PBGC’s single-employer insurance program is a federal program that protects the retirement incomes of more than 34 million workers and retirees covered by almost 29,000 private sector defined benefit pension plans. Defined benefit pension plans promise to pay a specified monthly benefit at retirement, commonly based on salary and years on the job. PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans taken over by PBGC, and recoveries from the companies formerly responsible for the plans it took over. In addition, PBGC uses Form 5500 information—the primary source of information for both the federal government and the private sector regarding the operation, funding, assets, and investments of private pension plans--to monitor single- employer defined benefit pension plan activities, focusing on assets, liabilities, number of participants, and funding levels. Form 5500 information is also used to forecast PBGC's potential liabilities. The Employee Retirement Income Security Act of 1974 (ERISA) established PBGC to insure the pension benefits of participants, subject to certain limits, in the event that an employer cannot pay its promised benefits. ERISA also required PBGC to encourage the continuation and maintenance of voluntary private pension plans and to maintain premiums set by the corporation at the lowest level consistent with carrying out its obligations. PBGC may pay only a portion of a participant’s accrued benefit because of limits on the PBGC benefit guarantee; PBGC generally does not guarantee benefits above a certain amount, currently $47,659 annually per participant at age 65. Additionally, benefit increases arising from plan amendments in the 5 years immediately preceding plan termination are not fully guaranteed, although PBGC will pay a portion of these increases. Finally, sponsors of PBGC-insured defined benefit plans pay annual premiums to PBGC for their coverage. PBGC prepares its financial statements in accordance with FASB standards, as permitted by the Federal Accounting Standards Advisory Board. For procedures on how to record and report contingencies, FASB’s Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (FAS No. 5), specifically requires that a liability for loss contingency be recorded if two conditions are met: (1) information available prior to issuance indicates that it is probable that a liability has been incurred at the date of the financial statements, and (2) the amount of the loss can be reasonably estimated. For fiscal year 2005, PBGC received its 13th consecutive clean or unqualified audit opinion from its independent auditors. As a wholly-owned government corporation, PBGC is subject to the financial and internal control reporting requirements of Chapter 91 of Title 31 of the U.S. Code (commonly known as the Government Corporation Control Act). The Office of Management and Budget (OMB) issues guidance to the heads of federal agencies and government corporations that sets out the annual process for them to make a statement as to the adequacy of their entity’s internal controls. In light of new requirements for publicly-traded companies relating specifically to internal controls over financial reporting and management’s related responsibilities, contained in the Sarbanes-Oxley Act of 2002, OMB recently revised its guidance to adopt enhanced requirements for internal controls over financial reporting by major federal agencies. Specifically, OMB added an entirely new appendix to its existing guidance requiring that these agencies establish a formal process for assessing their internal controls over financial reporting. This new requirement, however, applies only to the 24 CFO Act agencies, and thus these specific requirements do not apply to PBGC. To estimate the present value of its future liabilities, PBGC develops interest rate factors, similar to interest rates, to use for these calculations, based on surveys of insurance companies conducted by the American Council of Life Insurers (ACLI) for PBGC and the Internal Revenue Service (IRS). The survey asks insurers to provide the net annuity price for annuity contracts for plan terminations. PBGC develops interest rate factors, similar to interest rates, from the survey results that together with PBGC’s other actuarial assumptions produce prices in line with those of the private sector insurers surveyed, which are adjusted to the end of the year using an average of the Moody’s Corporate Bond Indices for Aa and A-rated corporate bonds for the last 5 trading days of the month. The adjusted interest rate factors are published in mid-December for use in January. The interest rate factors are then further adjusted each subsequent month of the year on the basis of the average of the Moody’s bond indices. All other things being equal, when interest rates are lower, more money is needed today to finance future benefits because this money will earn less income when invested. Therefore, lower interest rate assumptions result in higher liability amounts, while higher interest rate assumptions result in lower liability amounts. In 1997, we reported that the cash-based federal budget, which focuses on annual cash flows, does not adequately reflect the cost or the economic impact of PBGC’s single-employer pension insurance program and other federal insurance programs. Generally, cost is only recognized in the budget when claims are paid rather than when the commitment is made. Benefit payments of terminated plans assumed by PBGC may not be made for years, even decades, because plan participants generally are not eligible to receive pension benefits until they reach age 65. Once eligible, these benefits are paid over a period of years or even decades. As a result, there can be years in which PBGC's current cash collections are estimated to exceed current cash payments, regardless of the expected long-term cost to the government. We concluded that the use of accrual concepts in the budget for PBGC and other insurance programs has the potential to better inform budget choices. SEC, the principal federal regulator of the U.S. securities markets, requires public companies to disclose meaningful financial and other information to the public. SEC’s mission is to protect investors, maintain fair orderly and efficient markets, and facilitate capital formation. Public companies are required to submit reports to SEC on Form 8-K, the “current report” companies must file with SEC to announce certain major events that shareholders should know about, including any expected losses that are considered to be material. In addition, public companies must submit annual reports on Form 10-K and quarterly reports on Form 10-Q. These disclosures are designed to keep the public informed about any information that could be considered important for investors. This provides a common pool of knowledge for all investors to use to judge for themselves whether to buy, sell, or hold a particular security. FDIC is a government corporation. In addition to its roles as primary federal regulator of state-chartered banks that are not members of the Federal Reserve System and back-up regulator for all insured depository institutions, FDIC said it promotes public confidence and stability in the U.S. financial system by insuring deposits in banks and thrift institutions; by examining and supervising financial institutions; by identifying, monitoring, and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails. Similar to PBGC, FDIC receives no congressional appropriations; it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. PBGC reports that it monitors its probable claims on an ongoing basis by contacting plan sponsors to obtain certain plan financial information, reviewing filings submitted by probable plans to conduct a risk analysis, and performing valuations to determine, among other things, the present value of net probable claims and expected date of probable plan termination. PBGC also regularly updates and reviews its list of probable claims that it monitors. PBGC also takes certain steps to ensure the accuracy of its probable claims, such as using an automated system for estimating probable claims and the most currently available data when calculating its estimates. We found that PBGC’s probable claims estimates are reasonable because they are generally close to the final claim amounts that are determined for these plans that PBGC ultimately takes over. PBGC assesses underfunded plans to determine which plans should be classified as probable claims and monitored on an ongoing basis. To be classified as a probable claim, a plan must meet at least one of the seven criteria PBGC uses, five of which it characterizes as objective, and two as subjective. According to PBGC officials, objective criteria are used when substantial evidence exists to indicate that the plan sponsor is in liquidation or insolvency proceedings or will meet the requirements for a distress or involuntary termination. Subjective criteria involve management judgment. Table 1 shows the different applications of the objective and subjective criteria used to classify plans as probable claims. Once probable plans are identified, PBGC uses certain information to more closely monitor such plans and the future claims they represent. To accomplish this, PBGC primarily relies on information it receives from plan sponsors, information from Section 4010 filings, reportable event and distress termination filings, and other sources. Information from plan sponsors: PBGC officials said they contact plan sponsors in order to monitor the case and obtain any required information not submitted by the plan sponsor, such as the plan’s most recent Form 5500 filing and actuarial valuation report. PBGC officials said they also make an assessment of the potential for termination. This is part of a process that encompasses (1) querying the plan sponsor about the intentions with regard to its pension plans, (2) obtaining estimates of due and unpaid employer contributions and unfunded benefits, and (3) performing a risk analysis. Section 4010 filings: These filings provide PBGC with actuarial and other information on some underfunded plans and financial information for companies that meet certain criteria. PBGC said that these filings are an important component of PBGC’s monitoring activities.