, valued at approximately 

$800,000. 

• Incoming Chief Operating Officer 

(COO) received signing and 

retention bonuses upon hiring 

totaling $350,000. 

Page 7 GAO-10-77 Private Pensions 
Case 

no. 

Industry/ 

Termination 

date(s) 

Pension detailsa, b

Total compensation 

received by executives Benefits received by executivesc

7 Steel – 

May 2003 

• 35,152 participants 

• $1.2 billion underfunded 

• 46% funded at termination 

• $67.2 million in missed or 

waived pension contributions 

• $8.4 million to 4 

executives (includes 

$6.0 million in salary 

and cash bonuses) 

• Outgoing CEO received a 

severance package worth over 

$500,000, while being retained as 

a consultant for an additional 3 

months. 

8 Steel – 

Mar. 2002; 

Dec. 2003 

• 83,137 participants 

• $2.1 billion underfunded 

• 50% funded at termination 

• No missed or waived pension 

contributions 

• $19.4 million to 4 

executives (includes 

$8.2 million in salary 

and cash bonuses) 

• CEO and COO received $6.5 

million combined in retention 

payments during bankruptcy, 

including $4 million in 

supplemental retirement benefits. 

9 Textiles – 

Aug. 2005 

• 30,927 participants 

• $243 million underfunded 

• 37% funded at termination 

• No missed or waived pension 

contributions 

• $7.4 million to 5 

executives (includes 

$6.2 million in salary 

and bonuses) 

• $500,000 in living expense 

reimbursements to maintain an 

apartment in New York City. 

• Personal use of company Learjet. 

10 Textiles – 

Oct. 2003 

• 27,717 participants 

• $189 million underfunded 

• 59% funded at termination 

• $10.6 million in missed or 

waived pension contributions 

• $21.3 million to 5 

executives (includes 

$9.1 million in salary 

and bonuses) 

• According to SEC filings, CEO 

received $1.8 million in cash and 

stock combined as a signing 

bonus, then worked less than 9 

months before ending his 

employment. 

• Relocation benefits, including 

corporate-funded home purchase. 

Source: GAO analysis of information provided by PBGC, SEC, executives, and corporations. 

a

Underfunded amounts and funding percentages were provided by PBGC and represent the 

unfunded guaranteed benefits payable as calculated on a termination basis. 

b

Missed or waived pension contribution amounts were provided by PBGC and include the total 

missed or waived minimum funding requirements, as defined by ERISA, during the 5 years prior to 

plan termination. 

c

Stock awards are valued using the market value at the time of issuance to the executive, as stated in 

SEC filings, and therefore may not accurately represent the actual realized value to the executive(s). 

d

Data on these plans are based on estimates provided by PBGC as of February 2009, as the financial 

valuations of the plans were not yet complete. 

Case 1: In September 2002, this airline hired a new CEO, who also served 

as President and Chairman of the Board, to help lead the company through 

potentially difficult times ahead. Three months later, the company 

declared bankruptcy and did not emerge until February 2006. During 

bankruptcy, the company terminated four pension plans from December 

2004 to June 2005 that according to PBGC were underfunded by a total of 

$7.8 billion. This airline missed or waived nearly $1 billion in required 

minimum contributions. During this CEO’s tenure, through the termination 

of the company’s four pension plans, the CEO and two other executives 

Page 8 GAO-10-77 Private Pensions 
received a total of $55.5 million in salary, benefits, and other 

compensation. See table 2 below for the components of compensation 

received by these three executives. 

Table 2: Case Study 1 – Components of Executive Compensation Provided to Three 

Executives Over 5 Years 

Salary Cash bonuses Other benefits 

$7.9 million $6.9 million $40.7 million 

• $31.8 million, stock awards 

• $7.6 million, retirement and deferred compensation 

• $0.3 million, tax reimbursements 

• $1.0 million, other compensation including company 

car and driver, country club membership, and 

financial planning 

3.0 million stock options and stock appreciation rights 

Source: GAO analysis of information provided by PBGC, SEC, executives, and corporations. 

The new CEO received a $3 million signing bonus, and the company 

established a supplemental retirement trust fund worth $4.5 million in his 

name “in consideration of retirement benefits foregone as a result of 

resignation from his former employer.” Upon the airline’s reorganization, 

the COO also received $2.6 million to set up an irrevocable trust in his 

name, along with a separate $100,000 in 401(k)-related payments. 

All officers were given unlimited free travel on the airline or its 

subsidiaries, along with a complimentary membership in the company’s 

VIP travel club.19 The company also reimbursed its executives for any 

income taxes which they might have owed on this free travel. In addition 

to these travel benefits, according to the company’s Officer Benefits 

Statement, executives would be reimbursed for the cost of “social and 

business club memberships...where there is a benefit to be realized to the 

company” and offered payments for financial advisory services. 

PBGC’s takeover of these plans in such an underfunded state had 

significant consequences for some of the company’s pilots, who lost large 

portions of their pensions due to PBGC’s statutorily mandated benefit 

caps. We spoke to several retirees, including one pilot who lost two-thirds 

 

19This VIP travel club is a membership service offered by the airline which provides, among 

other benefits, complimentary food and drinks, personalized travel assistance, and member 

lounges in some airports. 

Page 9 GAO-10-77 Private Pensions 
of his monthly pension payments when his pension plan was turned over 

to PBGC. Prior to the pension termination, he had made the decision to 

retire 2 years early at age 58 to spend more time at home after 35 years of 

routine flights to and from Southeast Asia.20 He told us that he made this 

decision after careful consideration of numerous retirement benefit 

estimates he had received over the years from the airline. Within 2 years of 

his retirement, PBGC had taken control of his plan and his benefits 

payments had been reduced to a third of what he had been promised at 

retirement. 

Case 2: This airline went through four CEOs and two bankruptcies during 

its struggle to survive in the face of considerable financial losses beginning 

in 2000. During the course of its two bankruptcies (the first in August 2002 

and the second in September 2004), the airline turned over four pension 

plans to PBGC. It had missed or waived $206.8 million in required 

minimum contributions, with a total of $2.8 billion in underfunding 

reported by PBGC. The plan covering the company’s pilots was terminated 

during the first bankruptcy. The remaining three plans, which covered 

mechanics, flight attendants, and others, were terminated during the 

company’s second bankruptcy. From 1998 to 2005, four CEOs received 

over $120 million in total compensation. See table 3 below for the 

components of compensation provided to these four executives. 

 

20At the time of his retirement, the Federal Aviation Administration required pilots to retire 

at age 60. 

Page 10 GAO-10-77 Private Pensions 
Table 3: Case Study 2 – Components of Executive Compensation Provided to Four 

Executives Over 8 Years 

Salary Cash bonuses Other benefits 

$6.6 million $3.3 million $110.5 million 

• $42.1 million, stock awards 

• $27.9 million, tax reimbursements 

• $32.6 million, retirement and deferred compensation 

• $0.4 million, split-dollar life insurance 

• $0.2 million, relocation 

• $0.2 million, automobile 

• $0.2 million, personal travel 

• $6.4 million, severance 

• $0.5 million, other compensation (including financial 

planning) 

4.1 million stock options 

Source: GAO analysis of information provided by PBGC, SEC, executives, and corporations. 

For example, one executive received $16 million in stock and an additional 

$16 million in related income tax reimbursements during his tenure as 

CEO and Chairman of the Board. He also received a lump-sum payment in 

excess of $14 million for his pension plan holdings at the time of his 

resignation. His successor, who previously served as COO, received $1.2 

million in incentive awards, as well as nearly $17 million in stock when he 

was promoted to CEO, a position which he held for 3 years. At the time of 

his resignation, he received over $15 million in supplemental executive 

retirement benefits. Another executive, whose tenure as CEO lasted 25 

months, was provided a severance package that included triple his annual 

salary and bonuses plus over $1 million in payments related to a 

supplemental defined contribution retirement plan.21

These executives also received millions of dollars in other benefits. For 

example, the airline paid the four CEOs a combined total of nearly 

$500,000 for living and relocation expenses during their tenures. And, as in 

case 1, the executives were provided unlimited free transportation on the 

airline and were reimbursed for any income taxes incurred on such travel. 

 

21A defined contribution plan is a type of tax-qualified pension plan that establishes 

individual accounts for employees to which the employer, participants, or both make 

periodic contributions. Defined-contribution plan benefits are based on employer and 

participant contributions to and investment returns (gains and losses) on the individual 

accounts. 

Page 11 GAO-10-77 Private Pensions 
In addition, they received a lifetime benefit of membership in the airline’s 

frequent flyer program, which grants unlimited free first-class travel 

upgrades. They further received hundreds of thousands of dollars worth of 

benefits for split-dollar life insurance, and reimbursements for financial 

planning services and automobile expenses. 

Case 3: In December 1995, this electronics company’s newly hired CEO 

and Chairman of the Board stated it was “clear to [him] that the company 

could achieve meaningful growth.” He announced a broad restructuring 

plan to improve the company’s profitability which eventually resulted in 

the termination of nearly 3,000 employees. However, the company 

experienced a net loss for the next 6 years before declaring bankruptcy in 

October 2001. When PBGC took over the company’s pension plan in July 

2002, it was underfunded by $318 million, though the company had not 

missed or waived any required contributions. See table 4 below for 

components of compensation provided to three executives. 

Table 4: Case Study 3 – Components of Executive Compensation Provided to Three 

Executives Over 5 Years 

Salary Cash bonuses Other benefits 

$4.6 million $3.1 million $8.4 million 

• $6.0 million, stock awards 

• $1.5 million, retirement and deferred compensation 

• $0.5 million, relocation 

• $0.3 million, tax reimbursement 

• $0.1 million, other compensation including legal fee 

reimbursement 

0.8 million stock options 

Source: GAO analysis of information provided by PBGC, SEC, executives, and corporations. 

In the 5 years leading up to its bankruptcy, the company paid three of its 

executives salaries totaling over $4 million and granted them bonuses 

equal to more than half that amount. Further, these executives received $6 

million in stock awards, along with nearly 1 million stock options. When 

the Chief Financial Officer (CFO) resigned 10 months before the company 

declared bankruptcy, her severance package included 2 years’ salary and 

bonuses, continuation of medical benefits, and $600 thousand for her 

holdings in the company’s supplemental pension plan. Soon after, the CEO 

received a $1.4 million retention bonus because, according to the 

company’s bankruptcy filings, “[the board of directors] did not want him 

to have his attention distracted from the core problem of keeping the 

Page 12 GAO-10-77 Private Pensions 
company moving along the track and wanted him not to be worrying about 

time spent or uncertainty for him and his family personally.” 

These executives also were reimbursed for expenses such as foreign 

taxes, rent, utilities, shipping, health club memberships, and legal advice 

to help protect their interests during bankruptcy. One executive received a 

$380,000 loan to help with the purchase of a new home near the company’s 

headquarters. This loan and related interest were to be forgiven 

completely over the course of 4 years if the executive remained employed 

by the company. In addition, some executives were provided with 

company car usage, along with coverage for all car-related business 

expenses. The company not only provided these benefits for its 

executives, but also provided additional benefits for families of executives. 

One executive received thousands of dollars for his wife’s continuing 

education, as well as assistance to help her purchase a new car, and 

reimbursements for some of his wife and daughter’s travel. 

Case 4: This insurance company and its parent company were owned and 

run largely by a single family whose members served on the boards of 

directors of both companies, as well as in senior officer positions such as 

CEO and COO. The insurance company was taken over by its state 

regulators during May 2001, resulting in the termination of its pension plan 

that was underfunded by $108 million, to PBGC in February 2002. The 

parent company declared bankruptcy in June 2001, soon after the takeover 

of the insurance company, leaving behind a second, smaller pension plan, 

underfunded by $13 million in January 2004. These two plans missed or 

waived a combined $29.2 million in required minimum contributions. In 

the 5 years leading up to the company’s failure, five executives received a 

total of nearly $70 million in salary, bonuses, and benefits. See table 5 

below for components of compensation provided to these five executives. 

Page 13 GAO-10-77 Private Pensions 
Table 5: Case Study 4 – Components of Executive Compensation Provided to Five 

Executives Over 5 Years 

Salary Cash bonuses Other benefits 

$25.3 million $34.0 million $10.4 million 

• $3.5 million, split-dollar life insurance 

• $1.4 million, retirement and deferred comp. 

• $0.2 million, personal use of corporate aircraft 

• $5.3 million, other compensation 

11.9 million stock options 

Source: GAO analysis of information provided by PBGC, SEC, executives, and corporations. 

In the 5 years leading to the companies’ downfall, five executives received 

nearly $60 million in salaries and bonuses. This figure includes nearly $20 

million for the CEO and a comparable amount for his brother, who served 

as the COO. According to the companies’ compensation committees, 

executive compensation is meant to “establish a relationship between 

compensation and the attainment of corporate objectives.” However, in 1 

year, an executive failed to meet his target objectives, yet received a $1.5 

million bonus “given [the Executive Compensation Committee’s] 

continued confidence that he will achieve superior results in the future.” 

In addition to salaries and bonuses, the executives also received over $10 

million in other benefits. The CEO received split-dollar life insurance 

benefits in some years in excess of $1 million. Combined, these five 

executives received nearly 12 million stock options. 

The CEO and COO together received free personal travel on corporate 

aircraft valued at over $200,000, as reported by the companies. We 

reviewed documents provided by the companies and found extensive 

personal use of corporate aircraft: a Boeing 727-100 airplane and a 

Sikorsky helicopter. One executive described the plane as “nicely 

appointed” with multiple rooms. From 1997-1999, we found personal trips 

by the CEO, COO, and their families to China, Spain, Greece, Miami, 

Hawaii, Puerto Rico, and Mexico. In addition, the CEO took over 80 trips 

to his home in Quogue, N.Y. using the company’s helicopter, of which 

more than 20 trips were solely for the transport of his wife and children. 

Further, the CEO and COO used both the company aircraft during the 

course of a family trip to Europe. Figure 1 below shows the same make 

and model of the helicopter used by company executives. 

Page 14 GAO-10-77 Private Pensions 
Figure 1: Sikorsky S-76B Helicopter 

Source: Sikorsky Aircraft Corporation.

In June 2002, the insurance company’s Board of Directors was sued for 

breach of fiduciary duties. In the complaint against them, “excessive 

compensation and preferential transfers” were cited as factors in the 

company’s failure. A separate lawsuit was filed in 2003 against the 

company’s COO, alleging that he had improperly received millions of 

dollars in compensation. These suits were both settled for a total of $85 

million in May 2005. All but one of the executives described in this case 

study are currently receiving monthly pension payments from PBGC in 

amounts ranging between $4,400 and $8,200.22

 

22As discussed on page 7, some participants in PBGC-trusteed plans receive benefits that 

exceed the PBGC guarantee level, in part due to retirement after PBGC’s normal retirement 

age of 65. Several of the executives described here retired after the PBGC normal 

retirement age. 

Page 15 GAO-10-77 Private Pensions 
During our review of case studies, we noted that PBGC has little to no 

oversight authority regarding executive compensation. Companies are not 

required to report specific executive compensation details in financial 

disclosures to PBGC prior to plan termination. Further, while many plan 

terminations occur during bankruptcy, PBGC’s ability to recover payments 

made to executives is limited by bankruptcy law. 

PBGC Has Limited 

Recovery Ability 

Regarding Executive 

Compensation 

Companies are required to disclose certain financial information to PBGC, 

such as financial statements and projections, prior to terminating a 

defined benefit pension plan. The PBGC officials we spoke with indicated 

that these disclosures do not normally separate executive compensation 

from general companywide salary and benefits information.23 They further 

indicated that PBGC has no authority to demand that adjustments be made 

to salaries, although general adjustments to large categories of 

discretionary spending (which may include overall salaries) may be 

considered during evaluations of the company’s ability to maintain a 

pension plan. 

During bankruptcy, PBGC has little power to recover amounts paid as 

compensation to executives. Any executive compensation paid during the 

course of a bankruptcy must be approved by the court, and once 

approved, cannot be recovered.24 Like any other creditor, PBGC can object 

to specific executive compensation plans, but the final decision regarding 

such plans is made by the bankruptcy judge, who is responsible for 

determining whether the plan is justified by the facts and circumstances of 

the situation.25 For executive compensation paid within the 2 years prior to 

a company’s bankruptcy petition, creditors have extremely limited ability 

 

23Publicly-traded companies must disclose the details of compensation paid to their 

executives to SEC on an annual basis. However, SEC only has jurisdiction over the 

disclosure of compensation, and not over any decision by a company regarding the amount 

and type of compensation to give an executive. 

24The U.S. Trustee Program, a component of the Department of Justice that oversees the 

federal bankruptcy system, is considered an interested party to all bankruptcy proceedings, 

and may file objections to executive compensation plans, though the final approval 

authority remains with the bankruptcy judge. 

25All of the case studies that we reviewed for this report precede the enactment of 

BAPCPA. As a result, we did not assess the extent to which BAPCPA currently affects the 

approval of executive compensation. Prior to BAPCPA, the court applied a “business 

judgment” standard for approving executive compensation. Currently the court must find 

that the obligation incurred by the company is essential to the retention of the executive 

because the executive has a bona fide job offer from another company at the same or 

higher rate of compensation. [11 U.S.C. 503(c)(1)(A)] 

Page 16 GAO-10-77 Private Pensions 
to recover some amounts, but generally only in situations where extreme 

mismanagement of funds has occurred. In addition, since PBGC is 

normally considered a general unsecured creditor during bankruptcy 

procedures, the agency has low priority for the payment of any such 

recoveries. 

In written comments on a draft of this report, PBGC agreed with our 

assessment that ERISA does not provide it with any oversight power 

regarding payments to company executives prior to a company’s 

bankruptcy. Further, PBGC agreed that it has limited power over 

executive compensation during bankruptcy, as such payments are under 

the purview of the bankruptcy court. We have reprinted PBGC’s written 

comments in appendix II. 

Agency Comments 

and Our Evaluation 

As agreed with your office, unless you publicly announce the contents of 

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

date of this letter. We will then send copies of this report to interested 

congressional committees and the Acting Director of the Pension Benefit 

Guaranty Corporation. The report also will be available at no charge on 

the GAO Web site at http://www.gao.gov. 

For further information about this report, please contact Gregory D. Kutz 

at (202) 512-6722 or kutzg@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix III. 

Sincerely yours, 

Gregory D. Kutz 

Managing Director, 

Forensic Audits and Special Investigations 

Page 17 GAO-10-77 Private Pensions 
Page 18 GAO-10-77 Private Pensions 

Appendix I: Scope and Methodology 

To determine pay and other compensation received by executives in the 

years preceding their company’s termination of an underfunded defined 

benefit pension plan, we first obtained a database from the Pension 

Benefit Guaranty Corporation (PBGC) identifying companies that had 

terminated underfunded pension plans from 1999 to 2008. This database 

contained information on 1,246 terminated pension plans. We focused on 

identifying companies that (1) were publicly traded prior to the 

ir pension plan(s), (2) had significant unfunded pension 

ation basis ($100 million or more), (3) had a high 

($10,000 or more per 

participant), and (4) had more than 5,000 plan participants. Of the 1,246 

underfunded plans terminated from 1999 to 2008, we selected 10 

companies from approximately 30 companies that sponsored plans which 

met our criteria. The 10 case study companies we selected were not meant 

to be representative of all companies whose plans have been taken over by 

PBGC in the past decade. 

We requested and reviewed documents provided by selected companies 

related to the compensation of their executives. We reviewed Securities 

and Exchange Commission (SEC) filings and PBGC documents disclosing 

plan underfunding at the time of termination and missed contributions. We 

also interviewed PBGC and company officials, as well as plan participants. 

In addition, we requested documentation from all selected executives 

under review, including tax returns. We attempted to interview all selected 

executives, but some could not be reached or declined our interview 

request. 

Findings related to executive pay and benefits were limited by the 

availability of public documents and information voluntarily provided by 

companies, executives, and other entities (e.g., professional sports teams, 

golf clubs). Because some companies and executives did not provide 

information, declined to be interviewed, and/or did not consent to granting 

GAO access to copies of their tax returns from the Internal Revenue 

Service, we were not able to document all details concerning pay and 

benefits received beyond the details available in public documents or 

otherwise voluntarily provided. Thus, the executive compensation 

information in this report represents what we were able to determine and 

may be understated. All values listed for restricted stock awards were 

determined by reviewing SEC filings which list the value of stock awards 

as of the date of the award, and therefore may not represent their ultimate 

exercised value. We did not attempt to determine the market value of 

stock options at the time of their award, nor their exercised value. We 

limited our review to the time period beginning 5 years prior to a 

termination of the

liabilities on a termin

unfunded liability per plan participant ratio 
Page 19 GAO-10-77 Private Pensions 

company’s first pension plan termination and ending with the company’s 

final pension plan termination. Since some companies terminated multipl

pension plans over a period of time, for those companies our review 

cover more than 5 years. Due to the high turnover of executives at thes

companies, information regarding the total compensation of the 

executives discussed in this report may not have been available for the 

entire time period under review. We did not conduct an exhausti

of each company’s executive pay and benefit practices; we reviewed 

information related to executive pay and compensation in the years 

preceding the termination of a defined benefit pension plan. 

To assess the reliability of PBGC data related to the termination o

benefit pension plans from 1999 through 2008, we (1) interviewed PBGC 

officials familiar with the data related to terminated pension plans and (2) 

matched the data provided by PBGC for the pension plans in each case 

study against records avail

e 

may 

e 

ve review 

f defined 

able on the agency’s Web site to verify that the 

data we were provided were exported correctly. We found the data to be 

iate 

ce with standards prescribed by the Council of the Inspectors 

General on Integrity and Efficiency. 

sufficiently reliable to identify case studies for further investigation. 

We conducted our audit and investigative work from January 2009 through 

September 2009. We conducted our audit work in accordance with U.S. 

generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropr

evidence to provide a reasonable basis for our finding and conclusions 

based on our audit objective. We performed our investigative work in 

accordan
Appendix II: Comments from the Pension 

Benefit Guaranty Corporation 

Page 20 GAO-10-77 Private Pensions 

Appendix II: Comments from the Pension 

Benefit Guaranty Corporation 
Appendix III: GAO Contact and Staff 

Acknowledgments 

Page 21 GAO-10-77 Private Pensions 

Appendix III: GAO Contact and Staff 

Acknowledgments 

Gregory D. Kutz, (202) 512-6722, or kutzg@gao.gov

In addition to the contact named above, the individuals who made major 

contributions to this report were Christopher Backley, Gary Bianchi, 

Robert Graves, Rebecca Guerrero, Matthew Harris, Ken Hill, Leslie Kirsch, 

Flavio Martinez, Vicki McClure, Jonathan Meyer, Sandra Moore, George 

Ogilvie, and Barry Shillito. 

GAO Contact 

Staff 

Acknowledgments 

(192308) 
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