Pension Benefit Guaranty Corporation: More Strategic Approach Needed for Processing Complex Plans Prone to Delays and Overpayments
Published: 2009-08-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As the insurer of over 29,000 private sector defined benefit plans, the Pension Benefit Guaranty Corporation (PBGC) may be required to assume responsibility for the plans of a growing number of companies filing bankruptcy due to the recession. Concerns about PBGC's benefit determination process, reductions in benefits due to guarantee limits, and workers' retirement security overall led the chairmen and ranking members of the Senate Health, Education, Labor, and Pensions Committee and the Senate Finance Committee, among others, to ask GAO to study: (1) how long it takes PBGC to make benefit determinations; (2) the extent of overpayments on retirees' benefits; (3) how well PBGC communicates with participants; and (4) the timeliness and accessibility of the appeals process. To conduct this study, GAO reviewed PBGC policies and procedures, analyzed automated data and case files, and interviewed PBGC officials and certain associations, participants, and their representatives from among those most affected by the process.
section_title: What GAO Found
paragraphs: GAO's review of plans terminated with insufficient funds and trusteed by PBGC during fiscal years 2000 through 2008 revealed that a small number of complex plans--especially those with large numbers of participants affected by limits on guaranteed benefit amounts--accounted for most cases with lengthy delays and overpayments. Processing times. PBGC completed most participants' benefit determinations in less than 3 years, but required more time--up to 9 years--to process determinations for complex plans and plans with missing data. Nearly three-quarters of the lengthiest processing times were associated with individuals in just 10 of the 1,089 plans reviewed. Although PBGC has taken steps to shorten this process, its initiatives do not address the longest delays. Overpayments. Although many participants are affected by sizable benefit reductions, the vast majority are not affected by overpayments. Moreover, nearly two-thirds of overpayments involved participants in just 10 plans. In cases with overpayments, PBGC's policy generally requires participants' benefits to be reduced by no more than 10 percent until the amount owed is repaid, but due to participants' ages, the full amount often is never recouped. Communication. PBGC has made efforts to improve communication, but key correspondence often did not meet the needs of those in complex plans. For example, when the process was lengthy, PBGC did not communicate with some participants for several years. When the benefit calculation was complicated, PBGC did not provide explanations that could be understood without further information or assistance. Appeals. Since restructuring the appeals process in 2003, PBGC has reduced the average amount of time needed to decide an appeal by almost a year. However, the agency does not readily provide key information that would be helpful to participants in deciding whether to pursue an appeal.

section_title: Letter
paragraphs: The Pension Benefit Guaranty Corporation (PBGC) insures the retirement  income of nearly 44 million workers in over 29,000 private-sector defined  benefit plans. In the event that a company files for bankruptcy and can no  longer fund the benefits promised by its pension plan, the plan may be  terminated and PBGC may be required to step in and assume  responsibility for paying the pension benefits owed by that plan, subject to  certain legal limits. Determining the correct benefit amounts following a  plan’s termination is a complex process that can take years to complete.  Concerned about potential reductions to retirees’ benefits, workers’  retirement security in the face of economic volatility, as well as PBGC’s  actions with respect to the recent termination of the Republic  Technologies International (RTI) pension plans, you asked GAO to assess  PBGC’s procedures for determining benefits following the termination of  underfunded plans. Specifically, this report addresses the following:  the length of time it takes PBGC to make benefit determinations  and the causes for delays; the extent to which overpayments affect retirees’ benefits;
PBGC’s communication with participants to keep them informed of  possible impacts on their benefits; and the length of time it takes to obtain an appeals decision and the  accessibility of the appeals process.
To address these topics, we reviewed PBGC policies and procedures,  analyzed automated data, and interviewed PBGC officials knowledgeable  of various stages of the benefit determination process. We reviewed  several reports issued by PBGC’s Office of Inspector General in the late  1990s that provided a description of the benefit determination process  before 2000, and focused our study on plans trusteed since then—that is,  during fiscal years 2000 through 2008. PBGC provided electronic data on  all the participants in these plans and the status of their benefits as of  February 2009. We also examined plan and participant documents in  PBGC’s image processing system, selecting for review those most affected  by delays and overpayments. For details on our methodology, see  appendix I. Finally, we spoke with personnel from employee associations  and advocacy groups who have been involved in some plan terminations,  including the Pension Rights Center, the American Federation of Labor  and Congress of Industrial Organizations (AFL-CIO), and the United  Steelworkers, and with participants and their representatives from six  large terminated plans: Reliance Group Holdings, Reliance Insurance  Company, RTI-United Steelworkers’ of America (USWA), RTI-USS/KOBE,  United Air Lines (ground employees), and United Air Lines (pilots). For a  complete list of organizations and participants contacted, see appendix II.
We conducted this performance audit between October 2008 and August  2009, in accordance with 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 and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: PBGC was created as a government corporation by the Employee  Retirement Income Security Act of 1974 (ERISA) to help protect the  retirement income of U.S. workers with private-sector defined benefit  plans by guaranteeing their benefits up to certain legal limits. PBGC  administers two separate insurance programs for these plans: a single- employer program and a multiemployer program. The single-employer  program covers about 34 million participants in about 28,000 plans. The  multiemployer program covers about 10 million participants in about 1,500  collectively-bargained plans that are maintained by two or more unrelated  employers. If a multiemployer pension plan is unable to pay guaranteed  benefits when due, PBGC will provide financial assistance to the plan,  usually a loan, so that retirees continue receiving their benefit. However, if  the sponsor of a single-employer plan is in financial distress and does not  have sufficient assets to pay promised benefits, the plan will be terminated  and PBGC will likely become the plan’s trustee, assuming responsibility  for paying benefits to participants as they become due, up to the  guaranteed benefit limits. As of the end of fiscal year 2008, PBGC had  terminated and trusteed a total of 3,860 single-employer plans (see fig. 1).  The single-employer program is financed through premiums paid by the  plan sponsors, recoveries from the companies formerly responsible for the  plans, and investment income from the assets that PBGC acquires when it  assumes control of a plan. A three-member Board of Directors, consisting  of the Secretaries of the Commerce, Labor, and Treasury, is charged with  providing policy direction and oversight of PBGC’s finances and  operations.
subsections: section_title: PBGC’s Pension Insurance Program Has Been Designated “High Risk”
paragraphs: We designated PBGC’s single-employer pension insurance program as  “high risk” in 2003, including it on our list of major programs that need  urgent attention and transformation. The program remains a high-risk  concern due to an ongoing threat of losses from the terminations of  underfunded plans. Financially, PBGC’s accumulated deficit totaled $33.5  billion at the end of the second quarter of fiscal year 2009, a $22.5 billion  increase since the end of fiscal year 2008. Additionally, as we concluded in  a recent report, PBGC’s governance structure and strategic management  need improvement. We found that PBGC’s Board of Directors is limited in  its ability to provide policy direction and oversight, and recommended that  the board be expanded. Further, in two additional reports, we concluded  that PBGC lacks a strategic approach to its acquisition and human capital  management needs.
section_title: The Benefit Determination Process
paragraphs: Under the single-employer program, if a company’s pension plan has  inadequate assets to pay all promised benefits, plan sponsors meeting  certain criteria can voluntarily terminate a plan through a “distress”  termination. PBGC may also decide to terminate an underfunded plan  involuntarily to protect plan assets, and PBGC must terminate a plan if  assets are insufficient to pay benefits currently due. In all these situations,  PBGC generally becomes the trustee of the plan and assumes  responsibility for paying benefits to the participants as they become due.  Determining participants’ benefit amounts following termination,  however, is a complex process (see fig. 2). It begins with gathering  extensive data on plans and individuals’ work and personnel histories, and  determining who is eligible for benefits under a plan, which can be  complicated if the company or plan has a history of mergers, elaborate  structure, or missing data. It requires understanding plan provisions that  vary from plan to plan and can be numerous, applying the guarantee  limitations to each individual’s benefit, and valuing plan assets and  liabilities. If the participant is already retired, or retires before the process  is complete, PBGC makes payments to the retiree based on an estimate of  the final benefit amount. Once the process is complete, PBGC notifies  each participant of the final benefit amount through a “benefit  determination letter.” In cases with a final benefit that is greater than the  estimated amount, retirees are likely due a backpayment for having been  underpaid, which PBGC will repay in a lump sum, with interest. In cases  with a final benefit that is less, the retirees are likely to have received an  overpayment, which they then must repay to PBGC, with no added  interest.
section_title: Guarantee Limits, Ceased Accruals, and Overpayments Can Reduce Benefits
paragraphs: When single-employer plans are terminated without sufficient assets to  pay all promised benefits, PBGC guarantees participants’ benefits only up  to certain limits, specified under statute in ERISA and related regulations.  Participants whose benefits exceed these limits may have their benefits  reduced to the guaranteed amounts, unless the plan has sufficient assets to  pay the nonguaranteed portion of their benefits, either all or in part.  These guarantee limits are commonly referred to as the maximum limit,  the phase-in limit, and the accrued-at-normal limit (see table 1). One  group often affected by the application of these limits is made up of those  who take early retirement. The maximum limit is lowered for each year a  person retires before age 65. Also, supplemental benefits—which are  typically provided to early retirees as a bridge to when they become  eligible for Social Security benefits—are eliminated or greatly reduced by  the accrued-at-normal limit. Because many steelworkers and airline pilots  retire before reaching age 65, retirees in these industries are hit  particularly hard by the application of such limits.
PBGC’s benefits are set based on the amounts accrued as of the date of  plan termination. When a plan terminates, accruals cease. As a result,  participants who are not yet retired are likely to receive lower benefits  than what they would have received under their plans if they had been  able to accrue further benefits. For example, if participants work for the  plan sponsor beyond the termination date, the additional service would  not be credited under that plan. The dollar amount or salary level used to  calculate benefits is also frozen at the level in effect as of the date of plan  termination, which can cause a participant’s benefit to be substantially  less than it would have been if the plan had continued. Participants can  also be affected when a plan’s termination date occurs before they become  eligible for certain benefits, such as early retirement or disability benefits.
For retirees and participants who retire prior to completion of the benefit  determination process, estimated benefits are provided that can  sometimes be greater than the final benefit amount, causing an  overpayment. In addition to having benefits reduced due to the guarantee  limits, some retirees’ have their monthly benefit reduced once their benefit  amount is finalized because they are required to repay an overpayment  that was incurred while receiving estimated benefits.
Most participants of terminated plans receive the full amount of the  benefits they have earned under their plans, according to studies  conducted by PBGC. PBGC does not systematically track the number of  participants affected by guaranteed benefit limits or how much these  limits affect benefit amounts; however, PBGC has conducted two studies  on the impact of these limitations in a sample of large plans. The first  study, issued in 1999, found 5.5 percent of participants were affected by  the limits; and the second study, issued in 2008, found that 15.9 percent  were affected. PBGC attributed the increase in the numbers affected in the  second study to the inclusion of several large plans from the steel and  airlines industries. Officials noted that these plans were more likely to be  subject to the limits. Steel plans often provide supplements and allow  retirement with unreduced benefits after 30 years of service, regardless of  age, and airline plans often allow pilots to retire early and receive  generous benefits. Across the different plans in both studies, participants’  reductions in benefits varied widely, from less than 5 percent for some, to  over 50 percent for others.
section_title: Most Benefit Determinations Are Completed within 3 Years, but Cases with Complex Plans and Missing Data Take Longer
paragraphs: PBGC makes most benefit determinations within 3 years after assuming  trusteeship of a plan. However, complex plans and plans with missing data  have required more time to process—up to 9 years, in some instances (the  full time span we examined). Most of the benefit determinations that took  4 or more years to process were for participants in just 10 plans. PBGC  officials have taken steps to shorten the benefit determination process,  although their initiatives have focused on ways to expedite processing of  straightforward cases instead of the processing of difficult cases prone to  delays.
subsections: section_title: PBGC Makes Most Benefit Determinations in Less than 3 Years
paragraphs: PBGC becomes the trustee of most plans within 10 months of termination  and, once it has assumed trusteeship of a plan, the agency takes slightly  less than 3 years to process most benefit determinations and notify  participants of their final benefit amount. Following a PBGC Inspector  General study, issued in 2000, that found that the majority of benefit  determination letters were sent more than 5 years after PBGC assumed  trusteeship of the plan, PBGC set a corporate goal of issuing benefit  determinations, on average, no more than 3 years after trusteeship. Our  review of the benefit determinations for participants in plans trusteed  during fiscal years 2000 through 2008 indicates that PBGC has moved  processing times closer to this mark. Nearly three-quarters of the benefit  determinations completed for these plans were made in 3 years or less  (see fig. 3). The vast majority of all completed benefit determinations—95  percent—was processed in less than 4 years’ time. On the other hand, in  February 2009, more than 200,000 participants were awaiting benefit  determinations that had been pending for an average of 3 or more years.
PBGC practice is to prioritize benefit determinations based on an  individual’s retirement status at the time of plan termination. For example,  participants who were retired when their plans terminated received their  benefit determinations in about 2.0 years after PBGC assumed trusteeship,  on average. Participants who had separated from employment under the  plan but had some vested benefits at the time of the termination received  benefit determinations in about 2.8 years, on average. All other  participants received benefit determinations in about 2.8 years, on  average.
section_title: Workload Affects Processing Times
paragraphs: Processing times have varied considerably in any given year, due in part to  the number and size of plans being terminated and trusteed that year (see  fig. 4). The number of plans trusteed by PBGC peaked during 2002, 2003,  and 2004, although the largest influx of participants occurred in 2005. The  average number of participants per plan is slightly fewer than 1,000, but  some plans have many more. For example, the Bethlehem Steel plan has  nearly 93,000 participants, the LTV Steel (hourly) plan has about 68,000  participants, and the Kaiser Aluminum and Chemical Corp. (hourly) plan  has just over 10,000 participants.
We found that processing times were longer, on average, for those plans  trusteed in peak years (see fig. 5). For example, processing times generally  increased during fiscal years 2002 through 2005.
section_title: Plan Complexity and Missing Data Also Adds to Processing Times
paragraphs: Processing times have also increased with the complexity of plans and the  unavailability of needed data. Obtaining plan documents, gaining complete  participant data, and interpreting plan requirements often present  difficulties. Nevertheless, nearly three-quarters of the benefit  determinations that took 4 or more years to process were for participants  in just 10 of the 1,089 plans terminated and trusteed during fiscal years  2000 through 2008, as shown in figure 6. These plans were sponsored by  four steel companies, two mining companies, one other manufacturer, an  insurance company, and a construction company.
We found that a variety of factors had contributed to the complexity of the  10 plans with these lengthier determinations. One key factor was the level  of difficulty of calculating benefits. For some, a history of company or plan  mergers, or other unusual or complicated benefit formulas, made  determining a participant’s benefit more difficult and added to processing  time. For example, the pension plan of Bethlehem Steel Corporation— which still had some benefit determinations pending as of February 2009,  nearly 6 years after the plan’s trusteeship—is a product of more than 100  company mergers, consolidations, and/or spinoffs. There are eight major  parts to this plan, and three of the parts have separate hourly and salaried  plans. In general, if a plan has undergone a merger, participants may be  covered by different plan provisions, or participants may transfer between  component plans, such as moving from an hourly to salaried plan.  According to PBGC, the Bethlehem Steel plan required an analysis of more  than 30 sets of plan documents to make benefit determinations for the  nearly 93,000 participants.
Unusual or numerous plan provisions have also made benefit  determinations more challenging and, therefore, time consuming. The  Cone Mills Corporation plan consists of three merged plans. In 2001, the  company’s plans for long-distance drivers and salaried workers were  merged into its plan for hourly workers. Yet, distinct provisions in each of  the original plans remained in place for their respective members. It  required time for PBGC to understand which participants belonged to  each group and the provisions associated with each participant.
In other cases, an elaborate plan structure has also made it challenging for  PBGC to determine the availability of plan assets and to distribute them  across different categories of participants’ benefits in the asset allocation  process. The Kaiser Aluminum and Chemical Corp. had 26 direct and  indirect subsidiaries in its controlled group and in bankruptcy; 36  subsidiaries not in bankruptcy; and 13 operating subsidiaries and joint  ventures not in the controlled group or in bankruptcy. Kaiser had eight  defined benefit plans, seven of which were trusteed by PBGC, and the  assets for these eight plans were commingled, which added complexity to  PBGC’s audit of the plans’ net worth.
Benefit guarantee limits contributed to the complexity of several plans.  PBGC must determine, on a participant-by-participant basis, the level of  benefits each is entitled to under ERISA and related regulations.  According to PBGC officials, these calculations can be time consuming  when there are a large number of participants receiving benefit  adjustments as a result of these limits. For example, there were several  benefit rate increases in the LTV Steel (hourly) plan that went into effect  within 5 years of the plan’s termination and, therefore, were subject to the  phase-in limit. These included a plant shutdown supplement for certain  participants, a surviving spouse’s special payment, and additional  continuous service for participants affected by certain layoffs. In total,  there were 35,279 participants whose benefits were affected by the phase- in limitation under this plan, as well as 4,850 affected by the accrued-at- normal limit, and 3,644 affected by the maximum limit.
Qualified domestic relations orders have also contributed to the  complexity of making a benefit determination. When participants have  domestic relations orders related to child support, alimony payments, and  marital property rights, some portion of, or all of, a participant’s pension  benefits may be assigned to a spouse, former spouse, child, or other  dependent. In these cases, PBGC must determine whether the order is a  qualified domestic relations order, a process which can entail a detailed  review of legal documents. Although nearly two-thirds of the plans we  examined did not have any participants with qualified domestic relations  orders, several of the ten plans associated with the lengthiest processing  times had numerous participants with such orders. For example, the  Bethlehem Steel plan included 904 participants with qualified domestic  relations orders, and the LTV Steel (hourly) plan included 609.
subsections: section_title: Missing Data
paragraphs: The condition of plan and participant data is also a key factor affecting  processing times. When a plan terminates, PBGC tries to obtain all plan  documents, such as the original plan, plan amendments, and, if applicable,  negotiated agreements with unions, as well as personnel and payroll data.  To do so with the termination of a large, complex plan, PBGC auditors  have usually visited sponsor locations to collect data and contacted the  plan’s actuarial staff, administrators, or others responsible for managing  the plan’s assets. When the plan’s administration is decentralized, this  process involves collecting records from different locations in the course  of many site visits. For example, over a 2-month period, a PBGC audit  team visited Bethlehem Steel facilities in Sparrows Point, MD; Bethlehem,  PA; Coatesville, PA; Steelton, PA; Lackawanna, NY; and Burns Harbor, IN  to collect records. Data were not always available in electronic form. The  Bethlehem Steel Lackawanna facility, for example, did not use an  electronic recordkeeping system, so PBGC collected more than 20,000  hard-copy employee record cards from the site.
According to PBGC officials, plan sponsors have frequently diverted  resources away from actuarial and information technology services during  rough financial periods, causing records maintenance to deteriorate before  PBGC is able to take over the plan. In such situations, data become  difficult to locate, key personnel with knowledge of the data leave the  organization, and data systems may be inaccessible. Additionally, the data  PBGC is able to collect has often been incomplete. As a result, PBGC  actuaries sometimes have to make assumptions about which plan  provisions apply to whom when estimating the plan’s assets and liabilities,  and calculating individual participants’ benefits. When processing the  Weirton Steel plan, for example, PBGC was required to calculate benefits  for some participants whose average monthly earnings were missing. A  PBGC official told us that they sometimes use collective bargaining  agreements and board resolutions, even if their legality cannot be verified,  if those documents provide the best information available.
To avoid situations where data are missing or in poor condition, PBGC  officials told us they generally try to obtain data prior to taking over a  plan. In most situations, they will quickly try to assess the location and  condition of plan records, and take steps to preserve the records in the  event that PBGC takes over the plan. However, officials acknowledged  that negotiations between PBGC and plan sponsors prior to trusteeship  have sometimes deterred them from using their access authority to  secure records until after actually becoming the trustee. For example, the  RTI case involved a lengthy legal deliberation over the plan’s termination  date, and while this litigation was ongoing prior to trusteeship, PBGC’s  case processing division did not pursue documents from RTI prior to  trusteeship, on the advice of the agency’s and company’s counsel at the  time. PBGC officials noted that when aspects of termination are being  contested, it is not uncommon for company officials to be unwilling to  share information until after PBGC’s trusteeship is official. In the RTI case,  by the time the court case was resolved and PBGC became the trustee, a  new owner had assumed control of the personnel files, documentation  needed to determine benefit entitlement had been purged, and only one  person remained with working knowledge of the RTI pension plan.
section_title: New Initiatives to Shorten the Benefit Determination Process Do Not Address Longest Delays
paragraphs: PBGC officials have taken steps to shorten the benefit determination  process, although these initiatives do not specifically address complex  cases. Rather, PBGC officials said that their initiatives are intended to  process straightforward cases more quickly so that staff can concentrate  on those that are difficult. Specifically, PBGC adopted a simplified data  validation process to speed the processing of plans with fewer than 200  participants. They decided that the validation process used for large plans,  which involves a full electronic data audit and a review of all data  elements by an auditor, was unnecessary for smaller plans, which have  fewer participants and less data, making any errors highly visible. PBGC  has also prioritized benefit determinations for retirees who have been  receiving benefits for some time. Such determinations are more  straightforward because these retirees are less likely to have their benefits  reduced by the guarantee limits. These efforts help PBGC to avoid  unnecessary delays in straightforward cases. PBGC does not, however,  target its changes on complex plans with benefit determinations most  prone to lengthy delays. Nor does PBGC set benchmarks for complex  cases or goals for decreasing the processing time for these cases. Officials  acknowledged that the current tracking of timeliness focuses on average  processing times only.
section_title: Overpayments Have Been Infrequent and Mostly Concentrated in a Few Complex Plans
paragraphs: Overpayments have been infrequent and the impact on benefit amounts  has been generally minor. As with the cases that required lengthy  processing times, most of the cases in which overpayment occurred have  been concentrated in a small number of plans. These tended to be large  plans with large numbers of retirees, as well as plans whose total asset  values were difficult to determine or anticipate. Meanwhile, PBGC’s  requirement for repayment of overpayments is highly amortized, thereby  limiting the amount of money that PBGC will recoup. By comparison,  some other federal agencies have more aggressive repayment policies, but  more liberal waiver policies for cases of hardship.
subsections: section_title: Overpayments Are Infrequent and Generally Have Limited Impact on Benefits
paragraphs: Overpayments generally occur when a plan retiree receives estimated  benefits while PBGC is in the process of making benefit determinations  and the final benefit amount is less than the estimated benefit amount. Our  review of plans terminated and trusteed during fiscal years 2000 through  2008 found that this happened only in a small percentage of cases (see fig.  7). Of the 1.1 million participants in plans terminated and trusteed during  fiscal years 2000 through 2008, more than half were not yet retirees and,  therefore, did not receive estimated benefits before the benefit  determination process was complete. For most who were retirees, the  estimated benefit amount received did not change when finalized. Of those  whose benefit amount did change when finalized, about half received a  benefit that was greater and half received a benefit that was less (about 3  percent of total participants in these plans, overall).
According to PBGC data on recoupments, 22,623 participants in plans  terminated and trusteed during fiscal years 2000 through 2008 owed PBGC  for overpayments. These amounts varied widely—from less than $1 to  more than $150,000—but our analysis of PBGC data suggests that most  owed less than $3,000. Since in most cases PBGC recoups no more than  10 percent of a participant’s final benefit each month, the impact on the  participant’s benefit was limited. Per individual, the median benefit  reduction due to recoupment was about $16 a month, or about 3 percent  of the monthly payment amount, on average. Per case, the median amount  that had been repaid, as of February 2009, was $365.
section_title: A Few Plans Accounted for Most Cases with Overpayments
paragraphs: Of the 1,089 plans terminated and trusteed during fiscal years 2000 through  2008, just 10 accounted for more than 65 percent all cases of overpayment  (see fig. 8). Nine of these 10 plans were sponsored by steel companies  trusteed by PBGC from 2001 to 2003. When PBGC assumes responsibility  for a plan, retirees generally continue to receive an estimated benefit that  is the same as what they had been receiving, unless PBGC determines they  are subject to any of the guarantee limits, and that their estimated  payments need to be reduced to reflect these limits. In such cases,  overpayments can occur for two basic reasons: (1) there is a period of  time when the retiree’s estimated benefit has not yet been reduced to  reflect applicable limits; and (2) the retiree’s estimated benefit is adjusted  to reflect applicable limits, but the estimate is still greater than the benefit  amount that is ultimately determined to be correct once the benefit  determination process is complete.  determination process is complete.
As summarized in table 2, of the 10 plans with the greatest number of  overpayments, 9 also had large numbers of participants, including many  who were subject to the guarantee limits and who were retired and  receiving estimated benefits. In addition, all these plans had assets or  recoveries allocated to pay some, but not all, of retirees’ nonguaranteed  benefits, which are generally some of the first nonguaranteed benefits to  be paid from the allocation process—before, for example, future retirees’  nonguaranteed benefits. According to PBGC officials, uncertainty about  how much a plan’s assets or recoveries will be able to contribute toward a  retiree’s benefit that the agency does not guarantee, under law, can make  it difficult to calculate an accurate benefit amount until the benefit  determination process is complete.
Finally, a lengthy benefit determination process can exacerbate the impact  of inaccurate estimates. The total overpayment can become substantial  over a long period of time, even if the difference between the estimated  and final monthly benefit amount is small. Also, when plans are terminated  involuntarily, there can sometimes be lengthy delays before PBGC reduces  estimated benefits to reflect guarantee limits. Among the 10 plans with the  most overpayments, all were involuntary terminations, and we found that  the length of time between plan termination and when estimated benefits  were adjusted to reflect guarantee limits varied widely. In some cases,  estimated benefits were adjusted within 9 months of termination, while in  other cases, more than 6 years elapsed before estimated benefits were  adjusted—and in general, the longer the delays, the larger the  overpayments. In contrast, when plans are terminated at the sponsor’s  request as distress terminations, the sponsors are required to impose these  limits themselves so that participants’ benefits are reduced as of the date  of termination.
The following examples illustrate how the above circumstances can  combine to create large numbers of cases with overpayments among some  plans. We chose these two case examples from among the cases sampled  in the 10 plans with the most overpayments to illustrate the two types of  situations that can result in overpayments outlined previously: (1) delayed  adjustment of the retiree’s estimated benefit to reflect applicable limits;  and (2) timely, but inaccurate adjustment of the retiree’s estimate to  reflect applicable limits. We also chose these two case examples  specifically because they had similar benefit amounts prior to termination.
In the RTI (USWA) plan, four large groups of participants were affected by  the guarantee limits: (1) those with six different types of temporary  supplements who were subject to the accrued-at-normal limit; (2) former  Bar Technologies employees whose benefits were subject to a $20 or 20  percent phase-in limit; (3) those who retired or will retire with 30 years of  service and were subject to a $60 or 60 percent phase-in; and (4) those  who retired under the early retirement program whose benefits were  subject to a $60 or 60 percent phase-in. To explore the impact of guarantee  limits on the retirees who incurred overpayments, we randomly selected 5  participants from among the 1,693 subject to the phase-in limits, and found  that all were retirees who had their benefits reduced between 19 percent  and 63 percent from what they had been receiving prior to termination. In  three cases, estimated benefits were adjusted to reflect these limits 2.3  years after termination, but in two cases, estimated benefits were not  adjusted prior to issuance of the benefit determination letter, which took  place more than 6 years after termination. Due to inaccurate estimated  benefits that were paid over several years, all 5 had incurred  overpayments, ranging from $2,000 to about $57,000, and as a result, their  benefits were reduced further to recoup the amounts owed. The effect on  the monthly payment for one RTI retiree, whom PBGC overpaid by a total  of $23,986, is illustrated in fig. 9. Ultimately, this retiree’s payment was  reduced by almost two-thirds, mostly due to guarantee limits.
In the Weirton plan, we found that large numbers of participants were  subject to the accrued-at-normal limits due to various plan supplements;  and were subject to the phase-in limits due to seven different types of  benefit changes made within 5 years before plan termination. In addition,  many participants were subject to the maximum limits, in part due to the  aggregate limit imposed when participants are involved in more than one  terminated plan (many participants had worked previously for National  Steel or other PBGC-trusteed plans). We reviewed five randomly-selected  cases from among the 1,342 participants who were subject to the accrued- at-normal limit and found that all were retirees whose estimated benefit  amounts were inaccurate for at least part of the period involving the  benefit determination process. One case resulted in an underpayment,  with a backpayment of $11,384 to be repaid to the retiree, plus interest.  The other four cases resulted in overpayments, ranging from $3,200 to just  over $6,000, with reductions in benefit payments to recoup the amounts  overpaid. In contrast with the five sampled RTI participants, these retirees  had their benefits adjusted more quickly to reflect the guarantee limits so  that, in general, the overpayments incurred were not as large. All 4 had  their estimated benefits adjusted in less than 9 months. The effect on one  Weirton retiree’s monthly payment is illustrated in fig. 10. As was the case  in the previous example, this retiree’s payment was ultimately reduced by  nearly one-half, mostly due to guarantee limits.
section_title: Large Overpayments Are Not Fully Recouped
paragraphs: Our analysis of PBGC data indicates that the overpayments owed by  participants in plans terminated and trusteed during fiscal years 2000  through 2008 totaled almost $100 million. Of this total, about $14 million  had been recouped, as of February 2009. However, PBGC’s policy of  restricting recoupments to no more than 10 percent of the recipient’s  monthly benefit results in a long amortization period for collection that  can well exceed normal life expectancies. Since PBGC does not pursue  further collection from a participant’s estate once a retiree (and any  beneficiary) dies, a substantial portion of these overpayments will not be  repaid. Specifically, for many of these individuals, it was projected that  these debts would not be fully paid until the year 2099, PBGC’s arbitrary  cutoff. Nearly 60 percent of those with future recoupments would not  finish repaying these debts until the year 2020 and beyond. We analyzed  the ages of retirees and/or beneficiaries at their projected end date of  recoupment for all cases involving overpayments greater than $10,000.  Although these cases accounted for fewer than 10 percent of those with  overpayments, the amounts they owed accounted for more than 40  percent of total recoupments. We found that about 60 percent of these  individuals would be age 80 or older, and over 30 percent would be age 100  or older, when their debts to PBGC would be fully repaid (see fig. 11). The  life expectancy for those age 65 in 2009 is estimated to be 82 to 87 years.
section_title: Some Federal Agencies Reduce Payments More Aggressively, but Also Grant More Waivers for Overpayments
paragraphs: Once overpayments have been made, finding the right balance between  agency fiscal responsibility and fairness to participants can be difficult to  achieve. Compared with PBGC’s policy on overpayments, federal  agencies such as the Social Security Administration (SSA) and the Office  of Personnel Management (OPM) generally allow larger reductions to  benefits when recouping overpayments, but their policies also give much  greater prominence to waivers. PBGC policy stipulates that in cases with  an ongoing payment, recoupment of an overpayment may not be waived  unless the monthly reduction would be less than $5. Waivers for hardship  are to be considered only in cases for which there is no ongoing payment  to the participant. According to the agency’s general counsel and  subsequent comments from agency officials, since the outset of 2009,  PBGC has been receiving hardship waiver requests in recovery cases at  more than twice the rate received the prior year.
In contrast, both SSA and OPM policies on overpayments allow hardship  consideration for cases with ongoing payments. For overpayment of Social  Security benefits, SSA will withhold the full amount of the benefit each  month until the overpayment is fully recouped. However, in its fact sheet  on overpayments with respect to Social Security benefits and  Supplemental Security Income (SSI) benefits, available on its Web site,  SSA devotes over half the document to detailing the steps participants  should take if they wish to either appeal or request a waiver. For SSI  benefits, SSA will withhold 10 percent of the maximum federal benefit rate  each month, but the beneficiary can request a lesser withholding amount,  subject to SSA approval. Further, if the beneficiary disagrees with the  overpayment, he or she can appeal or request that collection be waived.
Similarly, OPM’s policy guidance on overpayments of retirement benefits  devotes over half the document to the subject of waivers. Under law, OPM  is directed not to recover overpayments when the beneficiary bears no  responsibility for the overpayment and requiring repayment would be  “against equity and good conscience.” In deciding whether to grant a  waiver, errors or delays by OPM may be considered, along with financial  hardship or any other basis for equity that OPM deems appropriate. Just  the last 7 pages of this 34-page policy guide are devoted to policies on  collections. These policies call for overpayments of federal employee  retirement benefits to be collected in one lump sum, whenever feasible. If  one lump-sum payment is not feasible and recoupment is by installment,  the payments are to be sufficient in size and frequency to recoup the debt  in no more than 3 years. The standard rate of collection is 10 percent of  the net monthly annuity or $50 per month, whichever is higher; but if a 10  percent reduction will not result in full recoupment within 3 years, the  reduction rate can be increased up to 50 percent.
section_title: PBGC’s Initial Communications Drew Praise, but Later Communications Were Sometimes Found Lacking
paragraphs: PBGC’s initial communications with participants shortly following  termination—especially its on-site information sessions—generally drew  praise from the pension advocacy groups and union representatives we  interviewed. These groups’ concerns with PBGC’s communication efforts  most often focused on the long gaps between contacts when the benefit  determination process was lengthy and the complicated calculations that  accompanied letters notifying participants of significant benefit  reductions.
subsections: section_title: PBGC’s Initial Notification and On-Site Information Sessions Generally Drew Praise
paragraphs: PBGC’s first communication with participants is generally a letter  informing them that their pension plan has been terminated and that  PBGC has become the plan trustee. Shortly thereafter, this letter is  generally followed by a more detailed letter with a packet of materials,  including a DVD with an introduction to PBGC and frequently-asked  questions about how the benefit determination process works. PBGC  officials refer to this as a “welcome” package. Additionally, for large plans  likely to have many participants affected by the guarantee limits, PBGC  will hold on-site information sessions shortly after plan termination. PBGC  also operates a customer service center with a toll-free number that  participants can call if they have questions, provides a Web site for  workers and retirees with detailed information about plans and benefits,  and sends participants a newsletter with information about PBGC once or  twice per year.
Nearly all pension advocacy groups and union representatives we spoke  with praised PBGC’s efforts to hold information sessions with the larger  plans. One union representative commended PBGC staff for going out into  the field to talk with participants and answer questions even though  participants are going to be angry. Other union representatives  commented that they have been impressed by PBGC’s staff for staying at  these sessions until they have answered every participant’s questions.  While these sessions are generally viewed as helpful, some pension rights  advocates noted that the information presented is difficult for participants  to understand, and may not have the same meaning when talked about in  generalities as when they later receive notices concerning their specific  benefits. Also, since not everyone may attend these events, these  advocates believe it is important for all the information presented at the  sessions to be provided through written communication as well.
PBGC’s customer service center and Web site received mixed reactions  from the pension rights advocates and union representatives we  interviewed. A few noted that some of their members reported receiving  good service from the toll-free number while others found the service  frustrating or useless. One union representative said that the center’s staff  use PBGC terminology, which may be different from the plan and benefit  language that is familiar to their members. However, other groups we  spoke with were generally more positive regarding their own direct  communications with PBGC staff, describing PBGC staff as forthcoming  and responsive to their inquiries. Similarly, the groups we interviewed  generally found the information on PBGC’s Web site useful, but they  expressed doubt that this would be the case for most of their members.  They noted that many people whose plans are taken over by PBGC are not  accustomed to using a computer or do not have access to the internet, and  that some do not feel comfortable relying on information they find on a  Web site.
section_title: Long Gaps in Communication until Completion of the Process Raised Some Concerns
paragraphs: Following the initial contacts, PBGC generally does not communicate with  participants again until the benefit determination process is complete,  which in some cases can stretch into years. Among the participants’ files  we examined when the benefit determination process took 4 or more  years, we found that there often was no contact from PBGC for most of  this time. For example, we examined the files of five randomly selected  Bethlehem Steel participants whose benefit determinations were still  pending as of February 2009, and found that—aside from one instance of  an acknowledgment of a form submitted by one participant—PBGC had  not communicated with these participants for more than 5 years. The last  PBGC-initiated communications were dated late 2003 or early 2004.
Some of the pension advocacy groups and union representatives we spoke  with said that these long periods without communication are problematic  for participants for several reasons. For example, retirees whose benefits  are subject to the guarantee limits but who continue to receive their higher  plan-level benefits for long periods of time may come to expect that these  higher amounts are permanent, and then they are surprised when—years  later—their benefits are suddenly reduced. Even for participants who are  not yet receiving benefits, the lack of communication about the likely  amount of their final benefits makes it difficult to plan for retirement.
Some groups noted that PBGC does not always provide realistic time  frames for completing the benefit determination process, and does not  periodically update participants on the status of benefit processing. Two  groups suggested it would be helpful if PBGC provided updates at least  every 6 months.
section_title: Complicated Benefit Calculations Are Not Adequately Explained
paragraphs: When participants are notified of a payment amount—whether estimated  or final—PBGC’s letters generally provide only limited explanations for  why the amount may be different from the amount provided under their  plan. In complex plans, when benefit calculations are complicated, the  letters do not adequately explain why benefits are being reduced, and  although benefit statements are generally attached, the logic and math  involved can be difficult even for pension experts.
The standard language used in these letters to explain a different  estimated amount states: “We have adjusted the amount of your benefit  because there are legal limits on how much we can pay.” The standard  language used to explain a different final benefit amount states: “Your final  monthly benefit of  is the amount that the PBGC is legally  allowed to pay you. It was calculated by determining the benefit you are  entitled to in your plan and then applying the limits spelled out in federal  pension law.” These letters generally provide no specific information  about which limits apply or why. However, enclosed with each benefit  letter is a detailed attachment that shows the line-by-line calculations  leading to the benefit amount, referred to as a “benefit statement.” In the  participant files we reviewed, these benefit statements ranged in length  from 2 to 8 pages, and were very difficult to understand. In some cases,  there were as many as 20 to 30 different line items that required making  comparisons between the items to understand the logic of the  calculations. (See sample letter provided in appendix VII.)
Some pension advocates and union representatives we spoke with said  that they found the explanations in these letters to be too vague and  generic, and that the letters did not provide enough information specific to  the individual’s circumstances to be helpful. This was especially true in  cases where participants were shocked or confused by a large benefit  reduction. Moreover, some said they did not think most participants would  be able to understand the accompanying benefit statements without  additional information and assistance—especially for complex cases,  according to one advocate. At the same time, they were generally  sympathetic to the difficulty of communicating such complicated  information. As one advocate acknowledged, for the letters to be accurate,  they have to be complicated; this may just be “the nature of the beast.”  Nevertheless, they said that PBGC could take some steps to improve the  letters. For example, for those likely to incur overpayments, they  suggested providing an example of how the recoupment process works.  For those with complex benefit statements, they suggested that PBGC  provide more text to help explain each step of the calculations, and  include referrals to pension rights groups for obtaining additional  information and assistance.
In addition, we found a number of errors in the correspondence with  participants, although we reviewed only a small sample of letters for  participants in certain complex plans. For example, we found a number of  cases with corrected benefit determination letters and other  correspondence that had been sent to rectify various errors, such as the  failure to account for overpayments, or inaccurate end dates for  recoupment. We also identified some errors in the payment amounts or  other information in the letters that we brought to PBGC’s attention to be  corrected.
PBGC has developed more than 500 letter formats—in both English and  Spanish—to address the myriad of situations that may arise in the benefit  determination process. Nevertheless, PBGC officials acknowledged that  their standard letter formats may not always meet the needs of  participants, especially those in complex plans, and they recently  undertook a project to review and update their letters to try to better meet  participant needs.
According to PBGC officials, in September 2008, they began rolling out  about 50 different versions of key letters to fit different circumstances.  They also noted that the amount of detail and length of the benefit  statements has varied over time—sometimes longer, sometimes shorter.  Most recently, they have tended toward longer. They commented,  however, that they are not sure it makes a difference either way, because  for the most part, participants react to the benefit amount, not to the steps  PBGC has used to arrive at the amount. Finally, they also noted that while  the benefit amounts in the letters are verified by actuaries, the letters are  prepared manually by Field Benefit Administration staff, using the  standard formats, and until recently, these letters were not reviewed.  Beginning in early 2009, however, plan analysts have started to review the  letters before mailing.
section_title: Restructured Appeals Process Resolves Requests More Efficiently but Key Information Is Not Readily Provided
paragraphs: Since streamlining its appeals process in 2003, PBGC has responded more  quickly to correspondence sent to its Appeals Division (see fig. 12). It has  reduced the average amount of time to decide an appeal by almost a year  and has cut the average amount of time needed to resolve all appeals- related inquiries in half. At the same time, most appeals docketed since  2003 have not resulted in appellants receiving higher benefit amounts. A  lack of understanding on the part of participants about how their benefits  are calculated may contribute to unnecessary appeals.
subsections: section_title: Triage Approach Has Streamlined Appeals Process
paragraphs: PBGC’s appeals process was restructured in 2003 to create a triage system  that makes more efficient use of agency resources and resolves cases  more quickly. Previously, PBGC treated nearly every correspondence sent  to its Appeals Division as an appeal. The agency now evaluates  correspondence to determine if it raises a question about how the plan  was interpreted, how the law was interpreted, or the practices of the plan’s  sponsor and dockets correspondence as an appeal if it meets these criteria  based on regulations. In analyzing appeals correspondence associated  with plans trusteed by PBGC from fiscal year 2000 to fiscal year 2008, we  found that since 2003, PBGC docketed as an appeal less than one-third of  the correspondence received by the Appeals Division (see fig. 13).  Correspondence concerning corrections to personal data, such as a  participant’s date of hire or length of service, is now directed to PBGC’s  Benefits Administration and Payment Department (Benefits Department)  so that a corrected benefit determination can be issued more  expeditiously. Additionally, in instances where a potential appellant  requests a more detailed explanation of his or her benefit determination,  the Benefits Department can quickly provide a detailed explanation based  on its familiarity with the benefit calculation and relevant participant data.  Further, under this triage approach, the Appeals Board staff, rather than  the Appeals Board, responds to appeals received before a benefit  determination has been issued or to claims that PBGC’s recovery of  overpayments create a financial hardship and should be waived.
Since streamlining the appeals process, PBGC has reduced its response  time for appeals and other appeals-related inquiries without increasing the  size of its appeals staff. According to agency data, PBGC reduced its  average time for closing docketed appeals from 2.3 years to 1.4 years since  implementing this triage approach. In fact, since fiscal year 2005, PBGC  has averaged a response time of less than 10 months (see fig. 14). PBGC  has also reduced the average age of pending appeals from about 2 years to  less than 9 months, since implementing its triage approach. We also found,  on examining the 14,545 appeals-related correspondences associated with  plans trusteed from fiscal year 2000 to fiscal year 2008, that PBGC  responded to all correspondence in an average of less than 4 months after  2002 (fiscal years 2003 through 2009), as compared to an average of about  8 months prior to 2003 (fiscal years 2000 through fiscal year 2002).  However, there were also 852 cases of correspondence which had been  pending for an average of nearly 7 months, as of April 2009.
The procedural requirements of the appeals process do not appear to  present barriers to appellants. Appellants are to provide a specific reason  for their appeals and submit them within 45 days of their benefit  determinations. Of the 3,637 closed appeals we examined, only 37 were  closed because the appellant did not conform to a procedural  requirement. Additionally, PBGC readily grants extensions. Within the  correspondence we examined, PBGC granted 2,371 extension requests  during fiscal years 2000 through 2008.
section_title: Most Appeals Have Not Resulted in Higher Benefit Amounts for Appellants
paragraphs: More than 80 percent of appeals resulted in appellants receiving no  increase in their benefit amounts. Of the 4,337 correspondences that were  docketed as appeals since the beginning of fiscal year 2003, 3,637 had been  decided as of April 2009. In most of these cases, the appeal decision  resulted in no change to the participant’s benefit determination amount  (see fig. 15). However, appellants received a higher benefit amount in 18  percent of the cases. For example, in one of the successful appeals, a  Bethlehem Steel participant submitted copies of his medical records with  his appeal, convincing the Appeals Board that he was eligible to receive a  “permanent incapacity” benefit. In another case, a participant in the US  Airways Inc. (pilots) plan had US Airways Inc. furnish documentation to  PBGC that his date of hire had been adjusted as the result of a lawsuit, and  with this new date of hire, PBGC considered the participant vested.
In cases with no change in the participant’s benefit determination amount,  the amount of overpayment can grow significantly during an appeal. While  cases are appealed, PBGC typically places a hold on any change in benefit  until the appeal is resolved. Thus, in cases where the benefit determination  amount is less than the estimated amount, the participant may continue to  receive the higher estimated amount during an appeal. If the lower amount  is ultimately upheld, we found that these continued higher payments could  add significantly to the amount of the participant’s overpayment—more  than $10,000 in some cases.
section_title: PBGC Does Not Readily Provide Key Information that Could Help Avoid Unnecessary Appeals
paragraphs: Although some appellants have successfully used the appeals process to  increase their benefits, PBGC is not readily providing key information that  would be helpful to participants in deciding whether or not to pursue an  appeal. For example, the information PBGC provides on how it arrives at  its benefit calculations can be difficult for potential appellants to  understand. Plan provisions and guarantee limitations are often  complicated, and it may be difficult for the average individual to interpret  PBGC’s benefit calculations, especially for complex plans. Based on  Appeals Board findings, it appears that participants sometimes file appeals  because they do not understand how the guarantee limitations affect their  benefits. For example, the Appeals Board denied one Weirton Steel  participant’s appeal by explaining that the participant’s estimated benefit  included a temporary supplement that, ultimately, was not payable due to  the accrued-at-normal limitation. In another case, the Appeals Board  concluded that an Outboard Marine participant simply did not understand  PBGC’s benefit statement and explained the accrued-at-normal, maximum,  and phase-in limitations, while denying the participant’s appeal.
Even pension counselors and union representatives, who are  knowledgeable about pensions and have experience filing appeals with  PBGC, had difficulty understanding the materials provided to participants  about their benefits . Several of the pension counselors and union  representatives we interviewed told us that they have established contacts  at PBGC who help them understand benefit determinations in appeals  cases, and they, in turn, help convey this information to the participants  they serve. Some have even held three-way calls with PBGC’s customer  service center and participants, so that they can help participants  understand the information provided by PBGC. Additionally,  representatives from the pension counseling centers we spoke with have  actuarial support they consult for help interpreting complicated benefit  calculations. In some cases, by assisting participants in understanding  their benefit calculations better, pension counselors told us they can also  help participants avoid unnecessary appeals.
Some of those we interviewed also told us that a complete understanding  of a participant’s benefit determination—which is important for an  effective appeal—cannot be obtained from a benefit determination letter  alone. Several of these pension counselors and union representatives  commented that they routinely file Freedom of Information Act requests,  on a participant’s behalf, to obtain more information about a participant’s  case from PBGC when preparing an appeal because there is not sufficient  information in the benefit determination letter. Although PBGC provides a  guide on how to use these requests on its Web site, PBGC’s  communications materials about the appeals process do not provide a  description of how individuals can gain access to PBGC’s full benefit  calculation records through a Freedom of Information Act request.
section_title: Conclusions
paragraphs: The current economic downturn has already brought a new influx of  pension plan terminations to PBGC, and more are expected to follow.  While our findings reveal a reasonably good record of processing  beneficiary cases and assuming responsibility for the payment of benefits  since 2000, the loss of jobs at this time, as well as the impending  retirement of the baby boom generation, leave little room for anything  short of high performance. This means acting as quickly and as efficiently  as possible to value and allocate plan assets; to expedite the calculation of  estimated benefits to reflect guarantee limits, as well as final benefit  amounts; and to keep plan participants well-informed throughout the  benefit determination process. Workers and retirees in terminated plans  who stand to lose as much as one-half or more of their long-anticipated  retirement income will likely have to make painful financial adjustments,  and due consideration in helping to ease that pain is warranted.
The calculation of benefits according to complicated provisions that vary  by plan is a challenging task. It becomes more so with the delays that can  occur in valuing the assets of large and complex plans and determining  how those assets are to be allocated among different groups. However, the  likelihood of lengthy processing for some plans is not unpredictable, and  while PBGC has taken steps to expedite the processing of small and  simpler plans, its approach to large and complex plans appears less than  strategic. The hope of freeing up staff to handle complex plans by  processing others more quickly will probably not be sufficient by itself for  tackling difficult plans in the near future. Absent a calculated effort to  anticipate and plan for such terminations, the heretofore modest number  of beneficiaries caught in a protracted process could, indeed, grow in the  next few years.
While overpayments to those already in retirement have been infrequent,  delays clearly exacerbate them. Moreover, the failure to communicate  more often and clearly with participants awaiting a final determination can  be disconcerting—especially when they receive the news that their final  determination is “surprisingly” less than they anticipated, or when retirees  learn that the estimated interim benefit they had been receiving was too  high and that they owe money. PBGC’s long recoupment period—which  can be even further elongated by an appeal—may be a consolation to such  retirees; however, the agency itself stands to lose considerable sums under  this policy. This is another peril for an agency that may well be dealing  with an increasing number of plan failures. Clearer and more frequent  communication with plan participants, including quicker and responsible  adjustments to estimated benefits, more information about how their  benefits are calculated, and where to find help if they wish to appeal,  would better manage expectations, help people plan for their future, avoid  unnecessary appeals, and earn good will in a trying time for all.
section_title: Recommendations
paragraphs: To improve PBGC’s benefit determination process, a more strategic  approach is needed to prepare for and manage the calculation of benefit  amounts and communications with participants in cases involving large,  complex plans. Specifically, we recommend that:    PBGC should set goals for timeliness and monitor the progress made in  finalizing benefit determinations for large, complex plans separately from  other plans.
To reduce the number and size of overpayments in large, complex plans,  PBGC should prioritize the calculation of estimated benefits for retirees  subject to the guarantee limits and adjust estimates, as needed, throughout  the benefit determination process. To reduce increased overpayments due  to appeals, PBGC should prioritize the processing of appeals for those  already receiving benefits and should consider implementing the final  benefit determination for retirees during the appeals process.
PBGC should develop improved procedures for adapting and reviewing  letters to participants in large, complex plans, such as by (1) providing  more specific information in letters to participants who receive benefit  reductions describing which limits were applied and why; (2) ensuring all  letters to participants involving benefit reductions are reviewed for  accuracy and coherence before being sent; and (3) establishing processes  to more frequently communicate with participants who are experiencing  delays in receiving final benefits determinations.
PBGC should provide information or resources to help participants in  large, complex plans better understand their benefit calculations and also  to avoid any unnecessary appeals. Specifically, PBGC’s benefit  determination letters should provide information, such as how  participants can obtain additional information by using the Freedom of  Information Act or other resources.
section_title: Agency Comments and Our Evaluation
paragraphs: We obtained written comments on a draft of this report from PBGC’s  acting director, which are reproduced in appendix VIII. PBGC also  provided technical comments, which are incorporated into the report  where appropriate. In addition, we provided copies of the draft report to  the Departments of Commerce, Labor, and Treasury.
In response to our draft report, PBGC generally concurred with our  recommendations and outlined actions the agency has under way or plans  to take in order to address each topic of concern. With respect to the first  recommendation, PBGC agreed and noted that the agency has started to  implement steps for tracking and monitoring tasks associated with  processing large, complex plans. While we are pleased to learn of these  steps being initiated, we would like to emphasize the importance of setting  goals for processing large, complex plans and reporting progress toward  meeting those goals separately from other plans. With respect to the  second recommendation, PBGC agreed and commented that it generally  already identifies and prioritizes cases where adjustments to estimated  benefits are likely, but will continue to look for ways to improve its  processes. Moreover, despite possible legal concerns with implementing  final benefit determinations prior to completion of the appeals process,  the agency is willing to explore options for making earlier benefit  adjustments, when appropriate. With respect to the third recommendation,  PBGC agreed and noted that the agency is revising the guidelines for its  benefit statements to better communicate the complexities of PBGC  benefits and to better manage expectations of plan participants. The  comments state that the agency will evaluate and make necessary  modifications to its letter review process, as well as examine ways to more  frequently and clearly communicate with participants experiencing delays  in receiving final benefit determinations. Finally, with respect to the fourth  recommendation, PBGC agreed to amend its appeals brochure to include  information about accessing records through Freedom of Information Act  requests.
As agreed with your staff, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after its  issue date. At that time, we will send copies of this report to the Acting  Director of PBGC, the Secretary of Labor, the Secretary of the Treasury,  and other interested parties. In addition, the report will be available at no  charge on the GAO Web site at http://www.gao.gov. If you or your staff  have any questions concerning this report, please contact me at (202) 512- 7215 or bovbjergb@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 key contributions to this report are  listed in appendix IX.
section_title: Appendix I: Scope and Methodology for Analysis of Automated and Imaged Data
paragraphs: To assess the timeliness and results of the Pension Benefit Guaranty  Corporation’s (PBGC) benefit determination process, we obtained  automated data from PBGC on all plans terminated and trusteed during  fiscal years 2000 through 2008, as well as data for all individuals associated  with those plans. Three different data sets were provided: (1) a plan level  data set, (2) an individual level data set with benefit data, and (3) an  individual level data set with appeals data.
The plan level data set, including 1,089 plans total, was comprised of three  component groups:    Group A - plans for which the valuation of assets and liabilities had been  completed, as of February 2009 (909 plans).
Group B – plans for which the valuation of assets and liabilities had not  been completed, as of February 2009 (83 plans). When actual values were  not yet available, estimated values for assets and/or liabilities were  provided. The participant count for these plans was based on audited data.
Group C – plans for which the valuation of assets and liabilities was not  completed, as of February 2009 (97 plans). Estimated values for assets  and/or liabilities were only available for some plans. The participant count  for these plans was based on preliminary data.
We analyzed the plan level data to determine the length of time it takes  PBGC to complete the valuation of a plan’s assets and liabilities, on  average. We also analyzed the plan level data to identify various plan  characteristics, such as the fiscal year when trusteed by PBGC and the  extent to which participants’ benefits are affected by legal guarantee  limits. PBGC does not systematically track the number of participants  affected by one or more of the three types of guaranteed benefit limits  specified under the Employee Retirement Income Security Act of 1974  (ERISA) and related regulations—which include maximum, phase-in, and  accrued-at-normal limits—or how much these limits affect participants’  benefit amounts. However, PBGC does systematically track each plan’s  total benefit liabilities and the amount PBGC owes, taking into account the  guarantee limits. The difference between these two amounts (referred to  as the amount of “unfunded nonguaranteed benefits”) provides an  indicator of the magnitude of the impact of guarantee limits on  participants within each plan. If the amounts are the same, it means that  no participants had benefits reduced due to these limits. If total liabilities  are greater, it means that at least one participant had benefits reduced due  to these limits.
The individual level data set, with benefit data as of February 2009,  included 1,487,679 individuals associated with 1,057,272 primary  participants (the person who had earned the pension). The most common  reasons for multiple individuals per case were situations where a portion  of the pension was to be shared between the primary participant and  another individual with a qualified domestic relations order (referred to in  the data set as an “alternate payee”), or situations where a primary  participant had died and the pension was being paid to a beneficiary. In  our analyses, we aggregated the data so that the characterization of each  case reflected the data for the primary participant, as well as all other  individuals associated with that primary participant, as appropriate for the  data element being analyzed.
We analyzed the individual level data on benefits, by case, to determine  the length of time it takes PBGC to make benefit determinations and the  extent to which overpayments affect retirees’ benefits. To assess the time  required for processing, we began by identifying all those participants  whose benefit determinations had been completed. We then examined the  length of time between the date the participant’s plan was trusteed and the  date PBGC first issued a final benefit determination letter to the  participant. (Subsequent benefit determination letters are sometimes  issued when corrections are needed or when a participant successfully  appeals.) For participants whose benefit determinations were still  pending, we calculated the length of time between the plan’s trusteeship  and February 18, 2009, when these data were provided, to determine how  long the determinations had been awaiting completion. We also analyzed  the length of time to process benefit determinations by participants’  retirement status at the time the plan terminated.
To determine the proportion of participants possibly affected by  overpayments, we first identified all those who had received estimated  benefits and then compared the earliest available estimated benefit  amount with the final benefit amount, by case, tabulating whether the  difference was positive (indicating a likely overpayment) or negative  (indicating a likely underpayment). Because estimated benefit amounts  may be adjusted over time, and because the records on estimated benefits  had sometimes been overwritten or deleted, we were not able to use these  data to determine with certainty whether or not an overpayment or  underpayment had been incurred, or the amounts involved. Instead, to  assess the amount of overpayments incurred and the effect of repaying  these debts on participants’ benefits, we analyzed the data on  recoupments. First, we identified all those who were listed as having  amounts recouped to date, by case. We then used the available data on  projected benefit reductions, which included the amount of monthly  reduction and the start date and end date for that reduction amount  (sometimes involving up to four different reduction amounts) to calculate  the amounts yet to be recouped. We determined the total amount of the  overpayments, by case, by combining the data PBGC provided on amounts  recouped to date with our calculation of amounts yet to be recouped.
Based on a review of selected records in PBGC’s image processing system  for cases with the largest overpayments, it appears that these data are  reliable for identifying whether a case has an overpayment, but not as  reliable for determining the total amount of overpayments. We were able  to verify that the participant with the largest overpayment, according to  our analysis of these data, was correct: an LTV participant with an  overpayment of about $152,000. Also, we found that that the amounts  calculated using these data were very close (within 2 percent) of the  overpayment amounts in the records for 15 of the 24 cases reviewed— differences small enough to be explained by rounding. However, in the  remaining 9 cases, the amounts calculated varied significantly from those  in the records—some greater, some less. We investigated the 3 most  egregious differences and found that all 3 were due to data entry errors in  the PBGC data set. In 2 cases, PBGC officials told us that the end date for  recoupment had been entered as 12/1/2099 by default, which was not  correct. They said that they would implement a system fix to prevent  inappropriate use of this default in the future. In the third case, we found  that the monthly payment amount had been inadvertently entered as the  monthly reduction amount. None of these errors had resulted in  inaccurate payments to participants, since all involved future recoupment  amounts. However, it appears that the reliability of these data for  calculating total overpayment amounts is limited.
We also analyzed the individual level data, by case, to identify various case  characteristics, aggregating the data together for all individuals associated  with the same case. These characteristics included the final benefit  amount (with and without any benefit reduction due to recoupment), and  the projected age of the youngest individual at the end of recoupment for  cases with overpayments greater than $10,000.
We then combined the plan level data and individual level data, by case, to  determine the number of individuals and cases associated with each plan,  and identify those plans with the most cases that took 4 or more years to  provide a final benefit determination, and the most cases with  overpayments. We also used these data to generate lists of cases for more  detailed reviews of documents in PBGC’s image processing system and  examine more closely the cases that took the longest to provide a benefit  determination and that had the largest overpayments and benefit  reductions.
In addition to the automated data, PBGC maintains records that are  individually scanned into an image processing system. The types of  documents we reviewed in PBGC’s image processing system included both  plan documents and participant records. On the plan level, we reviewed  documents for the plans most affected by guarantee limits, by delays in  processing, and by overpayments (see appendix VI). For the 10 plans  ranking highest in each of these categories, we typically reviewed the  “actuarial case memo,” which summarizes all the steps taken to obtain  records and determine the value of assets and liabilities for each plan  terminated and trusteed by PBGC. We then selected five of these plans for  more detailed review of participant records in order to illustrate key  trends identified in our analysis of the automated data. These five plans  were: Bethlehem Steel, LTV Steel, RTI-United Steelworkers of America  (USWA), US Airways, and Weirton Steel. For Bethlehem Steel, we  randomly selected five participants from among those participants whose  benefit determinations were still pending. For each of the other four plans,  we randomly selected five participants from the lists of participants  provided in the plans’ actuarial memos. Then, for each of these  participants, we typically reviewed all letters sent to the participant, all  benefit calculation documents, and the internal correspondence among  PBGC staff about the case. We reviewed the letters to participants only to  determine if they accurately conveyed information documented elsewhere  in the files. We did not attempt to verify PBGC calculations of benefit  amounts.
Finally, to assess the length of time it takes PBGC to provide a decision  when a participant appeals, we examined PBGC data on the average time  to close docketed appeals and the average age of pending appeals, by  fiscal year, 2000 through 2008. We also analyzed the 14,545 appeals-related  correspondences associated with plans terminated and trusteed during  fiscal years 2000 through 2008 so that we could make comparisons  between PBGC’s average response time, both before and after its  restructuring of the appeals process. Data reflect multiple  correspondences associated with individual cases. For correspondences  that were pending, we calculated the amount of time between when PBGC  received these correspondences and April 13, 2009, when we received  these data. To describe PBGC’s triaging system, which was implemented  in fiscal year 2003, we analyzed PBGC’s action taken code for each  correspondence and aggregated these results into two groups: those  correspondences received during fiscal years 2000 through 2002, and those  received during fiscal years 2003 through 2008. Of the 4,337  correspondences that were docketed as appeals, 3,495 had been decided  as of April 2009. We then tabulated the data on the outcomes of closed  appeals and the reasons why these appeals were closed, which were  coded to indicate whether a change to the benefit amount occurred.
section_title: Appendix II: Organizations and Participants Contacted
subsections: section_title: Organizations
paragraphs: American Federation of Labor and Congress of Industrial  Organizations (AFL-CIO) (http://www.aflcio.org) A voluntary  federation of 56 national and international labor unions, representing 11  million members in a variety of industries.
Air Line Pilots Association (http://www.alpa.org) The largest airline  pilot union in the world, representing nearly 54,000 pilots at 36 U.S. and  Canadian airlines.
Association of Flight Attendants-Communications Workers of  America (http://www.afanet.org) The world’s largest flight attendant labor  union, organized by flight attendants for flight attendants, representing  over 55,000 flight attendants at 20 airlines.
New England Pension Assistance Project  (http://www.pensionaction.org/nepap.htm) One of the six regional projects  funded by the Administration on Aging to provide free pension counseling  services. Initially, the project served only Massachusetts residents, but in  1998, it expanded to help residents of the six-state New England region:  Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and  Vermont.
Ohio Pension Rights Center  (http://www.proseniors.org/oh_pension.html) Part of one of the six  regional projects funded by the Administration on Aging to provide free  pension counseling services. The Ohio Pension Rights Center shares a  grant with the Michigan Pension Rights Project and provides all types of  pension assistance to people in Michigan, Ohio, Pennsylvania, Kentucky,  and Tennessee.
Pension Rights Center (http://www.pensionrights.org) Provides legal  consultation and training to the six regional projects funded by the  Administration on Aging to provide pension counseling services for  individuals who need help in understanding and enforcing their pension  and retirement savings plan rights.
United Steelworkers (http://www.usw.org/) The largest industrial labor  union in North America, representing 1.2 million current and retired  workers in industries that include primary and fabricated metals, mining,  chemicals, paper, glass, rubber, transportation, utilities, container  industries, pharmaceuticals, call centers, and health care.
section_title: Participants
paragraphs: Members of the Reliance Group Holdings Inc. plan and the Reliance  Insurance Company plan, which were among the plans most affected by  long processing times.
Members of the Republic Technologies International USWA and  USS/KOBE plans, which were among the plans most affected by the  guarantee limits, long processing times, and/or overpayments.
Members of United Air Lines ground employees plan and pilots’ plan.
section_title: Appendix III: The Process for Allocating Assets and Recoveries to Participant Benefits
paragraphs: Upon the termination of a single-employer plan, plan assets are identified,  valued, and then allocated to participant benefits, in accordance with the  provisions in ERISA, section 4044. In addition to plan assets, any monies  from company assets that PBGC recovers for unfunded benefit liabilities  are allocated to participant benefits, in accordance with the provisions in  ERISA, section 4022(c).
subsections: section_title: Section 4044—Allocation of Plan Assets
paragraphs: The amount of plan assets available to pay for participant benefits  includes all plan assets remaining after the subtraction of all prior or  current liabilities paid or payable from the plan. This amount includes the  value of the collectible portion of any due and unpaid employer  contributions. Liabilities include expenses, fees and other administrative  costs, and benefit payments due before the allocation date. For plans  terminated and trusteed by PBGC, assets are valued and the allocation  determined based on liabilities as of the termination date.
Plan assets available to pay for benefits under the plan are allocated to  participant benefits according to six priority categories, as described in  Table 3. Assets are allocated to each priority category in succession,  beginning with priority category 1. If the plan has sufficient assets to pay  for all benefits in a priority category, the remaining assets are allocated to  the next lower priority category. This process is repeated until all benefits  in priority categories 1 through 6 have been provided or until all available  plan assets have been allocated. Most private sector defined benefit plans  do not require or allow participant contributions. Thus, in most trusteed  plans, asset allocation begins with the benefits in priority category 3, that  is, the benefits of those retired or eligible to retire 3 years before the plan  terminated. However, it should be noted that assets are allocated based on  type of benefit, not retirement status, and that many participants have  benefits in more than one category.
Except for priority category 5, which includes benefits subject to the  phase-in limit, if the plan assets available for allocation to any priority  category are insufficient to pay for all benefits in that priority category,  those assets are distributed among the participants according to the ratio  that the value of each participant’s benefit or benefits in that priority  category bears to the total value of all benefits in that priority category. If  the plan assets available for allocation to priority category 5 are  insufficient to pay for all benefits in that category, the assets are allocated  by date of plan amendment, oldest to newest, until all plan assets available  for allocation have been exhausted. Within each priority category, once  the amount of assets to be allocated to each participant has been  determined, assets are allocated first to the participant’s “basic-type”  benefits (which include benefits that are guaranteed by PBGC, or that  would be guaranteed but for the maximum and phase-in limits), and then  to the participant’s “nonbasic-type” benefits (which include all other  benefits).
Plan assets are distributed according to the process described above until  all have been allocated. Thus, to the extent plan assets are available for  allocation under this scheme, some participants may have some or all their  nonguaranteed benefits paid. For example, in the scenario illustrated in  figure 16, sufficient plan assets are available to cover all priority category 3  guaranteed and nonguaranteed benefits, as well as a portion of priority  category 4 guaranteed benefits. PBGC would then pay the remaining  guaranteed benefits in priority category 4, but all remaining benefits (that  is, priority categories 5 and 6 benefits, which are all nonguaranteed  benefits), would not be paid, and participants would have their benefits  reduced accordingly, unless there are recoveries of company assets that  can be allocated to benefits, as discussed below.
section_title: Section 4022(c)— Allocation of Recovered Company Assets
paragraphs: Section 4022(c), added to ERISA in 1987, requires PBGC to share with  participants a portion of its recoveries resulting from an employer liability  claim against the plan sponsor and other liable parties, usually in  bankruptcy. As a result, a portion of participants’ losses of unfunded  nonguaranteed benefits can be paid. Where a plan’s unfunded  nonguaranteed benefits exceed $20 million, the total amount paid under  §4022(c) depends on PBGC’s actual recoveries in that case. In all other  cases, the amount paid is determined by an average of PBGC’s recoveries  over a 5-year period.
PBGC allocates the participants’ portion of the §4022(c) amount, as  described above, to participants’ unfunded nonguaranteed benefits using  the same priority categories and procedures outlined above for the §4044  asset allocation process. The allocation begins with the highest priority  category in which there are unfunded nonguaranteed benefits, and then to  each lower priority category, in succession. If the plan §4022(c) amount to  be allocated in a particular priority category is not sufficient to pay all the  unfunded nonguaranteed benefits in that category, the amount will be  allocated within the category as described above for the §4044 allocation  process. As noted by one employee group we spoke with, it is more  advantageous for participants for assets to be considered recoveries  allocated under §4022(c) than plan assets allocated under §4044, because  recoveries are shared between PBGC and participants. For example, to  continue with the scenario introduced above, if company assets are  recovered, some would be allocated to pay a portion of the guaranteed  benefits in priority category 4 that PBGC would pay to participants  regardless, and some would be allocated to pay a portion of priority  category 5 nonguaranteed benefits that would not have been paid  otherwise (see fig. 17).
To help illustrate this process, we gathered data from plan records about §  4044 and § 4022(c) asset allocation for 10 large, complex plans. The results  are summarized in table 4.
section_title: Appendix IV: Limits on Guaranteed Benefits from a Participant’s Perspective
paragraphs: The statutory and regulatory limits on guaranteed benefits can be difficult  to understand for many participants. The following schematic distills the  application of these limits into a series of questions, one for each type of  limit: phase-in, accrued-at-normal, and maximum.
section_title: Appendix V: Profiles of Three Large, Complex Plans
paragraphs: We selected three terminated pension plans to profile as examples of  large, complex plans: Bethlehem Steel, RTI (USWA), and US Airways  (pilots) (see appendix VI). All three were among the 10 plans most  affected by the guarantee limits. In addition, both Bethlehem Steel and RTI  (but not US Airways) were among the 10 plans most affected by  processing delays and by overpayments.
section_title: Appendix VI: Three Categories of Large, Complex Plans
paragraphs: Percentage of total  unfunded nonguaranteed  benefits ($8,522,175,078)
National Steel Corporation (retirement plan)
Kaiser Aluminum and Chemical Corp. (hourly plan)
Kaiser Aluminum and Chemical Corp. (salaried plan)
section_title: Appendix VII: Sample Benefit Determination Letter
subsections: section_title: To illustrate the complexity of some benefit calculations, this appendix provides a sample benefit determination letter that PBGC sent to an RTI (USWA) participant, as well as a 5-page benefit statement and a recoupment summary that were provided as attachments.
section_title: Appendix IX: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Blake L. Ainsworth, Assistant  Director; Margie K. Shields, Analyst-in-Charge; Kristen W. Jones; and  Wayne Turowski made significant contributions to this report. Joseph A.  Applebaum, Jeffrey L. Bernstein, Susan C. Bernstein, Jena Y. Sinkfield,  Walter K. Vance, and Craig H. Winslow also made important contributions.
section_title: Related GAO Products
paragraphs: Pension Benefit Guaranty Corporation: Financial Challenges Highlight  Need for Improved Governance and Management, GAO-09-702T  (Washington, D.C.: May 20, 2009).
Auto Industry: Summary of Government Efforts and Automakers’  Restructuring to Date, GAO-09-553 (Washington, D.C.: April 23, 2009).
Defined Benefit Pensions: Survey Results of the Nation’s Largest Private  Defined Benefit Plan Sponsors, GAO-09-291 (Washington, D.C.: March 30,  2009).
Pension Benefit Guaranty Corporation: Improvements Needed to  Address Financial and Management Challenges, GAO-08-1162T  (Washington, D.C.: September 24, 2008).
Pension Benefit Guaranty Corporation: Some Steps Have Been Taken to  Improve Contracting, but a More Strategic Approach Is Needed,  GAO-08-871 (Washington, D.C.: August 18, 2008).
Defined Benefit Pensions: Plan Freezes Affect Millions of Participants  and May Pose Retirement Income Challenges, GAO-08-817 (Washington,  D.C.: July 21, 2008).
Pension Benefit Guaranty Corporation: A More Strategic Approach  Could Improve Human Capital Management, GAO-08-624 (Washington,  D.C.: June 12, 2008).
Pension Benefit Guaranty Corporation: Governance Structure Needs  Improvements to Ensure Policy Direction and Oversight, GAO-07-808  (Washington, D.C.: July 6, 2007).
Private Pensions: Timely and Accurate Information Is Needed to  Identify and Track Frozen Defined Benefit Plans, GAO-04-200R  (Washington, D.C.: December 17, 2003).
Pension Benefit Guaranty Corporation Single-Employer Insurance  Program: Long-Term Vulnerabilities Warrant “High Risk” Designation,  GAO-03-1050SP (Washington, D.C.: July 23, 2003).
Pension Plans: Benefits Lost When Plans Terminate, T-HRD-92-58  (Washington, D.C.: September 24, 1992).