Congress passed the Employee Retirement Income Security Act of 1974 (ERISA) to protect the interests of participants and beneficiaries of private sector employee benefit plans. Before the enactment of ERISA, few rules governed the funding of defined benefit pension plans, and participants had no guarantee that they would receive promised benefits. ERISA established PBGC to insure private sector plan participants' benefits and to encourage the continuation and maintenance of private sector defined benefit pension plans by providing timely and uninterrupted payment of pension benefits. PBGC is a wholly owned government corporation--that is, the federal government does not share ownership interests with nonfederal entities, and PBGC is subject to requirements under the Government Corporation Control Act of 1945, as amended, such as annual budgets, audits, and management reports. According to public administration experts, a government corporation is appropriate for the administration of government programs that are predominately of a business nature, produce revenue and are potentially self-sustaining, involve a large number of business-type transaction with the public, and require greater budget flexibility than a government department or agency. The United States government is not liable for any obligation or liability incurred by PBGC. The corporation is funded through insurance premiums from employers that sponsor insured pension plans, as well as assets from terminated pension plans and investment income. PBGC insures certain private sector defined benefit plans through its single-employer and multiemployer insurance programs. Through its single-employer insurance program, PBGC paid nearly $4.1 billion in benefits to 622,000 participants and beneficiaries across the United States in fiscal year 2006 (see fig. 1). The geographic breakdown of PBGC-insured participants largely matches the overall population. Appendix II includes information on PBGC's single-employer plans by each U.S. state and territory, as shown in figure 1. PBGC is governed by a board of directors that consists of the Secretaries of the Treasury, Labor, and Commerce, with the Secretary of Labor serving as chair of the board. Prior to the passage of the Pension Protection Act of 2006, ERISA provided the Secretary of Labor with responsibility for administering PBGC's operations, personnel, and budget. The Secretary has historically delegated the responsibility for administering PBGC to an executive director. The Pension Protection Act replaced the chair of the board as PBGC's administrator with a Senate- confirmed director. The corporation is also aided by a seven-member Advisory Committee appointed by the President to represent the interest of labor, employees, and the general public. This committee has an advisory role, but has no statutory authority to set PBGC policy or conduct formal oversight. PBGC also has an Office of Inspector General that reports to the board through the chair. With 22 staff, the Office of Inspector General generally conducts audits, inspections, and investigations of PBGC's programs and operations in order to promote program administration effectiveness and deter waste, fraud, and abuse of PBGC resources. PBGC's board has taken steps to improve its governance structure by revising the corporation's bylaws. PBGC also contracted with a consulting firm to assist the board in its review of alternative corporate governance structures. However, the board consists of three cabinet secretaries, a fact that limits their ability to provide policy direction and oversight. PBGC may also face additional challenges as the board members, their representatives, and director will all likely change with the upcoming presidential transition, thus limiting the corporation's institutional knowledge. PBGC has taken steps to improve its policy direction and oversight through the revision of its bylaws. In our July 2007 report, we recommended PBGC's board of directors establish formal guidelines that articulate the authorities of the board, the Department of Labor, other board members, and their respective representatives. As part of its May 2008 bylaw revision, the board of directors more clearly defined the roles and responsibilities of its members, representatives, and director. For example, the new bylaws state that the board is responsible for establishing and overseeing the policies of the corporation. The new bylaws explicitly outline the board's responsibilities, which include approval of policy matters significantly affecting the pension insurance program or its stakeholders; approval of the corporation's investment policy; and review of certain management and Inspector General reports. In addition, the new bylaws explicitly define the role and responsibilities of the director and the corporation's senior officer positions. See appendix III to view PBGC's new bylaws. Our July 2007 report also asked Congress to consider restructuring the board of directors to appoint additional members of diverse backgrounds who possess knowledge and expertise useful to PBGC's responsibilities and can provide the attention needed for strong corporate oversight. In response to these findings, PBGC contracted with a consulting firm to review governance models and provide a background report to assist the board in its review of alternative corporate governance structures. The consulting firm's final report describes the advantages and disadvantages of the corporate board structures and governance practices of other government corporations and select private sector companies, and concludes that there are several viable alternatives for PBGC's governance structure and practices. Our July 2007 report found that PBGC's board has limited time and resources to provide policy direction and oversight and has not established procedures and mechanisms to monitor PBGC operations. Although board members have met more frequently since 2003, the three cabinet secretaries who compose the board have numerous other responsibilities. Because of their responsibilities and the small size of the board, it is difficult for the board to establish and manage oversight mechanisms, such as the use of standing committees--which are common mechanisms used by both government and private corporate boards. According to board officials, the board representatives, assisted by their staff, undertake some of the oversight functions that could be conducted by standing committees. Other government corporations, such as the Federal Deposit Insurance Corporation (FDIC), the Overseas Private Investment Corporation (OPIC), and the National Railroad Passenger Corporation (Amtrak), have established standing committees to conduct certain oversight functions. For example, FDIC's board of directors established standing committees, such as the Case Review Committee and the Audit Committee, to conduct certain oversight functions. Instead, PBGC's board continues to rely on the Inspector General and PBGC's management oversight committees to ensure that PBGC is operating effectively. However, our prior work found that while the board requires the Inspector General to brief it at its semiannual meetings, there were no formal protocols requiring the Inspector General to routinely meet with the board or its representatives and staff. Consequently, when the board and its representatives likely change, it is unclear whether the board would be aware of this informal protocol. Further, we reported that the board relies on PBGC's executive committees and working groups for monitoring and reviewing PBGC's operations. However, these committees and working groups are neither independent of the PBGC director nor required to formally report all matters to the board. PBGC may also be exposed to challenges as the board, its representatives, and director will likely change with the upcoming presidential transition in January 2009, thus limiting institutional knowledge of the challenges facing the corporation. As we noted in 2007, because PBGC's board is composed of cabinet secretaries, PBGC board members, their representatives, and the director typically change with each administration. Other government corporations' authorizing statutes-- such as OPIC's--have established board structures with staggered terms for their directors, possibly avoiding gaps in their organization's institutional knowledge. PBGC management has experienced partial leadership transitions in recent years, and in anticipation of the forthcoming complete leadership change, PBGC is developing additional materials to include in its official transition package for newly appointed officials. This new information includes information on standards of ethical conduct, appointments, compensation levels, and information on presidential transitions. While PBGC typically provides newly appointed members, representatives, and directors with information on its operations and financial position, PBGC's Office of Inspector General and our work recently identified additional financial and operational challenges facing the corporation. This additional information could help the new board members and their representatives better understand the vulnerabilities and challenges facing the corporation. Congressional oversight of PBGC in recent years has ranged from formal congressional hearings to the use of its support agencies, such as GAO, the Congressional Budget Office (CBO), and the Congressional Research Service (CRS). However, unlike some other government corporations, PBGC does not have certain reporting requirements for providing additional information to Congress. In general, our prior work has shown that congressional oversight is designed to fulfill a number of purposes, including but not limited to ensuring executive compliance with legislative intent; improving the efficiency, effectiveness, and economy of government operations; evaluating program performance; and conducting investigations. Since 2002, PBGC officials have testified 19 times before various congressional committees--mostly on broad issues related to the status of the private sector defined benefit pension policy and its effect on PBGC (see table 1). For example, in 2005, the PBGC director testified before the House Committee on Transportation and Infrastructure's Subcommittee on Aviation regarding pension challenges facing the airline industry. The director's testimony discussed the possible effects such defaults would have on the defined benefit pension industry and the financial position of the corporation. Congress also recently began exercising oversight of PBGC through the confirmation process of PBGC's director. With the passage of the Pension Protection Act of 2006, PBGC's director now must be confirmed by the Senate. During the confirmation hearing conducted in 2007, members expressed concerns about key defined benefit pension policy issues and PBGC's financial condition, as well as sought the nominee's thoughts on addressing weaknesses in PBGC's governance structure, such as the concerns we raised about the corporate governance practices. Beyond formal congressional hearings, PBGC staff told us that they frequently discuss pension policy matters with congressional staff. In addition, PBGC must annually submit reports to Congress on its prior fiscal year's financial and operational matters, which include information on PBGC's financial statements, internal controls, and compliance with certain laws and regulations. For example, the Pension Protection Act of 2006 requires that PBGC provide a comparison of the average return on investment earned with respect to asset investments by the corporation, which PBGC includes in its annual report. Through its support agencies--GAO, the Congressional Budget Office, and the Congressional Research Service--Congress has also provided oversight and reviewed PBGC. Specifically, Congress has asked GAO to conduct assessments of policy, management, and the financial condition of PBGC. For example, we conducted more than 10 reviews of PBGC over the past 5 years, including assessments related to PBGC's 2005 corporate reorganization and weaknesses in its governance structure, human capital management, and contracting practices. Our work also raised concerns about PBGC's financial condition and the state of the defined benefit industry. In addition, CBO has published nine specific reports on PBGC since 2005. For example, in April 2008, CBO reported that PBGC's investment policy is likely to produce higher returns over the long run, but noted the new strategy increases the risk that PBGC will not have sufficient assets to cover retirees' benefit payments when the economy and financial markets are weak. Further, CRS has published eight studies related to PBGC since 2006. Appendix IV includes a list of selected GAO, CBO, and CRS reports and testimonies related to PBGC. Some government corporations have additional reporting requirements for notifying Congress of significant actions. The Millennium Challenge Corporation is required to formally notify the appropriate congressional committees 15 days prior to the allocation or transfer of funds related to the corporation's activities. The Commodity Credit Corporation is subject to a similar requirement, which obliges the Secretary of Agriculture to alert the Committee on Agriculture, Nutrition, and Forestry of the Senate and the Committee on Agriculture of the House of Representatives prior to making adjustments to a certain price support program. The Overseas Private Investment Corporation is required to submit a detailed report to the Committee on Foreign Relations of the Senate and the Committee on Foreign Affairs of the House of Representatives at least 60 days prior to issuing, among other things, political risk insurance for losses due to business interruption for the first time. These examples demonstrate how Congress has required additional reporting requirements for certain activities conducted by government corporations. While PBGC generally has no requirements to formally notify Congress prior to taking significant financial or operational actions, PBGC officials said that they informally notify Congress prior to certain policy shifts. For example, in fiscal year 2008, PBGC officials met with congressional staff before modifying the investment policy to decrease the corporation's fixed-income asset investments. In addition to its annual reporting requirements, PBGC is required to report proposals for certain premium rate revisions, including reasons for such revisions, to specific congressional committees; however, these premium rate revisions are not considered effective until 30 days after enactment of a law approving them. Like other government corporations, PBGC has an advisory committee. PBGC's advisory committee is charged with advising the corporation on its policies and procedures related to the corporation's appointment of trustees in termination proceedings, investments of monies, whether terminated plans should be liquidated immediately or continued in operation, and any other matters the corporation may request. Unlike PBGC's advisory committee, the advisory boards or committees of other government corporations--such as the Export-Import Bank and FDIC-- are subject to the Federal Advisory Committee Act and some submit formal reports to their board chair and directors (see table 2). In contrast, PBGC's advisory committee is not subject to the Federal Advisory Committee Act. According to PBGC officials, the corporation is exempt because of the proprietary nature of its work. PBGC's advisory committee typically reports only to the director, although representatives of PBGC's board members frequently attend advisory committee meetings and officials said that the committee can submit concerns to the board if it believes it is warranted. Beyond reporting to the chairman of its board, the Export-Import Bank's advisory committee is also required to submit an annual report to Congress on the extent to which the Export-Import Bank is providing competitive financing to expand U.S. exports, along with suggestions for improvements. In addition to government corporations, some government agencies with retirement-related responsibilities--such as the Social Security Administration (SSA), the Railroad Retirement Board, and the Federal Retirement Thrift Investment Board--have advisory committees as part of their governance structures, which annually report to their respective overseeing bodies. For example, when Congress established SSA as a separate and distinct agency from the Department of Health and Human Services, it also established an independent seven-member bipartisan Advisory Board to advise the President, Congress, and the commissioner of Social Security on respective policy issues. With more than 44 million Americans insured by PBGC, it is essential that the corporation is soundly governed and efficiently managed to guarantee that retirement income will be available to all those covered. Despite PBGC's efforts to improve its bylaws, the three-member board of directors is still one of the smallest and least diverse of any government corporation. Other government corporations' governance structures include oversight mechanisms, such as standing committees, and additional reporting requirements to conduct certain oversight functions and assist their boards of directors. While PBGC's board should be restructured, additional reporting requirements, like some government corporations have, may not be appropriate for PBGC given the proprietary nature of its financial work; thus, any reporting changes would need to be carefully considered. The limitations of the board structure will become even more apparent in the coming months as the board, its representatives, and the corporation's director will likely be replaced with a new presidential administration. Because board members and their representatives serve by virtue of their positions in the federal government, there is no assurance that these individuals will have the needed expertise to understand the corporation's business or financial vulnerabilities. Without adequate information and preparation, this transition could limit not only the progress made by the current board, its representatives, and director, but may also curtail the corporation's ability to insure and deliver retirement benefits to millions of Americans that rely on the corporation. To ensure that recently identified management and financial challenges facing PBGC are shared with those newly appointed, we recommend that PBGC provide Office of Inspector General and GAO reports on the corporation's financial and management challenges to the newly appointed board members, board representatives, and director so that they can take appropriate action as needed. We obtained written comments on a draft report from PBGC's director, which are reproduced in appendix V. In addition, the Departments of the Treasury, Labor, and Commerce provided joint technical comments, which were incorporated into the report where appropriate. In response to our draft report, the PBGC director stated that PBGC prepares substantial in-depth briefing materials on its operational issues for incoming administrations. The director agreed with our recommendation, stating that PBGC will ensure that the transition materials provided to those newly appointed will also include pertinent PBGC Office of Inspector General and GAO reports. Further, the director stated that PBGC will continue to work in concert with the board to provide oversight information necessary to address the important issues that they confront in providing pension security to Americans. We are sending copies of this report to the Secretaries of the Treasury, Labor, and Commerce, as well as the PBGC director and other interested parties. We will also make copies available to others on request. If you or your staff has any questions concerning this report, please contact me on (202) 512-7215 or bovbjergb@gao.gov. Contact points for our Office 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 VI. To identify the steps that the Pension Benefit Guaranty Corporation (PBGC) has taken to improve its governance structure, we reviewed our work issued in July 2007, as well as collected and reviewed documents related to PBGC's bylaws, which were last published in May 2008. We reviewed reports on PBGC's organizational structure and financial condition. We also identified provisions of the Employee Retirement and Income Security Act of 1974, the Pension Protection Act of 2006, and chapter 91 of the U.S. Code, which is commonly known as the Government Corporation Control Act (GCCA), that outline the authority of PBGC's board of directors as well as the administrative responsibilities of PBGC's director. To understand the board of directors', their representatives', and PBGC's director's role, we reviewed documentation related to the board members' activities to identify what types of actions the board members had considered and taken. To determine how Congress exercises oversight of PBGC, we identified the number of times PBGC officials testified before Congress since 2002, and reviewed the issues discussed at each formal hearing. Further, we reviewed the work of the Congressional Budget Office, the Congressional Research Service, PBGC's Office of Inspector General, and our work on PBGC's financial and management challenges. To determine the oversight mechanisms and reporting requirements that exist at other government corporations, we collected information on select federal government corporations that we identified in our July 2007 work, which are listed under the Government Corporation Control Act of 1945, as amended, and have similar missions or designations to those of PBGC. We reviewed information on the following government corporations: Commodity Credit Corporation, Export-Import Bank of the United States, Federal Crop Insurance Corporation, Federal Deposit Insurance Corporation, Federal Financing Bank, Federal Prison Industries (UNICOR), Financing Corporation, Government National Mortgage Association, Millennium Challenge Corporation, National Railroad Passenger Corporation (Amtrak) Overseas Private Investment Corporation, Resolution Funding Corporation, Saint Lawrence Seaway Development Corporation, Tennessee Valley Authority, and United States Postal Service. We also reviewed government agencies with retirement-related responsibilities to determine what other oversight mechanisms may exist; the agencies include the Social Security Administration, the Railroad Retirement Board, and the Federal Retirement Thrift Investment Board. Moreover, we met with officials from PBGC and the Department of Labor. 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 2008. PBGC Assets: Implementation of New Investment Policy Will Need Stronger Board Oversight. GAO-08-667. Washington, D.C.: July 2008. Pension Benefit Guaranty Corporation: A More Strategic Approach Could Improve Human Capital Management. GAO-08-624. Washington, D.C.: June 2008. High Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. Pension Benefit Guaranty Corporation: Governance Structure Needs Improvements to Ensure Policy Direction and Oversight. GAO-07-808. Washington, D.C.: July 6, 2007. PBGC's Legal Support: Improvement Needed to Eliminate Confusion and Ensure Provision of Consistent Advice. GAO-07-757R. Washington, D.C.: May 18, 2007. Private Pensions: Questions Concerning the Pension Benefit Guaranty Corporation's Practices Regarding Single-Employer Probable Claims. GAO-05-991R. Washington, D.C.: September 9, 2005. Private Pensions: The Pension Benefit Guaranty Corporation and Long- Term Budgetary Challenges. GAO-05-772T. Washington, D.C.: June 9, 2005. Pension Benefit Guaranty Corporation: Single-Employer Pension Insurance Program Faces Significant Long-Term Risks. GAO-04-90. Washington, D.C.: October 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 Benefit Guaranty Corporation: Statutory Limitation on Administrative Expenses Does Not Provide Meaningful Control. GAO-03-301. Washington, D.C.: February 2003. GAO Forum on Governance and Accountability: Challenges to Restore Public Confidence in U.S. Corporate Governance and Accountability Systems. GAO-03-419SP. Washington, D.C.: January 2003. A Review of the Pension Benefit Guaranty Corporation's New Investment Strategy. April 24, 2008. Effect of H.R. 2830 on the Net Economic Costs of the Pension Benefit Guaranty Corporation. December 29, 2005. The effect on the 10-year net costs to the Pension Benefit Guaranty Corporation (PBGC) of enacting S. 1783, the Pension Security and Transparency Act of 2005. October 11, 2005. A Guide to Understanding the Pension Benefit Guaranty Corporation. September 2005. The Risk Exposure of the Pension Benefit Guaranty Corporation. September 2005. Testimony on Multiemployer Pension Plans. June 28, 2005. Testimony on the Pension Benefit Guaranty Corporation: Financial Condition, Potential Risks, and Policy Options. June 15, 2005. Testimony on Estimating the Costs of the Pension Benefit Guaranty Corporation. June 9, 2005. Testimony on Defined-Benefit Pension Plans: Current Problems and Future Challenges, June 7, 2005. Baird Webel. Insurance Guaranty Funds. RL32175. February 27, 2008. John J. Topoleski. Pension Benefit Guaranty Corporation: A Fact Sheet. 95-118. January 29, 2008. Patrick Purcell. Summary of the Pension Protection Act of 2006. RL33703. May 1, 2007. William Klunk. The Pension Benefit Guaranty Corporation and the Federal Budget. RS22650. April 24, 2007. William Klunk. The Financial Health of the Pension Benefit Guaranty Corporation (PBGC). RL33937. March 23, 2007. Jennifer Staman and Erika Lunder. The Pension Benefit Guaranty Corporation and Single-Employer Plan Terminations. RS22624. March 14, 2007. Jennifer Staman and Erika Lunder. Pension Protection Act of 2006: Summary of the PBGC Guarantee and Related Provisions. RS22513. December 20, 2006. Neela K. Ranade and Paul J. Graney. Defined Benefit Pension Reform for Single-Employer Plans. RL32991. January 26, 2006. The following team members made key contributions to this report: Blake Ainsworth, Assistant Director; Jason Holsclaw, Analyst-in-Charge; Susannah Compton; William King; Matthew Lee; Charlie Willson; and Craig Winslow.

Summary:
The Pension Benefit Guaranty Corporation (PBGC) insures the pension benefits of 44 million private sector workers and retirees in over 30,000 employer-sponsored pension plans. In July 2007, GAO reported that PBGC's governance structure needed improvements, and asked Congress to consider expanding the board of directors to include additional members. GAO also recommended that the board develop policies and mechanisms consistent with corporate governance practices, and develop formal guidelines to clarify the roles and responsibilities of the board chair, members, their representatives, and the director. On the basis of that work, this report addresses (1) the steps PBGC has taken to improve policy direction and oversight and (2) how Congress applies oversight to PBGC and what other oversight mechanisms exist for government corporations. GAO reviewed PBGC's new corporate bylaws and the structure and reporting requirements of selected government corporations. GAO also interviewed PBGC and Department of Labor officials. Although PBGC's board has strengthened the corporation's governing bylaws, the three-member board of directors is still limited in its ability to provide policy direction and oversight to PBGC. In implementing our earlier recommendation, the board revised the corporation's bylaws to more clearly define the roles and responsibilities of PBGC's board members, representatives, director, and senior management. PBGC also contracted with a consulting firm to provide a background report to assist the board in its review of alternative corporate governance structures, including restructuring the board of directors as GAO suggested in 2007. However, because of its small size, the board has not been able to develop procedures and mechanisms to monitor PBGC's operations, such as standing committees, which are mechanisms used by other government corporations. PBGC may also be exposed to challenges as the board, its representatives, and the director will likely change with the upcoming presidential transition in January 2009. While PBGC management has experienced a partial leadership change in recent years and provides operational and financial information to those newly appointed, PBGC Inspector General and GAO reports have recently identified additional financial and operational challenges facing the corporation. This additional information could help the new board members better understand the vulnerabilities and challenges facing the corporation. PBGC is subject to routine congressional oversight, but certain other government corporations have other types of reporting requirements in place--such as congressional notifications and reporting protocols for their advisory committees--to ensure effective communication exist between the corporations and Congress. Congressional oversight of PBGC in recent years has ranged from formal committee hearings to investigations and studies conducted by its congressional support agencies. For example, since 2002, PBGC officials have testified 19 times before several different committees on issues such as the status of its financial condition. Further, GAO, the Congressional Budget Office, and the Congressional Research Service have issued a variety of reports and testimonies on PBGC financial and operational matters. However, PBGC does not have reporting requirements applied to other government corporations for providing additional information to Congress. For example, the Millennium Challenge Corporation and the Commodity Credit Corporation are required to notify Congress prior to conducting certain financial transactions. The advisory committee of the Federal Deposit Insurance Corporation formally reports to its board of directors, while the Export-Import Bank of the United States' advisory committee formally reports to its board and Congress each year on matters related to their respective organizations. In addition, the advisory boards of other government entities with retirement-related responsibilities--such as the Social Security Administration, the Railroad Retirement Board, and the Federal Retirement Thrift Investment Board--provide reports to their overseeing bodies.